<PAGE>
As filed with the Securities and Exchange Commission on January 8, 1997
Registration No. 333-9761
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
-----------------
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
SUPERIOR SUPPLEMENTS, INC.
(Name of small business issuer in its charter)
Delaware 2833 11-3320172
- ------------------------ ---------------------------- -------------------
(State or other juris- (Primary Standard Industrial (I.R.S. Employer
diction of organization) Classification Code No.) Identification No.)
270 Oser Avenue
Hauppauge, New York 11788
(516) 231-0783
(Address and telephone number
of principal executive offices and principal place of business)
Lawrence D. Simon
President
270 Oser Avenue
Hauppauge, New York 11788
(516) 231-0783
(Name, address and telephone number of agent for service)
Copies to:
Steven F. Wasserman, Esq. Steven A. Morse, Esq.
Bernstein & Wasserman, LLP Lester Morse, P.C.
950 Third Avenue 111 Great Neck Road
New York, NY 10022 Great Neck, NY 11021
(212) 826-0730 (516) 487-1446
(212) 371-4730 (Fax) (516) 487-1452 (Fax)
Approximate date of proposed sale to the public: As soon as reasonably
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis, pursuant to Rule 415 under the
Securities Act of 1933, check the following box: | X |
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
continued overleaf
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class of Securities to be Amount to be Proposed Maximum Proposed Maximum Amount of Registration
Registered Registered (1) Offering Price Per Aggregate Offering Price Fee
Security (2)
<S> <C> <C> <C> <C>
Common Stock, par value $.0001 per
share(3) 575,000 $6.00 $3,450,000 $1,189.66
Underwriters' Option to purchase shares of
Common Stock(4) 50,000 $.001 $50.00 $0.02
Common Stock, par value $.0001 per
share, underlying Underwriters' Option 50,000 $9.90 $495,000 $170.69
Selling Securityholders
Class A Warrants issuable upon conversion
of the Convertible Bridge Notes(5) 1,000,000 $0.10 $100,000 $34.48
Common Stock, par value $.0001 per
share, underlying Class A Warrants
issuable upon conversion of the Convertible
Bridge Notes(6) 1,000,000 $5.25 $5,250,000 $1,810.34
Common Stock, par value $.0001 per share
(7) 2,000,000 $6.00 $12,000,000 $4,137.93
Class A Warrants (8) 2,000,000 $0.10 $200,000 $68.97
Common Stock, par value $.0001 per share
underlying Class A Warrants held by
Selling Securityholder 2,000,000 $5.25 $10,500,000 $3,620.69
Total $11,032.78
Amount previously paid $11,404.83
---------
Total Amount Due ----- ------ $31,995,050 $0
</TABLE>
(1) Pursuant to Rule 416 under the Securities Act of 1933 (the "Act"), this
Registration Statement covers such additional indeterminate number of
shares of Common Stock as may be issued by reason of adjustments in the
number of shares of Common Stock pursuant to anti-dilution provisions
contained in the Underwriters' Option. Because such additional shares
of Common Stock will, if issued, be issued for no additional
consideration, no registration fee is required.
(2) Estimated solely for purposes of calculating registration fee.
(3) Includes 75,000 shares of Common Stock subject to the Underwriters'
over-allotment option (the "Over-Allotment Option").
(4) The Underwriters' option entitles the Underwriters to purchase up to
50,000 shares of Common Stock at 165% of the offering price (the
"Underwriters' Option").
(5) Represents the resale of 1,000,000 Class A Redeemable Common Stock
Purchase Warrants (the "Class A Warrants") issuable upon conversion of
the Convertible Bridge Notes. The Class A Warrants are exercisable over
a four (4) year period commencing one (1) year following the effective
date of this Offering into one (1) share of Common Stock per Class A
Warrant at an exercise price of $5.25 per share.
<PAGE>
(6) The number of shares of Common Stock specified is the number which may
be acquired upon exercise of the Class A Redeemable Common Stock
Purchase Warrants ("Class A Warrants") at the maximum exercise price
thereof.
(7) Represents the resale of shares of Common Stock held by one of the
Selling Securityholders.
(8) Represents the resale of Class A Warrants held by one of the Selling
Securityholders.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
CROSS REFERENCE SHEET
(Showing Location in the Prospectus of
Information Required by Items 1 through 23,
Part I, of Form SB-2)
Item in Form SB-2 Prospectus Caption
----------------- ------------------
1. Front of Registration
Statement and Outside Front
Cover of Prospectus................ Facing Page of Registration
Statement; Outside Front
Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus.......... Inside Front Cover Page of
Prospectus; Outside Back Cover
Page of Prospectus
3. Summary Information and Risk
Factors............................ Prospectus Summary; Risk Factors
4. Use of Proceeds.................... Use of Proceeds
5. Determination of Offering Price.... Outside Front Cover Page of
Prospectus; Underwriting;
Risk Factors
6. Dilution........................... Dilution; Risk Factors
7. Selling Securityholders........... Description of Securities;
Selling Securityholders
8. Plan of Distribution............... Outside Front Cover Page of
Prospectus; Risk Factors;
Underwriting
9. Legal Proceedings.................. Business-Litigation
10. Directors, Executive Officers,
Promoters and Control Persons...... Management
11. Security Ownership of Certain
Beneficial Owners and Management... Principal Stockholders
i
<PAGE>
Item in Form SB-2 Prospectus Caption
----------------- ------------------
12. Description of Securities.......... Description of Securities;
Underwriting
13. Interest of Named Experts and
Counsel............................ Experts; Legal Matters
14. Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities......... Underwriting; Certain
Transactions
15. Organization Within Last 5 Years... Prospectus Summary; The Company;
Business
16. Description of Business............ Business; Risk Factors
17. Management's Discussion and Analysis
or Plan of Operation............... Management's Discussion and
Analysis of Financial Condition
and Results of Operations
18. Description of Property............ Business - Facilities
19. Certain Relationships and
Related Transactions............... Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters........ Outside Front Cover Page of
Prospectus; Prospectus Summary;
Description of Securities;
Underwriting
21. Executive Compensation............. Management - Executive
Compensation
22. Financial Statements............... Selected Financial Data;
Financial Statements
23. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosures.......... *
- --------------------
* Omitted because Item is not applicable.
ii
<PAGE>
Explanatory Note
This registration statement covers the primary offering ("Offering") of
Common Stock by Superior Supplements, Inc. (the "Company") and the concurrent
offering of securities by certain selling securityholders ("Selling
Securityholders"). The Company is registering, under the primary prospectus
("Primary Prospectus"), 575,000 shares of Common Stock including 75,000 shares
of Common Stock issuable upon exercise of the Over-Allotment Option. The Company
is registering on behalf of the Selling Securityholders, under an alternate
prospectus ("Alternate Prospectus"), the resale of (i) (a) 2,000,000 shares of
Common Stock, (b) 2,000,000 Class A Warrants, and (c) 2,000,000 shares of Common
Stock issuable upon conversion of the Class A Warrants and (ii) (a) 1,000,000
Class A Warrants issuable upon conversion of the Convertible Bridge Notes (as
hereinafter defined), and (b) 1,000,000 shares of Common Stock issuable upon
conversion of those Class A Warrants. See "Bridge Financing." The Alternate
Prospectus pages, which follow the Primary Prospectus, are to be combined with
all of the sections contained in the Primary Prospectus, with the following
exceptions: the front and back cover pages and the sections entitled "Concurrent
Sales," "Selling Securityholders," and "Plan of Distribution." Such sections
from the Alternate Prospectus pages will be added to the Primary Prospectus. The
"Underwriting" section contained in the Primary Prospectus will not be included
in the Alternate Prospectus. Furthermore, all references contained in the
Alternate Prospectus to "the Offering" or "this Offering" shall refer to the
Company's Offering under the Primary Prospectus.
iii
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH AN OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
PROSPECTUS
SUBJECT TO COMPLETION, DATED JANUARY 8, 1997
SUPERIOR SUPPLEMENTS, INC.
500,000 Shares of Common Stock par value $.0001 per share,
Offering Price Per Share - $6.00
-----------
Superior Supplements, Inc., a Delaware corporation (the "Company" or
"SSI") hereby offers 500,000 shares of common stock, par value $.0001 per share
(the "Common Stock" and "Shares"). See "Description of Securities." The Risk
Factor section begins on page 13 of this Prospectus.
The Company has applied for inclusion of the Common Stock and the Class
A Warrants on the NASD OTC Bulletin Board, under the symbols ______, and _____,
respectively, although there can be no assurances that an active trading market
will develop even if the securities are accepted for quotation. See "Risk
Factors - Lack of Prior Market for Common Stock and Class A Warrants; No
Assurance of Public Trading Market" and "Penny Stock Regulations May Impose
Certain Restrictions on Marketability of Securities."
Prior to this Offering, there has been no public market for the Common
Stock or the Class A Warrants. The price of the Shares, as well as the exercise
price of the Class A Warrants, have been determined by negotiations between the
Company and VTR Capital, Inc. ("VTR Capital" or the "Representative"), the
representative of the underwriters of this Offering (the "Underwriters"), and
does not necessarily bear any relationship to the Company's assets, book value,
net worth or results of operations or any other established criteria of value.
The Representative may enter into arrangements with one or more broker-dealers
to act as co-underwriters of this Offering. For additional information regarding
the factors considered in determining the initial public offering price of the
Shares and the exercise price of the Class A Warrants, see "Risk Factors - No
Prior Public Market; Possible Volatility of Stock Price," "Description of
Securities" and "Underwriting."
The registration statement of which this Prospectus forms a part also
covers the resale of (a) 1,000,000 Class A Redeemable Common Stock Purchase
Warrants (the "Class A Warrants") issuable to certain bridge lenders (the
"Bridge Lenders") in connection with the Company's recent bridge financings (the
"Bridge Loans") and 1,000,000 shares of Common Stock issuable upon exercise of
the Class A Warrants and (b) (i) 2,000,000 shares of Common Stock, and (ii) (x)
2,000,000 Class A Warrants and (y) 2,000,000 shares of Common Stock
<PAGE>
issuable upon exercise of the Class A Warrants, all of which are held by PMF,
Inc. ("PMF"), a company wholly-owned and controlled by Barry Gersten. The Bridge
Lenders and PMF are hereinafter collectively referred to as the "Selling
Securityholders." The Class A Warrants shall be exercisable commencing one (1)
year after the date hereof (the "Effective Date"). Each Class A Warrant entitles
the holder to purchase one (1) share of Common Stock at a price of $5.25 per
share during the four (4) year period commencing one (1) year from the Effective
Date. The Class A Warrants are redeemable by the Company for $.05 per Warrant,
at any time after ________ __, 1998, upon thirty (30) days' prior written
notice, if the average closing price or bid price of the Common Stock, as
reported by the principal exchange on which the Common Stock is traded, the NASD
OTC Bulletin Board or the National Quotation Bureau Incorporated, as the case
may be, equals or exceeds $10.00 per share, for any twenty (20) trading days
within a period of thirty (30) consecutive trading days ending five (5) days
prior to the date of the notice of redemption. Upon thirty (30) days' written
notice to all holders of the Class A Warrants, the Company shall have the right
to reduce the exercise price and/or extend the term of the Class A Warrants. See
"Description of Securities." Without taking into account the 3,000,000 shares of
Common Stock issuable upon exercise of the 3,000,000 Class A Warrants held by
PMF, PMF owned 85.7% of the outstanding shares of Common Stock of the Company
prior to the Offering; the shares being registered on behalf of PMF constitute
57.1% of such outstanding shares prior to the Offering and 50% of the
outstanding shares of Common Stock upon completion of the Offering. The Company
will not receive any of the proceeds on the resale of the securities by the
Selling Security holders. The resale of securities by the Selling Security
holders is not being underwritten.
---------------------------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK
OFFERED HEREBY AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS
OF THEIR ENTIRE INVESTMENT. FOR A DISCUSSION OF CERTAIN MATERIAL RISKS SEE "RISK
FACTORS" BEGINNING ON PAGE 13 AND "DILUTION" BEGINNING ON PAGE 27.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Price Proceeds
To Underwriting Discounts To
Public And Commissions (1) Company (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share...... $6.00 $0.60 $5.40
Total (3).... $3,000,000 $300,000 $2,700,000
- --------------------------------------------------------------------------------
</TABLE>
The date of this Prospectus is , 1997
-----------
VTR CAPITAL, INC.
Investment Bankers
(Notes to Cover)
- -----------
(1) Does not reflect additional compensation to be received by the
Underwriters in the form of: (i) a non-accountable expense allowance of
$90,000 ($103,500 if the Over-Allotment Option (as hereinafter defined)
is exercised in full), (ii) a two (2) year financial advisory and
investment banking agreement providing for fees of $72,000 payable in
advance at the closing of this Offering, and (iii) an option to
purchase 50,000 Shares at $9.90 per Share (the "Underwriters' Option"),
exercisable for a period of four (4) years, commencing one (1) year
from the effective date of this Offering. The Company and the
Underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Act"). See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company
estimated at $587,000 including the Underwriters' non-accountable
expense allowance and the financial advisory fee referred to in
Footnote (1) (not assuming exercise of the Over-Allotment Option (as
hereinafter defined), registration fees, transfer agent fees, NASD
fees, Blue Sky filing fees and expenses, legal fees and expenses, and
accounting fees and expenses. See "Use of Proceeds" and "Underwriting."
(3) Does not include 75,000 additional Shares to cover over-allotments
which the Underwriters have an option to purchase for thirty (30) days
from the date of this Prospectus at the initial public offering price,
less the Underwriters' discount (the "Over-Allotment Option"). If the
Over-Allotment Option is exercised in full, the total price to the
public, underwriting discounts and commissions and the estimated
expenses including the Underwriters' non- accountable expense allowance
will be $3,450,000, $345,000, and $600,500, respectively, and the total
proceeds to the Company will be $2,504,500. See "Underwriting."
3
<PAGE>
The Shares are offered by the Underwriters on a "firm commitment"
basis, when, as and if delivered to and accepted by the Underwriters, and
subject to prior sale, allotment and withdrawal, modification of the offer with
notice, receipt and acceptance by the Underwriters named herein and subject to
their right to reject orders in whole or in part and to certain other
conditions. It is expected that the delivery of the certificates representing
the Common Stock and payment therefor will be made at the offices of the
Representative on or about , 1997.
4
<PAGE>
AVAILABLE INFORMATION
The Company does not presently file reports and other information with
the Securities and Exchange Commission (the "Commission"). However, following
completion of this Offering, the Company intends to furnish its stockholders
with annual reports containing audited financial statements examined and
reported upon by its independent public accounting firm and such interim
reports, in each case as it may determine to furnish or as may be required by
law. After the effective date of this Offering, the Company will be subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and in accordance therewith will file reports, proxy
statements and other information with the Commission.
Reports and other information filed by the Company can be inspected and
copied at the public reference facilities maintained at the Commission at Room
1024, 450 Fifth Street, N.W., Washington, DC 20549. Copies of such material can
be obtained upon written request addressed to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Website on the Internet (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission through the
Electronic Data Gathering, Analysis, and Retrieval System (EDGAR). Company has
filed with the Commission a registration statement on Form SB-2 (herein together
with all amendments and exhibits referred to as the "Registration Statement")
under the Act of which this Prospectus forms a part. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. For further information reference is made to the Registration
Statement.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER- ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AND/OR THE CLASS A WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE NASD OTC
BULLETIN BOARD OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
A SIGNIFICANT AMOUNT OF THE SHARES TO BE SOLD IN THIS OFFERING MAY BE
SOLD TO CUSTOMERS OF THE UNDERWRITERS WHICH MAY AFFECT THE MARKET FOR AND
LIQUIDITY OF THE COMPANY'S SECURITIES IN THE EVENT THAT ADDITIONAL
BROKER-DEALERS DO NOT MAKE A MARKET IN THE COMPANY'S SECURITIES, OF WHICH THERE
CAN NO ASSURANCE. SUCH CUSTOMERS SUBSEQUENTLY MAY ENGAGE IN TRANSACTIONS FOR THE
SALE OR PURCHASE OF THE COMMON STOCK AND/OR THE CLASS A WARRANTS THROUGH AND/OR
WITH THE UNDERWRITERS.
ALTHOUGH THEY HAVE NO OBLIGATION TO DO SO, THE UNDERWRITERS
5
<PAGE>
MAY FROM TIME TO TIME ACT AS MARKET MAKERS AND OTHERWISE EFFECT TRANSACTIONS IN
THE COMPANY'S SECURITIES. THE UNDERWRITERS, IF THEY PARTICIPATE IN THE MARKET,
MAY BECOME A DOMINATING INFLUENCE IN THE MARKET FOR THE COMMON STOCK AND CLASS A
WARRANTS. HOWEVER, THERE IS NO ASSURANCE THAT THE UNDERWRITERS WILL OR WILL NOT
CONTINUE TO BE A DOMINATING INFLUENCE. THE PRICES AND LIQUIDITY OF THE
SECURITIES OFFERED HEREUNDER MAY BE SIGNIFICANTLY AFFECTED BY THE DEGREE, IF
ANY, OF THE UNDERWRITERS' PARTICIPATION IN SUCH MARKET. SEE "RISK FACTORS - LACK
OF PRIOR MARKET FOR COMMON STOCK AND CLASS A WARRANTS; NO ASSURANCE OF PUBLIC
TRADING MARKET." THE UNDERWRITERS MAY DISCONTINUE SUCH ACTIVITIES AT ANY TIME OR
FROM TIME TO TIME.
6
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information (including financial
statements and notes thereto) contained in this Prospectus and is qualified in
its entirety by the more detailed information appearing elsewhere herein. In
addition, unless otherwise indicated to the contrary, all information appearing
herein does not give effect to (i) 75,000 shares of Common Stock issuable upon
exercise of the Over-Allotment Option; (ii) 50,000 shares of Common Stock
issuable upon exercise of the Underwriters' Option; (iii) 1,000,000 shares of
Common Stock issuable upon exercise of the Class A Warrants issuable upon
conversion of Convertible Bridge Notes, (iv) 3,000,000 shares of Common Stock
issuable upon exercise of the Class A Warrants held by PMF, Inc.,a company
wholly-owned and controlled by Barry Gersten, the founder of the Company, and
(v) employee stock options. See "Description of Securities," "Certain
Transactions," "Underwriting," and "Management - Stock Option Plans and
Agreements." Each prospective investor is urged to read this Prospectus in its
entirety.
THE COMPANY
Superior Supplements, Inc., a Delaware corporation (the "Company" or
"SSI"), was formed on April 24, 1996. The Company is engaged in the development,
manufacture, marketing and sale of dietary supplements including vitamins,
minerals, herbs and specialty nutritional supplements, in bulk tablet, capsule
and powder form. The Company intends to manufacture a wide variety of products
for companies which package and sell through many different channels of
distribution, including health food, drug, convenience and mass market stores.
Prior to the setting up of its manufacturing facility, the Company is operating
as a wholesaler for these products maintaining sales relationships with PDK Labs
Inc. and Compare Generiks, Inc. The Company has been using numerous supply
sources to purchase products for resale until its manufacturing facility is
completed. The Company has no commitments or formal arrangements with its
suppliers. Manufacturing operations for tableting and encapsulating of single
ingredient products commenced on October 1, 1996, although the manufacturing
facility is not yet completed. The manufacturing facility is expected to be
fully operational within sixty (60) days following the completion of the
Offering hereby proposed.
On May 14, 1996, the Company entered into a supply agreement with PDK
Labs Inc. a New York corporation ("PDK"), pursuant to which the Company agreed
to supply PDK with vitamins and dietary supplements manufactured to PDK's
specifications in bulk tablet form for a three (3) year period, renewable for
successive one (1) year periods thereafter. PDK agreed to purchase products
having a minimum aggregate sales price of $2,500,000 per annum during the term
of the agreement and to pay liquidated damages of $100,000 to the Company in the
event PDK did not meet that minimum purchase requirement.
Prior to the full commencement of manufacturing operations, the Company
is operating as a wholesale supplier to PDK. All wholesale purchases made by PDK
are to offset the minimum aggregate sales per annum under the Supply Agreement
dated May 14, 1996.
On May 31, 1996, the Company entered into an exclusive supply agreement
with Compare Generiks, Inc., a Delaware corporation ("CGI"), pursuant to which
the Company agreed to supply CGI with all of CGI's requirements for vitamins on
an exclusive basis (other than any vitamins
7
<PAGE>
sold under the "Energex" trade mark or as part of the "Energex" product line)
for a three (3) year period, renewable for successive one (1) year periods
thereafter. CGI is a development stage company with limited revenues and a
limited operating history. The Company's supply arrangements with PDK and CGI
form the core of its current business.
PDK supplies certain management and personnel to the Company and
Reginald Spinello, one of the Company's directors, is also the Executive Vice
President of PDK. In addition, one of the Company's directors, Daniel Durchslag
is also a director of CGI. In addition, Reginald Spinello and Daniel Durchslag
together with Lawrence Simon have voting power over more than fifty percent
(50%) of the common stock and the preferred stock of the Company pursuant to a
Voting Trust Agreement with PMF. See "Risk Factors - Conflicts of Interest" and
"Business Conflicts of Interest".
On May 1, 1996, the Company entered into a lease agreement with Park
Associates, an unrelated party, for a forty thousand (40,000) square foot
facility to be utilized for manufacturing, distribution and for its executive
offices.
Upon completion, the Company's manufacturing facility will have sixteen
production machines consisting of twelve tablet presses and four encapsulating
machines with a capacity of producing per annum, in excess of one billion two
hundred million (1,200,000,000) tablets and capsules of various sizes and
shapes. The Company will manufacture single ingredient herbal products and
multi-ingredient vitamins in tablet and capsule form. Governmental approval of
the manufacturing facility is not required. All manufacturing will be conducted
in accordance with Good Manufacturing Practice Standards of the United States
Food and Drug Administration and other applicable regulatory standards. The
Company believes that the capacity of its manufacturing facility is adequate to
meet the requirements of its current business and will be adequate to meet the
requirements of anticipated increases in net sales.
The Company was founded by Barry Gersten with the assistance of
Lawrence Simon, with the intention of starting a manufacturing company. Messrs.
Simon and Gersten developed the Company's business plan and subsequently
negotiated the Company's supply agreements which form the core of its business.
PMF, a company wholly owned and controlled by Barry Gersten, the
Company's founder, maintains a passive investment interest in the Company and
has granted a voting trust on the 5,000,000 shares of preferred stock held by
PMF to three (3) of the Company's directors.
The Company intends to use the proceeds from this Offering to repay
certain of the Company's indebtedness, acquire additional manufacturing
equipment, expand its marketing efforts, and for general working capital
purposes. See "Use of Proceeds."
The Company maintains its executive offices at 270 Oser Avenue,
Hauppauge, New York 11788, telephone number (516) 231-0783.
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating the Company and its business.
8
<PAGE>
THE OFFERING
Securities Offered
by the Company(1).......... 500,000 Shares of Common Stock at a price of
$6.00 per Share. See "Description of
Securities."
Securities Outstanding Prior
to the Offering:
Common Stock............... 3,500,000 Shares
Series A Preferred Stock... 5,000,000 Shares
Class A Warrants........... 3,000,000 Warrants
Securities Outstanding
Subsequent to
the Offering(2):
Common Stock................. 4,000,000 Shares
Series A Preferred Stock..... 5,000,000 Shares
Class A Warrants............. 3,000,000 Warrants
Use of Proceeds.............. The net proceeds to the Company from the sale of
the 500,000 Shares of Common Stock offered
hereby, after deducting Offering expenses and the
$72,000 financial advisory fee, are estimated to
be $2,113,000. The net proceeds are expected to
be applied for the following purposes:
acquisition of machinery and equipment,
marketing, repayment of certain indebtedness, and
working capital. See "Use of Proceeds."
Risk Factors................. Qualified Auditor's Report of Accountants;
Development Stage Enterprise; Limited Operating
History, No Assurance that the Company will
Successfully Implement Business; Dependence on
Offering Proceeds; Possible Need for Additional
Financing; Broad Discretion in Application of
Proceeds by Management; Use of Offering Proceeds
for Repayment of Debt; Possible Adverse Effect on
the Market of Securities Eligible for Future
Resale; Significant Industry Competition;
Dilution; Equity Securities Sold Previously at
Below Offering Price; Conflicts of Interest;
Governmental Regulation; Dependence on PDK and
CGI; Dependence on Key Personnel; Control by PMF;
Limited Number of Management Personnel; Risks
Attendant to Expansion;
9
<PAGE>
Product Liability Risks; No Prior Public Market;
Possible Volatility of Stock Price; Lack of Prior
Market for Common Stock and Class A Warrants; No
Assurance of Public Trading Market; Current
Prospectus and State Blue Sky Registration in
Connection with the Exercise of the Warrants;
Impact on Market of Warrant Exercise;
Underwriters' Option; Possible Adverse Effects of
Ownership of Preferred Stock by PMF; "Penny
Stock" Regulations May Impose Certain
Restrictions on Marketability of Securities;
Redemption of Redeemable Warrants; No Dividends;
Limitation on Director Liability; Shares Eligible
for Future Sale May Adversely Affect the Market;
Anti-Takeover Effect of General Corporation Law
of Delaware; Inexperience of Representative. An
investment in the securities offered hereby
involves a high degree of risk and immediate
substantial dilution of the book value of the
Common Stock and should be considered only by
persons who can afford the loss of their entire
investment. See "Dilution" and "Risk Factors."
Proposed OTC Bulletin Board
Symbols (3)............. Common Stock -
Class A Warrants -
- -------------
(1) Concurrently with this Offering, the Company is registering the resale
of (i) (a) 2,000,000 shares of Common Stock, (b) 2,000,000 Class A
Warrants, and (c) 2,000,000 shares of Common Stock issuable upon
exercise of the Class A Warrants on behalf of one of the Selling
Securityholders, and (ii) (a) 1,000,000 Class A Warrants issuable upon
conversion of the Convertible Bridge Notes, 1,000,000 shares of
Common Stock issuable upon exercise of the Class A Warrants. See
"Selling Securityholders" and "Certain Transactions."
(2) Does not include (i) 1,000,000 Class A Warrants issuable upon
conversion of the Convertible Bridge Notes, or (ii) 1,000,000 shares of
Common Stock issuable upon exercise of the Class A Warrants issuable
upon conversion of the Convertible Bridge Notes, or (iii) 3,000,000
shares of Common Stock issuable upon exercise of the Class A Warrants
held by PMF, Inc., a company wholly-owned and controlled by Barry
Gersten.
(3) Although the Company intends to apply for inclusion of the Common Stock
and the Class A Warrants on the NASD OTC Bulletin Board, there can be
no assurance that the Company's securities will be included for
quotation, or if so included that the Company will be able to continue
to meet the requirements for continued quotation, or that a public
trading market will develop or that if such market develops, it will be
sustained. See "Risk Factors - Lack of Prior Market for Common Stock
and Class A Warrants; No Assurance of Public Trading Market."
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<PAGE>
SUMMARY FINANCIAL INFORMATION
The selected financial data presented below for the Company's statement
of operations for the period April 24, 1996 (Inception) to June 30, 1996 are
derived from financial statements of the Company, which have been audited by
Holtz Rubenstein & Co., LLP, independent accountants, whose reports are included
elsewhere herein. The statement of operations data for the three months ended
September 30, 1996 and cumulative during the development stage is derived from
unaudited financial statements. The data set forth below should be read in
conjunction with and is qualified in its entirety by the Company's financial
statements, related notes and Management's Discussion and Analysis of Financial
Condition and Results of Operations. See "Financial Statements," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The following summary financial information has been summarized
from the Company's financial statements included elsewhere in this Prospectus.
The information should be read in conjunction with the financial statements and
the related notes thereto. See "Financial Statements."
SUMMARY STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Period April 24, 1996 Three Months Ended Cumulative During
(Inception) to June 30, 1996 September 30, 1996 Development Stage
---------------------------- ------------------ -----------------
<S> <C> <C> <C>
Revenues $ 857,398 $ 770,954 $1,628,352
Gross Profit $ 119,358 $ 100,490 $ 219,848
Operating Income (Loss) $ 48,389 $ (37,083) $ 11,306
Net Income(Loss) $ 35,189 $ (37,083) $ (1,894)
Net Income(Loss) $ .01 $ (.01) $ (.01)
Per Share (1)
Weighted Average
Number of Common Shares
Outstanding (1) 3,500,000 3,500,000 3,500,000
</TABLE>
SUMMARY BALANCE SHEET DATA
<TABLE>
<CAPTION>
September 30, 1996
June 30, 1996(1) September 30, 1996(1) as Adjusted (2)(3)
---------------- --------------------- ------------------
<S> <C> <C> <C>
Working Capital(Deficit) $ 560 $ (698,396) $1,586,604
Total Assets $2,565,537 $3,165,703 $5,150,703
Total Liabilities $1,285,448 $1,946,597 $1,646,597
Retained Earnings(Deficit) $ 35,189 $ (1,894) $ (1,894)
Stockholders'
Equity $1,280,089 $1,219,106 $3,504,106
</TABLE>
11
<PAGE>
(1) Does not include the sale of 500,000 shares of Common Stock offered
hereby.
(2) Reflects initial application of net proceeds of the 500,000 shares of
Common Stock offered hereby at the assumed initial public offering
price of $6.00.
(3) Reflects an aggregate principal amount of $100,000 of the Bridge Loans
converted into 1,000,000 Class A Warrants immediately after the
effective date of this Offering.
12
<PAGE>
RISK FACTORS
An investment in the securities offered hereby is speculative and
involves a high degree of risk and substantial dilution and should only be
purchased by investors who can afford to lose their entire investment.
Prospective purchasers, prior to making an investment, should carefully consider
the following risks and speculative factors, as well as other information set
forth elsewhere in this Prospectus, associated with this Offering, including the
information contained in the Financial Statements herein.
1. Qualified Auditor's Report of Accountants. As a result of the
Company's current financial condition, the Company's independent auditors have
qualified their report on the Company's financial statement for the period April
24, 1996 (inception) to June 30, 1996. The Company incurred a net loss of
$37,083 for the three months ended September 30, 1996 and a cumulative net loss
of $1,894 during the development stage of April 24, 1996 (inception) to
September 30, 1996. The Company's independent auditor's report includes an
explanatory paragraph stating that the Company is in the development stage, and
the Company's ability to continue in the normal course of business is dependent
upon successful completion of its planned public offering of securities to raise
capital and the success of future operations. These uncertainties raise
substantial doubt about its ability to continue as a going concern. There can be
no assurance that the Company will not incur net losses in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business, " "Use of Proceeds, " and "Financial Statements and
Notes."
2. Development Stage Enterprise. The Company is a development stage
enterprise that has devoted substantially all its efforts since inception to
establishing its manufacturing facility and operating as a wholesaler for the
products it intends to manufacture and only commenced manufacturing operations
on October 1, 1996. The Company is dependent upon the proceeds of this Offering
in order to fully establish its manufacturing operations. The likelihood of
success must be considered in light of the problems, experiences, difficulties,
complications and delays frequently encountered in various degrees in connection
with the operation and development of new businesses. The Company must surmount
a number of hurdles before it can properly commence manufacturing operations.
The most significant of these are obtaining financing, which is expected to be
satisfied through the Offering, the acquisition of additional manufacturing
equipment and repaying indebtedness owed to the Bridge Lenders. See "Use of
Proceeds." There can be no assurance that the Company will be able to complete
all of these items in a timely manner, or at all, in order to allow the Company
to fully commence manufacturing operations. See "Business."
3. Limited Operating History, No Assurance that the Company will
Successfully Implement Business. The Company was organized on April 24, 1996 and
is in its early stage of development. The Company's core business consists of
the supply agreements with PDK and CGI, although at the date of this Prospectus,
almost 100% of the Company's revenues are
13
<PAGE>
received from PDK. The Company's prospects must be considered in light of the
risks, expenses, and difficulties frequently encountered by a small business
in a highly competitive industry. As of September 30, 1996, the Company had
stockholder's equity of $1,219,106 and working capital deficiency of $698,396.
The Company's operating expenses can be expected to increase significantly as a
result of the Company's start up of manufacturing operations and proposed
expansion of distribution, marketing and sales efforts. Since the Company has a
limited operating history as a separate corporation, it is impossible to
determine whether its operations will be profitable or that it will ever
generate sufficient revenues to meet its expenses and support its activities.
Like any relatively new business enterprise operating in a specialized and
intensely competitive market, the Company is subject to many business risks
which include, but are not limited to, unforeseen marketing and promotional
expenses, unforeseen negative publicity, competition, product liability and lack
of operating experience. Many of the risks may be unforeseeable or beyond the
control of the Company. There can be no assurance that the Company will
successfully implement its business plan in a timely or effective manner, or
that management of the Company will be able to distribute and sell enough
products to generate sufficient revenues and continue as a going concern. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," Use of Proceeds," "Certain Transactions" and "Financial
Statements."
4. Dependence on Offering Proceeds; Possible Need for Additional
Financing. The Company's cash requirements will be significant. The Company is
dependent on the proceeds from this Offering to generate cash for the
acquisition of additional machinery, and expansion of its product lines and
marketing efforts. The Company anticipates, based on its currently proposed
plans, that the proceeds of this Offering, together with funds generated from
operations, will be sufficient to satisfy its anticipated cash requirements for
approximately twelve (12) months following the consummation of this Offering. In
the event that these plans change, or the costs of development of operations
prove greater than anticipated, the Company could be required to modify its
operations, curtail its expansion or seek additional financing sooner than
currently anticipated. The Company believes that its operations would be
restricted absent expansion. The Company has no current arrangements with
respect to such additional financing and there can be no assurance that such
additional financing, if available, will be on terms acceptable to the Company.
See "Use Of Proceeds."
5. Broad Discretion in Application of Proceeds by Management. While the
Company presently intends to use the net proceeds of this Offering, as described
in the "Use of Proceeds" section of this Prospectus, management of the Company
has broad discretion to adjust the application and allocation of the net
proceeds of this Offering should a reappointment or redirection of the funds be
determined to be in the best interest of the Company. Such a reappointment or
redirection of the proceeds is not currently contemplated by the Company and
would be triggered by events or circumstances that the Board of Directors
determines in its business judgment require such change. The Company believes
that it is imperative that the Company's management have such discretion over
both the proceeds of this Offering as well as any proceeds received upon any
exercise of the Class A Warrants in order to address changed
14
<PAGE>
circumstances and opportunities available to the Company in the future. As a
result of the foregoing, the success of the Company will be substantially
dependent upon the discretion and judgment of the management of the Company with
respect to the application and allocation of the net proceeds hereof. Pending
use of such proceeds, the net proceeds of this Offering will be invested by the
Company in short-term, low risk marketable securities. See "Use of Proceeds."
6. Use of Offering Proceeds for Repayment of Debt. As described in the
"Use of Proceeds" section of this Prospectus, 9.4% of the net proceeds of this
Offering will be used to repay certain indebtedness of the Company. See "Use of
Proceeds."
7. Possible Adverse Effect on the Market of Securities Eligible for
Future Resale. The registration statement of which this Prospectus forms a part
covers the resale of 2,000,000 shares of Common Stock and 2,000,000 Class A
Warrants (which are exercisable into 2,000,000 shares of Common Stock) owned by
PMF, a company wholly-owned and controlled by Barry Gersten, an unrelated party.
The shares being registered are not subject to any restriction on resale by the
Company or the Representative, subject only to the Over-Allotment Option being
exercised in full or terminated. As a result, those shares may be sold
immediately after the Offering, subject only to the Over-Allotment Option being
exercised in full or terminated. The Company has been advised by the Selling
Securityholders that they have no present intentions regarding the timing and
amount of sales of these shares.
However, prospective investors should be aware that the possibility of
sales may, in the future, have a depressive effect on the price of the Company's
Common Stock in any market which may develop, and therefore, the ability of any
investor to market his shares may be dependent directly upon the number of
shares that are offered and sold. Affiliates of the Company may sell their
shares during a favorable movement in the market price of the Company's Common
Stock which may have a depressive effect on its price per share. See
"Description of Securities."
8. Significant Industry Competition. The market for dietary supplement
products is highly competitive in each of the Company's existing and anticipated
product lines and methods of distribution. Numerous manufacturers and
distributors compete for customers throughout the United States and
internationally in the "bulk" packaged dietary supplement industry, selling
products to distributors who service health food, drug, convenience and mass
market stores, companies that market a branded or generic line of products but
do not manufacture these items ("repackagers"), and other manufacturers who
"outsource" a portion of their needs to supplement their own capacities. Many of
the Company's competitors are substantially larger and more experienced than the
Company, have longer operating histories and have materially greater financial
and other resources than the Company. Many of these competitors are private
companies, and therefore, the Company cannot compare its revenues with respect
to the sales volume of each competitor. The Company's significant competitors
include Nature's Bounty and International Vitamin Corporation, both of whom have
longer operating histories and materially greater financial and other resources
than the Company (although, no implication is intended hereby regarding the
Company's industry ranking in comparison to such competitors). There can be no
assurance that the Company will be able to compete successfully with its more
established
15
<PAGE>
and better capitalized competitors.
9. Dilution; Equity Securities Sold Previously at Below Offering Price.
Upon completion of this Offering assuming the conversion of the Convertible
Bridge Notes into 1,000,000 Class A Warrants, assuming no exercise of the
Over-Allotment Option, and without giving effect to the exercise of the
Underwriters' Option, the net tangible book value per share of the Company's
Common Stock will be $.84. At the initial public offering price of $6.00 per
Share, investors in this Offering will experience an immediate dilution of
approximately $5.16 or 86% in net tangible book value per share and existing
investors will experience an increase of approximately $.53 per share. The
exercise of the Class A Warrants held by PMF will result in future dilution to
the public investors. See "Dilution." The present stockholders of the Company
have acquired their respective equity interest at costs substantially below the
public offering price. Accordingly, to the extent that the Company incurs
losses, the public investors will bear a disproportionate risk of such losses.
10. Conflicts of Interest. After this Offering, PMF, a company
wholly-owned and controlled by Barry Gersten, will continue to own 75% of the
Company's outstanding shares of Common Stock, 100% of the shares of Series A
Preferred Stock of the Company, par value $.0001 per share (the "Series A
Preferred Stock") and 100% of the Company's outstanding Class A Warrants. In
addition, in June 1996, PMF made a loan of $200,000 to the Company pursuant to a
promissory note. At present, PDK is a major customer of the Company, accounting
for essentially all of the Company's total sales revenue and also supplies
certain management and personnel to the Company. In addition, Reginald Spinello,
one of the Company's Directors, holds a management position with PDK. Daniel
Durchslag, one of the Company's Directors, is also a Director of CGI, a customer
and stockholder of the Company. Reginald Spinello and Daniel Durchslag, together
with Lawrence Simon, have voting power over more than fifty percent (50%) of the
Common Stock and Preferred Stock of the Company pursuant to a voting trust
agreement with PMF. It is anticipated that PDK will continue to purchase a
significant percentage of the Company's products, at or near its minimum
requirement of $2,500,000 per annum. As a result of these transactions the
Company believes that the potential for conflicts of interest exist as follows:
(i) a conflict resulting from PMF's ownership interest and PMF's role as a
creditor of the Company; (ii) a conflict resulting from the voting control over
PMF's preferred stock to certain of the Company's directors who also hold board
and management positions with two (2) of the Company's most significant
customers and (iii) a conflict resulting from CGI's ownership interest and CGI's
role as a customer of the Company. In circumstances where a conflict of interest
exists, members of the Board of Directors who also hold a management position
with PDK or are members of the CGI Board of Directors may be precluded from
participating in corporate decisions. Although the Board of Directors of the
Company has not adopted any written policy on this matter, the General
Corporation Law of the State of Delaware contains specific provisions governing
such conflicts.
11. Governmental Regulation. The processing, formulation, packaging,
labeling and
16
<PAGE>
advertising of the Company's products are subject to regulation by one or more
federal agencies, including the Food and Drug Administration ("FDA"), the
Federal Trade Commission ("FTC"), the Consumer Product Safety Commission and the
United States Department of Agriculture, as well as various agencies of the
states and localities in which the Company's products are sold.
The FTC regulates all advertising for food and over-the-counter drug
products. The FDA, in particular, regulates the advertising, labeling and sales
of prescription drugs and those vitamin and mineral supplements which the FDA
determines are unapproved drugs or food additives rather than food supplements.
Following the enactment of the Nutrition Labeling and Education Act of
1990 (the "NLEA"), the FDA, in November 1991, issued proposed regulations
designed to amend its food labeling regulations, establish standards for
nutrients and food components and establish procedures for FDA approval of
health claim messages. Final regulations on dietary supplements were published
on January 4, 1994, and became effective on July 1, 1995.
On June 18, 1993, the FDA issued proposed regulations and on December
30, 1993 it adopted final regulations concerning the labeling of, and use of
health claims on, dietary supplements. The regulations require, effective July
5, 1995, nutrition labeling on all dietary supplements and, effective July 1,
1994, prohibit the use of any health claim on a dietary supplement unless the
supplement is consumed as a food, its components have been demonstrated to be
safe, and the health claim is supported by significant scientific agreement and
approved by the FDA. Presently, the FDA has approved only the use of health
claims for calcium in connection with osteoporosis, and folic acid in connection
with neural tube defects. Accordingly, most dietary supplements will be
precluded from bearing most health claims. The Company cannot determine at this
time the effect of the new regulations on its future operation although it
believes they will not have a material adverse effect.
On June 18, 1993, the FDA published an Advance Notice of Proposed
Rulemaking ("ANPR") soliciting comments on the concept of the overall regulatory
strategy to assure the safety of vitamins, minerals, herbs, amino acids and
other supplements. This follows a study by an internal FDA committee on the
current regulatory framework for dietary supplements and an FDA commissioned
study by the Federation of American Societies for Experimental Biology ("FASEB")
on the safety of amino acids. Although the internal FDA report has not yet been
issued, agency representatives have indicated that it will include a
recommendation that certain manufactured amino acids be available by
prescription only. The FASEB report, published in September 1992, concluded that
there was insufficient research and information on amino acids to allow them to
assert that single or incomplete mixtures of amino acids were safe and,
therefore, recommended that further research be conducted. The internal FDA
report, issued in conjunction with the publication of the ANPR, contains
recommendations concerning the possible regulation of dietary supplements by
category, including the regulation of single and incomplete mixtures of amino
acids either as drugs, "food additives" or "generally recognized as safe"
substances with potencies low enough to ensure safety. The ANPR has requested
input and comments form
17
<PAGE>
interested parties. Whether regulations will or will not be recommended and
adopted and, if adopted, on what dietary supplements, is presently unclear.
Implementation of an ANPR normally involves longer time periods than those cited
above in connection with the proposed NLEA regulations. The legislation
sponsored by the dietary supplement industry would impact the FDA's ability to
issue and implement any such regulations. See "Business-Government Regulation"
for a description of the legislation.
The Company cannot determine what effect this proposed rule-making, or
other governmental regulations or administrative orders, when and if
promulgated, would have on its business in the future. They could, however,
require the reformulation of certain products to meet new standards, require the
recall or discontinuance of certain products not capable of reformulation, or
impose additional recordkeeping, expanded documentation of the properties of
certain products, expanded or different labeling, and scientific substantiation.
Any or all of such requirements could adversely affect the Company's operations
and its financial condition. See "Business - Government Regulations."
12. Dependence on PDK and CGI. The Company's core business consists of
two supply agreements entered into by the Company and PDK and CGI, although at
the date of this Prospectus, PDK accounts for essentially all of the total sales
of the Company. There can be no assurance that PDK will maintain this volume of
business with the Company or that CGI's volume of business will become
substantial. Although the Company believes that other customers are available
for the purchase of such products from the Company, there can be no assurance
that the Company would be able to replace these customers, in the event either
supply agreement is terminated. Even if the Company is able to develop
alternative customer sources, there can be no assurance that it can do so
without material delay or on a cost effective basis at prices similar to those
paid by PDK or CGI. As a result, any interruption or discontinuance of supplies
to PDK or CGI could result in considerable expense, delay the Company's
operations, and have a material adverse effect on the Company.
13. Dependence on Key Personnel. The Company is substantially dependent
on the continued services of Lawrence D. Simon. The Company has entered into one
(1) year employment agreements with Mr. Simon. Should Mr. Simon not be able to
continue as an officer of the Company, its prospects could be adversely affected
and as a result the loss of this officer could materially adversely affect the
Company's operations. The Company currently does not maintain key personnel life
insurance for any of its employees. See "Management."
14. Control by PMF; Voting Trust Agreement Granted to Certain
Directors. Prior to this Offering, PMF, a company wholly-owned and controlled by
Barry Gersten, owned 3,000,000 shares of the Company's issued and outstanding
Common Stock, 5,000,000 shares of the Company's Preferred Stock, representing
94.12% of the Company's outstanding shares and 3,000,000 Class A Warrants. The
principal business of PMF and Mr. Gersten is as a private investor. After this
offering, PMF will own approximately 75% of the outstanding Common Stock and
100% of the outstanding Preferred Stock representing a combined percentage of
the
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<PAGE>
total combined vote after the Offering of 88.9%, and 100% of the outstanding
Class A Warrants. See "Principal Stockholders." After the resale of securities
by the Selling Securityholders, PMF will own approximately 25% of the
outstanding Common Stock and 100% of the outstanding Preferred Stock
representing a combined percentage of the total combined vote after both the
Offering and said resale of 66.7%, and 33.3% of the outstanding Class A
Warrants. Since holders of Common Stock do not have any cumulative voting rights
and directors are elected by a majority vote, PMF is in a position to control
the election of directors as well as the affairs of the Company. In the event
PMF were to sell all of its shares of the Company's Common Stock, PMF would
continue to own one hundred (100%) percent of the Preferred Stock, representing
55.6% of the voting shares of the Company, and would thereby be in a position to
continue to control the election of directors and officers of the Company.
However, PMF granted a voting trust over the Preferred Stock on May 1, 1996 for
a period of five (5) years to Lawrence Simon, Reginald Spinello and Daniel
Durchslag and, accordingly, PMF does not have actual control over the election
of directors and officers of the Company. In addition, in the event PMF were to
sell all of its shares of the Company's Common Stock, and if the resale of
securities referred to above is completed, PMF would continue to own 100% of the
outstanding Class A Warrants, which, if exercised, would mean that PMF would own
a further 3,000,000 shares of the outstanding Common Stock representing 42.8% of
the then outstanding Common Stock (assuming no exercise of any other Class A
Warrants) and a combined percentage of the total combined vote of 66.7%. Such
control could also preclude an unsolicited acquisition of the Company and
consequently, adversely affect the market price of the Common Stock. See
"Description of Securities."
15. Limited Number of Management Personnel. There is currently only one
(1) executive officer of the Company. In addition, the Company is provided
certain management and personnel relating to accounting and administrative
functions by PDK. There is no written agreement relating to such services.
Following this Offering, there can be no assurance that, if the Company grows,
the current management team will be able to continue to properly manage the
Company's affairs. Further, there can be no assurance that the Company will be
able to identify additional qualified managers on terms economically feasible to
the Company.
16. Risks Attendant to Expansion. The Company intends to utilize a
significant portion of the net proceeds of this Offering to expand its business.
In this regard, the Company intends to allocate a significant portion of the
proceeds to the acquisition of additional machinery, the expansion of its
marketing efforts, and for general administrative costs. Many of the risks of
expansion may be unforeseeable or beyond the control of management. There can be
no assurance that the Company will successfully implement its business plan in a
timely or effective manner, or that management of the Company will be able to
generate sufficient revenue to continue as a going concern. See "Use Of
Proceeds."
17. Product Liability Risks. In view of the nature of its business, the
Company is subject to the inherent risk of products liability claims in the
event that, among other things, the use or ingestion of its products results in
injury. Accordingly, currently the Company maintains product liability insurance
as a named insured on each of its suppliers' policies. Upon completion
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<PAGE>
of the Offering, the Company will purchase its own product liability insurance;
however, there can be no assurance that existing or future insurance coverage
will be sufficient to cover any possible product liability risks or that such
insurance will continue to be available to the Company on economically feasible
terms. See "Business - Product Liability Insurance."
18. No Prior Public Market; Possible Volatility of Stock Price. Prior
to this Offering, there has been no public market for the Common Stock or Class
A Warrants. The initial public offering price of the Shares, as well as the
exercise price for the Class A Warrants, was determined by negotiation between
the Company and the Representative, and may not be indicative of the market
price for such securities in the future, and does not necessarily bear any
relationship to the Company's assets, book value, net worth or results of
operations of the Company or any other established criteria of value. Among the
factors considered in determining the price of the Shares and the Class A
Warrants were the history of and prospects for the industry in which the Company
competes, estimates of the business potential of the Company, the present state
of the development of the Company's business, the Company's financial condition,
an assessment of the Company's management, the general condition of the
securities markets at the time of this Offering, and the demand for similar
securities of comparable companies. There is, however, no relationship
whatsoever between the offering price of the Shares and the Class A Warrants and
the Company's net worth, projected earnings, book value, or any other objective
criteria of value on the other. See "Underwriting" for a discussion of the
factors considered in determining the initial public offering price. See
"Underwriting - Determination of Public Offering Price," "Description of
Securities" and "Financial Statements."
19. Lack of Prior Market for Common Stock and Class A Warrants; No
Assurance of Public Trading Market. Prior to this Offering, no public trading
market existed for the Common Stock and Class A Warrants. There can be no
assurances that a public trading market for the Common Stock and Class A
Warrants will develop or that a public trading market, if developed, will be
sustained. Although the Company anticipates that upon completion of this
Offering, the Common Stock and Class A Warrants will be eligible for inclusion
on the NASD OTC Bulletin Board, no assurance can be given that the Common Stock
and Class A Warrants will be listed on the NASD OTC Bulletin Board as of the
Effective Date. Consequently, there can be no assurance that a regular trading
market for the Common Stock and Class A Warrants, other than the pink sheets,
will develop after the completion of this Offering. If a trading market does in
fact develop for the Common Stock and Class A Warrants offered hereby, there can
be no assurance that it will be maintained. If for any reason the Common Stock
and Class A Warrants are not listed on the NASD OTC Bulletin Board or a public
trading market does not develop, purchasers of the Common Stock and Class A
Warrants may have difficulty in selling their securities should they desire to
do so. In any event, because certain restrictions may be placed upon the sale of
securities at prices under $5.00, unless such securities qualify for an
exemption from the "penny stock" rules, such as a listing on The Nasdaq Small
Cap Market, some brokerage firms will not effect transactions in the Company's
securities and it is unlikely that any bank or financial institution will accept
such securities as collateral, which could have an adverse effect in developing
or sustaining any market for the Common Stock and Class A Warrants. See
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<PAGE>
"Risk Factors - Penny Stock Regulations May Impose Certain Restrictions on
Marketability of Securities."
Although it has no legal obligation to do so, the Underwriters from
time to time may act as market makers and may otherwise effect and influence
transactions in the Company's securities. However, there is no assurance that
the Underwriters will continue to effect and influence transactions in the
Company's securities. The prices and liquidity of the Company's securities may
be significantly affected by the degree, if any, of the Underwriters'
participation in the market. The Underwriters may voluntarily discontinue such
participation at any time. Further, the market for, and liquidity of, the
Company's securities may be adversely affected by the fact that a significant
amount of the Shares may be sold to customers of the Underwriters.
The Common Stock offered hereby will be traded in the over-the-counter
market in what are commonly referred to as the "pink sheets" or on the NASD OTC
Electronic Bulletin Board. As a result, an investor may find it more difficult
to dispose of, or to obtain accurate quotations as to the price of, the
securities offered hereby. The above-described rules may materially adversely
affect the liquidity of the market for the Company's securities. See
"Underwriting."
20. Current Prospectus and State Blue Sky Registration in Connection
with the Exercise of the Warrants. The Company will be able to issue the
securities offered hereby, shares of its Common Stock upon the exercise of the
Class A Warrants and Underwriters' Option only if (i) there is a current
prospectus relating to the Common Stock issuable upon the exercise of the Class
A Warrants under an effective registration statement filed with the Securities
and Exchange Commission, and (ii) such Common Stock is then qualified for sale
or exempt therefrom under applicable state securities laws of the jurisdictions
in which the various holders of Warrants reside. There can be no assurance,
however, that the Company will be successful in maintaining a current
registration statement. After a registration statement becomes effective, it may
require updating by the filing of a post-effective amendment. A post-effective
amendment is required (i) anytime after nine (9) months subsequent to the
Effective Date when any information contained in the prospectus is over sixteen
(16) months old, (ii) when facts or events have occurred which represent a
fundamental change in the information contained in the registration statement,
or (iii) when any material change occurs in the information relating to the plan
or distribution of the securities registered by such registration statement. The
Company anticipates that this Registration Statement will remain effective for
at least nine (9) months following the date of this Prospectus or until _______
__, 1997, assuming a post-effective amendment is not filed by the Company. The
Company intends to qualify the sale of Shares and Class A Warrants in a limited
number of states, although certain exemptions under certain state securities
("blue sky") laws may permit the Warrants to be transferred to purchasers in
states other than those in which the Warrants were initially qualified. The
Company will be prevented, however, from issuing Common Stock upon exercise of
the Class A Warrants in those states where exemptions are unavailable and the
Company has failed to qualify the Common Stock issuable upon exercise of the
Class A Warrants. The Company may decide not to seek, or may not be able to
obtain qualification of the issuance of such Common Stock in all of the states
in which the ultimate
21
<PAGE>
purchasers of the Warrants reside. In such a case, the Warrants of those
purchasers will expire and have no value if such Warrants cannot be exercised or
sold. Accordingly, the market for the Warrants may be limited because of the
Company's obligation to fulfill both of the foregoing requirements. See
"Description of Securities."
21. Impact on Market of Warrant Exercise. In the event of the exercise
of a substantial number of Class A Warrants owned by PMF or, in the event of the
conversion of the Convertible Bridge Notes owned by the Bridge Lenders within a
reasonably short period of time after their right to exercise commences, the
resulting increase in the amount of Common Stock of the Company in the trading
market could substantially affect the market price of the Common Stock. See
"Description of Securities - Class A Warrants."
22. Underwriters' Option. In connection with this Offering, the Company
will sell to the Underwriters, for nominal consideration, an option to purchase
50,000 Shares of Common Stock (the "Underwriters' Option"). The Underwriters'
Option will be exercisable commencing one year from the Effective Date of this
Offering and ending four (4) years from such date, at an exercise price of $9.90
per Share subject to certain adjustments. The holders of the Underwriters'
Option will have the opportunity to profit from a rise in the market price of
the Common Stock, if any, without assuming the risk of ownership. The Company
may find it more difficult to raise additional equity capital if it should be
needed for the business of the Company while the Underwriters' Option is
outstanding. At any time when the holders thereof might be expected to exercise
them, the Company would probably be able to obtain additional capital on terms
more favorable than those provided by the Underwriters' Option. See "Dilution"
and "Underwriting."
23. Possible Adverse Effects of Ownership of Preferred Stock by PMF.
The Company's Certificate of Incorporation, as amended, authorizes the issuance
of a maximum of 10,000,000 shares of Preferred Stock on terms that may be fixed
by the Company's Board of Directors without further stockholder action. Prior to
this Offering, 5,000,000 shares of Preferred Stock have been issued by the
Company to PMF, a company wholly-owned and controlled by Barry Gersten, a
unrelated party. Pursuant to the Certificate of Designation each share of stock
possesses one vote on all matters upon which common shareholders are entitled to
vote. Although the Preferred Stock does not possess any dividend rights,
ownership of the Preferred Stock will continue to afford PMF voting control over
the affairs of the Company since PMF will hold a majority of all outstanding
voting shares of the Company. However, PMF granted a five (5) year voting trust
over the Preferred Stock to Reginald Spinello, Daniel Durchslag and Lawrence
Simon, commencing on May 1, 1996. Any transfer of the Preferred Stock by PMF
could result in a change of control of the Company. See "Description of
Securities--Preferred Stock."
24. "Penny Stock" Regulations May Impose Certain Restrictions on
Marketability of Securities. The Securities and Exchange Commission (the
"Commission") has adopted regulations which generally define"penny stock" to be
any security that has a market price (as defined) less than $5.00 per share or
an exercise price of less than $5.00 per share, subject to certain exceptions.
Therefore, if either the market price of the common stock or warrants is
22
<PAGE>
less than $5.00 per security, then such security would fall within the
definition of "penny stock." Since it is intended that the securities offered
hereby will be authorized for quotation on the NASD OTC Bulletin Board, such
securities will not be exempt from the definition of "penny stock." The
Company's securities may become subject to rules that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally those with
assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000
together with their spouse). For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving a
penny stock, unless exempt, the rules require the delivery, prior to the
transaction, of a risk disclosure document mandated by the Commission relating
to the penny stock market. The broker-dealer must also disclose the commission
payable to both the broker-dealer and the registered representative, current
quotations for the securities and, if the broker-dealer is the sole market
maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the "penny
stock" rules may restrict the ability of broker-dealers to sell the Company's
securities and may affect the ability of purchasers in this Offering to sell the
Company's securities in the secondary market and the price at which such
purchasers can sell any such securities.
25. Redemption of Redeemable Warrants. The Class A Warrants are subject
to redemption by the Company, at any time, commencing one (1) year following the
date of this Prospectus, at a price of $.05 per Warrant if the closing bid price
for the Common Stock equals or exceeds $10.00 per share for any twenty (20)
trading days within a period of thirty (30) consecutive trading days ending on
the fifth trading day prior to the date of the notice of redemption. In the
event that the Warrants are called for redemption by the Company, Warrantholders
will have thirty (30) days during which they may exercise their rights to
purchase shares of Common Stock. If holders of the Warrants elect not to
exercise them upon notice of redemption thereof, and the Warrants are
subsequently redeemed prior to exercise, the holders thereof would lose the
benefit of the difference between the market price of the underlying Common
Stock as of such date and the exercise price of such Warrants, as well as any
possible future price appreciation in the Common Stock. The Company does not
intend to redeem the Class A Warrants at a time when a current prospectus is not
in effect. As a result of an exercise of the Warrants, existing stockholders
would be diluted and the market price of the Common Stock may be adversely
affected. If a Warrantholder fails to exercise his rights under the Warrants
prior to the date set for redemption, the Warrantholder will be entitled to
receive only the redemption price, or $.05 per Warrant. In addition, the
Warrants may only be exercised when a Prospectus is current and meets the
requirements of Section 10 of the Securities Act of 1933. See "Description of
Securities - Class A Warrants."
26. No Dividends. The Company has not paid any dividends on its Common
Stock since its inception and does not intend to pay dividends on its Common
Stock in the foreseeable
23
<PAGE>
future. Any earnings which the Company may realize in the foreseeable future
will be retained to finance the growth of the Company. See "Dividend Policy."
27. Limitation on Director Liability. As permitted by Delaware
corporation law, the Company's Certificate of Incorporation limits the liability
of Directors to the Company or its stockholders to monetary damages for breach
of a Director's fiduciary duty except for liability in certain instances. As a
result of the Company's charter provision and Delaware law, stockholders may
have a more limited right to recover against Directors for breach of their
fiduciary duty other than as existed prior to the enactment of the law. See
"Description of Securities - Limitation on Liability of Directors."
28. Shares Eligible for Future Sale May Adversely Affect the Market.
All of the Company's currently outstanding shares of Common Stock are
"restricted securities" and, in the future, may be sold upon compliance with
Rule 144, adopted under the Securities Act of 1933, as amended. Rule 144
provides, in essence, that a person holding "restricted securities" for a period
of two (2) years may sell only an amount every three (3) months equal to the
greater of (a) one percent (1%) of the Company's issued and outstanding shares,
or (b) the average weekly volume of sales during the four (4) calendar weeks
preceding the sale. The amount of "restricted securities" which a person who is
not an affiliate of the Company may sell is not so limited, since non-affiliates
may sell without volume limitation their shares held for three (3) years if
there is adequate current public information available concerning the Company.
It should be noted, however, that the Commission is currently considering
changing the two (2) year holding period to one (1) year and the three (3) year
holding period to two (2) years. In such an event, "restricted securities" would
be eligible for sale to the public at an earlier date. Immediately prior to the
Effective Date, the Company will have 3,500,000 shares of its Common Stock
issued and outstanding, of which (i) 3,500,000 shares are "restricted
securities", all of which are eligible for resale in April 1998 and (ii)
2,000,000 shares of which are being registered under the Registration Statement
of which this Prospectus forms a part.
Prospective investors should be aware that the possibility of sales
may, in the future, have a depressive effect on the price of the Company's
Common Stock in any market which may develop, and therefore, the ability of any
investor to market his shares may be dependent directly upon the number of
shares that are offered and sold. Affiliates of the Company may sell their
shares during a favorable movement in the market price of the Company's Common
Stock which may have a depressive effect on its price per share. See
"Description of Securities."
29. Anti-Takeover Effect of General Corporation Law of Delaware. The
Company is governed by the provisions of Section 203 of the General Corporation
Law of Delaware, an anti-takeover law enacted in 1988. As a result of Section
203, potential acquirors of the Company may be discouraged from attempting to
effect acquisition transactions with the Company, thereby possibly depriving
holders of the Company's securities of certain opportunities to sell or
otherwise dispose of such securities at above-market prices pursuant to such
transactions. See "Description of Securities."
24
<PAGE>
30. Inexperience of Representative. This is the ninth public offering
underwritten by VTR Capital, Inc. There can be no assurance that the
Representative's limited experience as an underwriter of public offerings will
not adversely affect the proposed public offering of the Company's securities,
the subsequent development of a trading market, if any, or the market for and
liquidity of the Company's securities. Therefore, purchasers of the securities
offered hereby may suffer a lack of liquidity in their investment or a material
diminution of the value of their investment.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 500,000 shares of
Common Stock offered hereby, are estimated to be $2,113,000 (after deducting
approximately $300,000 in underwriting discounts, other expenses of this
Offering estimated to be $587,000, which includes the Underwriters'
non-accountable expense allowance of $90,000, and a $72,000 financial consulting
fee payable to the Representative at the closing) (but not considering any
exercise of the Over-Allotment Option, or the Underwriters' Option). The Company
based upon all currently available information, intends to utilize such proceeds
approximately as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage(%)
Amount of of Net
Net Proceeds Proceeds
------------ -------------
<S> <C> <C>
Acquisition of Additional Machinery(1) $1,200,000 57.0%
Expansion of Marketing(2) $ 215,000 10.1%
Repayment of Certain Indebtedness(3) $ 200,000 9.4%
Working Capital(4) $ 498,000 23.5%
---------- -----
Total................... $2,113,000 100%
</TABLE>
- ----------
(1) The Company is acquiring additional tablet presses, encapsulating
machines, blending equipment and laboratory instruments.
(2) Attendance at trade shows and advertising in trade publications.
(3) Represents the cash repayment of Bridge Loans in the aggregate
principal amount of $200,000. An additional aggregate principal amount
of $100,000 of the Bridge Loans is automatically convertible into
1,000,000 Class A Warrants immediately after the effective date of this
Offering. The Bridge Loans were made by two (2) unaffiliated parties.
The Bridge Loans are due and payable upon the earlier of April 30, 1997
or the closing of the Company's initial public offering and bear
interest at the rate of 8% per annum. The proceeds of the Bridge Loans
were used for working capital and as a source of funds to pay expenses
associated with this Offering. See "Bridge Financing." See "Certain
Transactions."
25
<PAGE>
(4) To be used for general operating and overhead expenses including the
installation of a management information system ($50,000), establishing
a network of brokers and manufacturers representatives ($10,000),
hiring of additional administrative, sales, production and warehouse
employees ($150,000) and the funding of raw material inventory.
The amounts set forth above are estimates. Should a reapportionment or
redirection of funds be determined to be in the best interests of the Company,
the actual amount expended to finance any category of expenses may be increased
or decreased by the Company's Board of Directors, at its discretion.
The Company believes that the proceeds of this Offering will enable the
Company to increase its annual revenues through the expansion of its business
and customer base. As a result, the Company believes that the net proceeds of
this Offering, together with increased revenues generated from operations, will
be sufficient to conduct the Company's operations for at least twelve (12)
months. The terms of the underwriting agreement between the Company and the
Underwriters restrict the Company from entering into any acquisition or merger
of the Company or obtaining additional capital financing, without the prior
approval of the Representative, for the issuance of additional equity securities
for a period of two (2) years, in either public or private offerings. The
underwriting agreement does not prevent the Company from seeking bank financing
although there can be no assurance that such financing will be available on
commercially reasonable terms. See "Risk Factors - Dependence on Offering
Proceeds; Possible Need for Additional Financing."
To the extent that the Company's expenditures are less than projected
and/or the proceeds of this Offering increase as a result of the exercise by the
Underwriters of their Over-Allotment Option, the resulting balances will be
retained and used for general working capital purposes. Conversely, to the
extent that such expenditures require the utilization of funds in excess of the
amounts anticipated, additional financing may be sought from other sources, such
as debt financing from financial institutions, although there can be no
assurance that such additional financing, if available, will be on terms
acceptable to the Company. See "Risk Factors - Dependence on Offering Proceeds;
Possible Need For Additional Financing." The net proceeds of this Offering that
are not expended immediately may be deposited in interest bearing accounts, or
invested in government obligations or certificates of deposit.
26
<PAGE>
DILUTION
At September 30, 1996, the Company had outstanding an aggregate of
3,500,000 shares of Common Stock having an aggregate net tangible value of
$1,089,019 or $.31 per share, based upon operating activity through September
30, 1996. Net tangible book value per share consists of total assets less
intangible assets and liabilities, divided by the total number of shares of
Common Stock outstanding. The shares of capital stock described above do not
include any securities subject to any outstanding warrants or options.
After giving effect to (i) the conversion of an aggregate principal
amount of $100,000 of bridge loans into 1,000,000 Class A Warrants immediately
after the effective date of this Offering and (ii) the sale of 500,000 shares of
Common Stock by the Company with net proceeds of $2,185,000 (without deducting
the $72,000 financial advisory fee), the pro forma net tangible book value of
the Common Stock would have been $3,374,019 or approximately $.84 per share.
This represents an immediate increase in pro forma net tangible book value of
$.53 per share to the present stockholders and an immediate dilution of $5.16
per share (86%) to the public purchasers. The following table illustrates the
dilution which investors participating in this Offering will incur and the
benefit to current stockholders as a result of this Offering:
Public offering price of Shares offered hereby (1) $6.00
Net tangible book value
per share ................................... $.31
Increase per share attributable
to Shares offered hereby..................... $.53
Pro Forma net tangible book value
per share after Offering(3).................. $.84
Dilution of net tangible book
value per share to purchasers
in this Offering (2)(3).................... $5.16
- -----------------------
(1) Before deduction of underwriting discounts, commissions, fees and
Offering expenses.
(2) Assuming no exercise of the Over-Allotment Option, or the Underwriters'
Option. See "Underwriting" and "Description of Securities."
27
<PAGE>
(3) Assuming no exercise of the 1,000,000 Class A Warrants issuable in
connection with the conversion of the Bridge Notes. Assuming no
exercise of the 3,000,000 Class A Warrants held by PMF, a company
wholly-owned and controlled by Barry Gersten. See "Selling
Securityholders" and "Certain Transactions."
The following table shows the number and percentage of shares of Common
Stock purchased and acquired and the amount and percentage of consideration and
average price per share paid by existing stockholders as of September 30, 1996
and to be paid by purchasers pursuant to this Offering (based upon the
anticipated public offering price of $6.00 per share of Common Stock before
deducting underwriting discounts and commissions and estimated Offering
expenses).
<TABLE>
<CAPTION>
Shares of Aggregate
Common Percent Cash Percent of Average
Stock of Equity Consideration Total Cash Price Per
Purchased Owned Paid Consideration Share
--------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
New
Stockholders 500,000 12.5% $3,000,000 69.7% 6.00
Existing
Stockholders 3,500,000 87.5% $1,305,000(1) 30.3% .37
- -----------------------------------------------------------------------------------------------------------------
TOTAL 4,000,000 100% $4,305,000 100% $1.07
</TABLE>
- ----------------
(1) Includes $1,150,000, the value of 200,000 shares of Common Stock of CGI
received as part payment for 500,000 shares of Common Stock of the
Company.
The foregoing table gives effect to the sale of the Common Stock
offered hereby but without giving effect to the exercise of the Underwriters'
Option, or any securities issuable upon the exercise of the Over-Allotment
Option or any outstanding options or warrants, including those held by the
Bridge Lenders and PMF.
28
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 and as adjusted gives effect to (i) the conversion of an
aggregate principal amount of $100,000 of bridge loans into 1,000,000 Class A
Warrants immediately after the effective date of this Offering and (ii) the sale
of 500,000 shares of Common Stock offered hereby and the application of net
proceeds therefrom. The table is not adjusted to give effect to the exercise of
the Over-Allotment Option, the Class A Warrants, the Underwriters' Option or any
other outstanding warrants or options. This table should be read in conjunction
with the Financial Statements of the Company, including the notes thereto,
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
As Adjusted for
Actual (1) the Offering (2)
---------- ----------------
<S> <C> <C>
Notes Payable $ 500,000 $ 200,000
Stockholders' equity:
Common Stock, $.0001 par value per
share, 25,000,000 shares authorized,
3,500,000 issued and outstanding and
(4,000,000 shares outstanding
as adjusted)............................ $ 350 $ 400
Preferred Stock, $.0001 par
value per share, 10,000,000
shares authorized, 5,000,000
issued and outstanding................. $ 500 $ 500
Additional paid-in capital............. $ 1,304,150 $ 3,589,100
Deficit................................ $ (1,894) $ (1,894)
Unrealized loss on available
for sale investments................... $ (84,000) $ (84,000)
TOTAL STOCKHOLDERS'
EQUITY ................................ $ 1,219,106 $ 3,504,106
--------------- -----------
TOTAL CAPITALIZATION................... $ 1,719,106 $ 3,704,106
=============== ===========
</TABLE>
29
<PAGE>
- ------------------------
(1) Does not include the sale of 500,000 shares of Common Stock offered
hereby.
(2) As Adjusted balance sheet reflects the sale of 500,000 shares of Common
Stock offered hereby and the anticipated application of the net
proceeds of $2,185,000 therefrom, after deducting estimated Offering
expenses of $815,000, the cash repayment of bridge loans of $200,000
payable with the proceeds of the Offering and the conversion of an
aggregate principal amount of $100,000 of bridge loans into 1,000,000
Class A Warrants immediately after the effective date of this Offering.
Does not give effect to a $72,000 fee payable to the Representative
pursuant to a two (2) year financial advisory and investment banking
agreement.
30
<PAGE>
DIVIDEND POLICY
Holders of the Company's Common Stock are entitled to dividends when,
as and if declared by the Board of Directors out of funds legally available
therefore. The Company has not in the past and does not currently anticipate the
declaration or payment of any dividends in the foreseeable future. The Company
intends to retain earnings, if any, to finance the development and expansion of
its business. Future dividend policy will be subject to the discretion of the
Board of Directors and will be contingent upon future earnings, if any, the
Company's financial condition, capital requirements, general business conditions
and other factors. Therefore, there can be no assurance that any dividends of
any kind will ever be paid.
BRIDGE FINANCING
In May, 1996, the Company borrowed an aggregate of $300,000 from Dune
Holdings, Inc. and Clinthill Investments Ltd., two (2) unaffiliated parties (the
"Bridge Lenders"). In exchange for making loans to the Company, each Bridge
Lender received two promissory notes (the "Bridge Notes"). Certain of the Bridge
Notes are in the aggregate principal amount of $200,000 (the "Principal Bridge
Notes") and the other Bridge Notes are in the aggregate principal amount equal
to $100,000 (the "Convertible Bridge Notes"). Each of the Bridge Notes bears
interest at the rate of eight percent (8%) per annum. The Bridge Notes are due
and payable upon the earlier of (i) April 30, 1997 or (ii) the closing of an
initial underwritten public offering of the Company's securities. The Company
intends to use a portion of the proceeds of this Offering to repay the Bridge
Lenders. See "Use of Proceeds." In addition, each Convertible Bridge Note
converts into a number of Class A Warrants of the Company equal to ten (10)
times the principal amount of such Convertible Bridge Note upon the consummation
of this Offering. The Company entered into the bridge financing transactions
because it required additional financing and no other sources of financing were
available to the Company at that time. Further, the Company agreed to register
the resale of the Class A Warrants issuable upon conversion of the Convertible
Bridge Notes, as well as the shares of Common Stock issuable upon exercise of
the Class A Warrants in the first registration statement filed by the Company
following the date of the loan. Therefore, the Registration Statement, of which
this Prospectus forms a part, relates to resale of the 1,000,000 Class A
Warrants issuable upon conversion of the Convertible Bridge Notes and 1,000,000
shares of Common Stock issuable upon exercise of the Class A Warrants. See
"Selling Securityholders" "Certain Transactions" and "Underwriting."
31
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected financial data presented below for the Company's statement
of operations for the period April 24, 1996 (Inception) to June 30, 1996 is
derived from financial statements of the Company, which have been audited by
Holtz Rubenstein & Co., LLP, independent accountants, whose reports are included
elsewhere herein. The statement of operations data for the three months ended
September 30, 1996 and cumulative during the development stage is derived from
unaudited financial statements. The data set forth below should be read in
conjunction with and is qualified in its entirety by the Company's financial
statements, related notes and Management's Discussion and Analysis of Financial
Condition and Results of Operations. See "Financial Statements," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The following summary financial information has been summarized
from the Company's financial statements included elsewhere in this Prospectus.
The information should be read in conjunction with the financial statements and
the related notes thereto. See "Financial Statements."
SUMMARY STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Period April 24, 1996 Three Months Ended Cumulative During
(Inception) to June 30, 1996 September 30, 1996 Development Stage
---------------------------- ------------------ -----------------
<S> <C> <C> <C>
Revenues $ 857,398 $ 770,954 $1,628,352
Gross Profit $ 119,358 $ 100,490 $ 219,848
Operating Income (Loss) $ 48,389 $ (37,083) $ 11,306
Net Income(Loss) $ 35,189 $ (37,083) $ (1,894)
Net Income(Loss) $ .01 $ (.01) $ (.01)
Per Share (1)
Weighted Average
Number of Common Shares
Outstanding (1) 3,500,000 3,500,000 3,500,000
</TABLE>
SUMMARY BALANCE SHEET DATA
<TABLE>
<CAPTION>
September 30, 1996
June 30, 1996(1) September 30, 1996(1) as Adjusted (2)(3)
---------------- --------------------- ------------------
<S> <C> <C> <C>
Working Capital(Deficit) $ 560 $ (698,396) $ 1,586,604
Total Assets $2,565,537 $ 3,165,703 $ 5,150,703
Total Liabilities $1,285,448 $ 1,946,597 $ 1,646,597
Retained Earnings(Deficit) $ 35,189 $ (1,894) $ (1,894)
Stockholders'
Equity $1,280,089 $ 1,219,106 $ 3,504,106
</TABLE>
(1) Does not include the sale of 500,000 shares of Common Stock offered
hereby.
(2) Reflects initial application of net proceeds of the 500,000 shares of
Common Stock offered.
(3) Reflects an aggregate principal amount of $100,000 of Bridge Loans
converted into 1,000,000 Class A Warrants immediately after the
effective date of this Offering.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
Since its inception, the Company's primary activities have consisted of
leasing a facility, acquiring machinery and equipment and operating as a
wholesaler for the products it intends to manufacture. As of September 30, 1996,
the Company has not commenced manufacturing operations.
The Company's cumulative results of operations during the development
stage (April 24, 1996 (inception) to September 30, 1996) reflect revenues of
approximately $1,628,000. Approximately 98 percent of these sales were derived
from PDK Labs Inc. ("PDK"). The gross profit on cumulative sales during the
development stage was approximately $220,000 or 14 percent.
On May 14, 1996, the Company entered into a three year Supply Agreement
with PDK, which provides for the Company to supply PDK with certain products at
a price equal to material cost plus 15 percent. PDK agreed to purchase products
having a minimum aggregate sales price of $2,500,000 per year during the term of
the agreement. In the event that PDK fails to purchase the minimum amount of
products in any year, the Company will be paid up to $100,000 on a pro-rated
basis as liquidated damages.
On May 31, 1996, the Company agreed to supply Compare Generiks, Inc.
with vitamins in bulk tablet form at the Company's cost plus 15 percent.
Plan of Operation
During the first twelve months of operations after completion of the
Offering, the Company will adopt a sales and marketing campaign to secure new
customers who purchase dietary supplements in "bulk" tablet and capsule form.
The Company intends to establish a national network of brokers pursuing
customers that package and sell dietary supplements. The potential customer base
includes (but is not limited to) other manufacturers who outsource a portion of
their needs to supplement their own capacities ("repackagers"), companies that
market a brand or generic line of products but do not manufacture these items,
and distributors servicing health food, drug, convenience and mass market
stores.
An extensive network of brokers is also planned for Canada, Latin
America, Europe and parts of Asia to pursue trading partners who possess the
ability to distribute dietary supplements to large distribution and retail
companies. The Company intends to expend substantial sums on promotional
material, trade shows and advertising through trade magazines. Upon completion
of the Offering, the Company intends to purchase additional production equipment
to increase capacity to meet future demand.
As of September 30, 1996, the Company employed a total of eight (8)
employees on a full time basis (six (6) employees in manufacturing and sales and
two (2) employees in administration and finance). The Company has also leased a
forty thousand square foot facility for manufacturing, quality assurance,
pharmaceutical laboratory, warehouse, executive and sales offices. The number of
employees and the amount of space the Company will need following the Offering
will vary
33
<PAGE>
according to the progress made in the marketing and distribution of its
products. The Company intends to hire additional administrative, sales,
productions and warehouse employees. In addition, the Company intends to install
a detailed Management Information System in order to effectively manage
production, quality assurance, inventory and to properly service its customer
base.
Liquidity and Capital Resources
As of September 30, 1996, the Company had a working capital deficit of
$698,396. The Company remains in the development stage as it has not yet
commenced its manufacturing operations and requires the proceeds of this
Offering or alternative financing to acquire additional machinery, execute
meaningful marketing activities, and start up manufacturing operations. The
report of the Company's auditors contains an explanatory paragraph which
discusses certain factors which raise substantial doubt about the ability of the
Company to continue as a going concern. The Company has funded its activities to
date from the initial capital contribution of the founder and Bridge Loans. See
"Certain Transactions."
The Company expects to incur substantial expenditures over the next
twelve months to start up manufacturing activities and implement its sales and
marketing plans. The Company's management believes that the net proceeds of this
Offering (excluding any proceeds from the Underwriters' Over-Allotment Option or
the Underwriters' Option) will be sufficient to fund its liquidity needs for at
least the next twelve months.
34
<PAGE>
BUSINESS
General
Superior Supplements, Inc., a Delaware corporation (the
"Company" or "SSI"), was formed on April 24, 1996. The Company is engaged in the
development, manufacture, marketing and sale of dietary supplements including
vitamins, minerals, herbs and specialty nutritional supplements, in bulk tablet,
capsule and powder form. The Company intends to manufacture a wide variety of
products for companies which package and sell through many different channels of
distribution, including health food, drug, convenience and mass market stores.
Prior to the setting up of its manufacturing facility, the Company is operating
as a wholesaler for these products maintaining sales relationships with PDK Labs
Inc. and Compare Generiks, Inc. The Company has been using numerous supply
sources to purchase products for resale until its manufacturing facility is
completed. The Company has no commitments or formal arrangements with is
suppliers. Manufacturing operations for tableting and encapsulating of single
ingredient products commenced on October 1, 1996, although the manufacturing
facility is not yet completed. The manufacturing facility is expected to be
fully operational within sixty (60) days following the completion of the
Offering hereby proposed.
On May 14, 1996, the Company entered into a supply agreement with PDK
Labs Inc. a New York corporation ("PDK"), pursuant to which the Company agreed
to supply PDK with vitamins and dietary supplements manufactured to PDK's
specifications in bulk tablet form for a three (3) year period, renewable for
successive one (1) year periods thereafter. PDK agreed to purchase products
having a minimum aggregate sales price of $2,500,000 per annum during the term
of the agreement and to pay liquidated damages of $100,000 to the Company in the
event PDK did not meet that minimum purchase requirement.
Prior to the full commencement of manufacturing operations, the Company
is operating as a wholesale supplier to PDK. All wholesale purchases made by PDK
are to offset the minimum aggregate sales per annum under the Supply Agreement
dated May 14, 1996.
On May 31, 1996, the Company entered into an exclusive supply agreement
with Compare Generiks, Inc., a Delaware corporation ("CGI"), pursuant to which
the Company agreed to supply CGI with all of CGI's requirements for vitamins on
an exclusive basis (other than any vitamins sold under the "Energex" trade mark
or as part of the "Energex" product line) for a three (3) year period, renewable
for successive one (1) year periods thereafter. CGI is a development stage
company with limited revenues and a limited operating history. The Company's
supply arrangements with PDK and CGI form the core of its current business.
PDK supplies certain management and personnel to the Company and
Reginald Spinello, one of the Company's directors, is also the Executive Vice
President of PDK. In addition, one of the Company's directors, Daniel Durchslag
is also a director of CGI. In addition, Reginald Spinello and Daniel Durchslag
together with Lawrence Simon have voting power over more than fifty percent
(50%) of the Common Stock and the Preferred Stock of the Company pursuant to a
Voting Trust Agreement with PMF. See "Risk Factors - Conflicts of Interest" and
"Business - Conflicts of Interest".
35
<PAGE>
On May 1, 1996, the Company entered into a lease agreement with Park
Associates, an unrelated party, for a forty thousand (40,000) square foot
facility to be utilized for manufacturing, distribution and for its executive
offices.
Upon completion, the Company's manufacturing facility will have sixteen
production machines consisting of twelve tablet presses and four encapsulating
machines with a capacity of producing per annum, in excess of one billion two
hundred million (1,200,000,000) tablets and capsules of various sizes and
shapes. The Company will manufacture single ingredient herbal products and
multi-ingredient vitamins in tablet and capsule form. Governmental approval of
the manufacturing facility is not required. All manufacturing will be conducted
in accordance with Good Manufacturing Practice Standards of the United States
Food and Drug Administration and other applicable regulatory standards. The
Company believes that the capacity of its manufacturing facility is adequate to
meet the requirements of its current business and will be adequate to meet the
requirements of anticipated increases in net sales.
The Company intends to use the proceeds from this Offering to repay
certain of the Company's indebtedness, acquire additional manufacturing
equipment, expand its marketing efforts, and for general working capital
purposes. See "Use of Proceeds."
The Company maintains its executive offices at 270 Oser Avenue,
Hauppauge, New York 11788, telephone number (516) 231-0783.
Investment in CGI
Although the Company accepted part payment for CGI's subscription for
shares of Common Stock in the Company in the form of shares of Common Stock of
CGI, the Company does not intend to invest in any other company.
Manufacturing
The vitamin production process includes the following stages: testing
of raw materials, pharmacy, blending, compression, coating and testing of
finished tablets or capsules. The vitamin production process involves sending
the raw materials through each stage of production in order to form vitamin
products.
The principal raw materials needed in the manufacturing process are
natural and synthetic vitamins which will be purchased from manufacturers in the
United States, Japan and Europe. The Company can purchase raw materials from
numerous sources and is not dependent on any major supplier. The Company
believes that the materials to be purchased from these suppliers are readily
available from numerous sources and the loss of these suppliers would not
adversely affect its operations.
The Company has one large Gemco blender-mixer and one PK blender to
handle mixing for dry batches of production. The plant will be equipped with
twelve tablet presses, four encapsulating machines, and one capsule imprint
machine available for customizing each capsule. The production machines have the
combined capacity of producing per annum, in excess of one billion two hundred
million (1,200,000,000) tablets and capsules of various sizes
36
<PAGE>
and shapes. Several of the tablet presses have the capability to encode a name
or logo on the tablets based on the punches used. In addition, the plant will
have one tablet imprint machine for customizing tablet products.
Quality Control
All of the Company's products will be manufactured in accordance with
the Good Manufacturing Practices of the FDA and all other applicable regulatory
standards. The Company places special emphasis on quality control. All raw
materials and finished products are subjected to sample testing, weight testing,
and purity testing. The Company has adopted formal written quality control
procedures which will be rigorously followed. The Company intends to maintain
well documented records on all material testing, production processes,
inspections carried out in the manufacturing process, and labeling procedures.
All products are subject to the Company's rigorous quality control procedures.
The Company will maintain a modern well-equipped pharmaceutical laboratory. The
Company believes that the laboratory will have the capability of adhering to any
current and anticipated agency requirements.
The Company's manufacturing operations will include a modern quality
control laboratory and testing facilities. All raw materials used in production
are to be initially held in quarantine during which time the Company's quality
assurance department assay the product against the manufacturer's certificate of
analysis. Once cleared, a lot number will be assigned, samples are to be
retained and the material is to be processed by formulating, blending,
compressing and where required, coating operations. Throughout the manufacturing
process the quality control department will conduct "in process" testing
procedures. After tablets are manufactured, the quality assurance department
will test for weight, purity, potency, dissolution and stability.
Marketing and Distribution Strategies
The Company intends to manufacture a full line of dietary supplements
including vitamins, minerals, herbs and speciality nutritional supplements in
bulk tablet and capsule form, which are marketed to companies, such as PDK and
CGI, that package and sell through many different channels of distribution,
including health food, drug, convenience and mass market stores. In addition,
the Company supplies other manufacturers which "outsource" a portion of their
needs on an ongoing basis to supplement their own capacities.
The Company does not intend to rely on distributors or distribution
channels affiliated with PDK or CGI. The Company markets and distributes
products in bulk tablet, capsule and powder form whereas PDK and CGI sell these
products in bottled or packaged form. The market the Company intends to serve
includes customers marketing numerous brand names whereas the market served by
PDK and CGI is specific to a brand or affiliated brand of PDK or CGI.
The Company has begun working to capitalize on the global opportunities
created by an increasing worldwide recognition of the benefits of dietary
supplements and the perception that "American made supplements" offer the safest
and highest quality products available The company is establishing relationships
with brokers, manufacturer representatives and distributors in Canada, Latin
America, Europe and parts of Asia.
37
<PAGE>
The Company intends to use a portion of the proceeds from the Offering
to establish a network of manufacturer representatives throughout the United
States for the purposes of obtaining new customers who purchase dietary
supplements in bulk tablet and capsule form.
Arrangements with brokers and manufacturing representatives will be
decided on an individual basis, generally relating to a region or territory on a
month to month basis with commissions ranging up to five percent (5%) on paid
customer invoices.
Competition
The market for dietary supplement products is highly competitive in
each of the Company's existing and anticipated product lines and methods of
distribution. Numerous manufacturers and distributors compete with the Company
for customers throughout the United States and internationally in the bulk
packaged dietary supplement industry, selling products to distributors who
service health food, drug, convenience and mass market stores, companies that
market a branded or generic line of products but do not manufacture these items
("repackagers"), and other manufacturers who "outsource" a portion of their
needs to supplement their own capacities. Many of the Company's competitors are
substantially larger and more experienced than the Company, have longer
operating histories and have materially greater financial and other resources
than the Company. Many of these competitors are private companies, and
therefore, the Company cannot compare its revenues with respect to the sales
volume of each competitor. The Company's significant competitors include
International Vitamin Corporation and Nature's Bounty both of whom have longer
operating histories and materially greater financial and other resources than
the Company (although, no implication is intended hereby regarding the Company's
industry ranking in comparison to such competitors). There can be no assurance
that the Company will be able to compete successfully with its more established
and better capitalized competitors.
Although certain of the Company's competitors are substantially larger
than the Company and have greater financial resources, the Company believes that
it will compete favorably with other vitamin and dietary supplement companies
because of its access to products, competitive pricing, quality of products, and
sales support.
Financing
On May 31, 1996, the Company entered into a revolving credit agreement
with Dune Holdings, Inc. ("Dune"), one of the Company's Bridge Lenders, pursuant
to which the Company can borrow up to $200,000 for a period of twenty four (24)
months at an interest rate of fifteen percent (15%) per annum. The Company paid
Dune a commitment fee of $2,000 (one percent (1%) of the maximum amount
available under the revolving credit agreement). As of September 30, 1996, the
Company had not borrowed any funds pursuant to the revolving credit agreement.
See "Certain Transactions."
On June 26, 1996, the Company borrowed $200,000 from PMF (a company
wholly-owned and controlled by Barry Gersten), the Company's founder, at an
annual interest rate of eight percent (8%) pursuant to a promissory note dated
June 26, 1996 repayable on June 25, 1998. See "Certain Transactions."
38
<PAGE>
Management and Employees
As of September 30, 1996, the Company employed a total of eight (8)
employees on a full time basis (six (6) employees in manufacturing and sales and
two (2) employees in administration and finance). See "Management" and
"Executive Compensation."
The Company has experienced no work stoppages and considers its
employee relations to be satisfactory. The Company's employees are not
represented by a labor union.
Government Regulation
The Company's products and/or its business operations are subject to
regulation by one or more federal agencies, including The United States Postal
Service, the Federal Trade Commission ("FTC"), the Food and Drug Administration
("FDA") and the Consumer Product Safety Commission and the United States
Department of Agriculture. The FDA in particular, is primarily responsible for
regulation of the labeling, manufacture and sale of vitamins and mineral
supplements which the FDA believes to be unapproved drugs or food additives
rather than food supplements. The Company's activities are also regulated by
various agencies of the states and localities in which the Company's products
are sold and the Department of Health for the State of New York monitors the
facility, checks for cleanliness, audits the record keeping and observes the
control and labeling. It is this latter agency that issues the Company the
license which allows the Company to carry out its operations.
The Company markets vitamins, minerals, herbs, amino acids and other
similar nutritional substances ("dietary supplements"). These products are
primarily regulated by the FDA under the auspices of the Federal Food, Drug and
Cosmetic Act (the "FFDCA"). Under the FFDCA, most dietary supplements are
currently regulated as foods, which require no approval from the FDA prior to
marketing. Therefore, the regulation of dietary supplements is far less
restrictive than that imposed upon manufacturers and distributors of
prescription drugs. Dietary supplements, however, must be labeled correctly to
avoid being misbranded under the FFDCA. Health claims made by vitamin and
dietary supplement companies with respect to their products are specifically
regulated by the FDA. If such products make unapproved health claims, the FDA
may consider them to be unapproved drugs, which require approval by the FDA
prior to marketing.
For the production of the Company's products deemed by the FDA now or
in the future to be a food, the operation of the Company's manufacturing
facilities will be subject to regulation by the FDA as a food manufacturing
facility and to compliance with good food manufacturing practices. Although the
Company does not anticipate any difficulties in complying with the necessary
good food manufacturing practices, any such difficulties that are encountered
could have a material adverse effect on the Company.
Marketing misbranded or adulterated food or unapproved new food
additives, can result in civil or criminal penalties, including, but not limited
to, product seizure, injunction and fines.
On January 4, 1994, the FDA issued final regulations concerning dietary
supplements. It did so partially in response to the Nutritional Labeling and
Education Act of 1990
39
<PAGE>
("NLEA") and the Dietary Supplement Act of 1992 in order to amend its food
labeling regulations, setting forth specific regulations for the nutrition
labeling of vitamins and mineral supplements, establish up to date reference
standards for nutrients and food components and establish procedures for FDA
approval of health claim messages. The regulations subject dietary supplement
labels to the same standards as food labels under the Nutrition Labeling and
Education Act with regard to health claim messages and nutrition labeling
information. The regulations concerning health claim messages went into effect
on July 1, 1994 and the regulations concerning nutrition labeling went into
effect on July 5, 1995.
The regulations prohibit the use of any health claim on a dietary
supplement unless the health claim is supported by significant scientific
agreement and is pre-approved by the FDA. To date, the FDA has approved the use
of health claims only in connection with calcium products and osteoporosis, and
folic acid and neural tube defects. Accordingly, most dietary supplements will
be precluded from bearing most health claims. The Company's products include
single ingredient vitamins, minerals, herbs and amino acids in tablet and
capsule form. In addition, the Company produces a wide spectrum of
multi-ingredient combinations of vitamins, minerals, herbs and amino acids based
on customer specifications. The FDA regulations do not at present limit consumer
access to dietary supplements, unless such products present safety concerns. The
Company cannot determine at this time whether the new regulations will have any
adverse effect on its operations, although it believes that they will not have a
material adverse effect.
In addition, the FDA issued an Advanced Notice of Proposed Rulemaking
on June 18, 1993 ("ANPR") requesting comments on the general regulation of
certain dietary supplements, such as herbs, fish and plant oils, fatty acids,
fibers and vegetable gums, and amino acids. Some of these substances are sold by
the Company. In connection therewith, the FDA commissioned the Federation of
American Societies for Experimental Biology ("FASEB") to conduct a study of the
safety of amino acids. The FASEB report published in September 1992 concluded
that there was insufficient research and information on amino acids to conclude
that added, manufactured, or incomplete mixtures of amino acids are safe and,
therefore, recommended that further research be conducted. The internal FASEB
report issued in connection with the ANPR contains recommendations concerning
the possible regulation of dietary supplements by category.
The Company cannot determine whether separate regulations will be
issued for these substances, or what effect any new regulations for such
substances, when and if promulgated, will have on its business in the future.
The FDA or other governmental regulations or administrative orders concerning
such substances, when and if promulgated, could require the reformulation of
certain products to meet new standards or require the recall or discontinuance
of certain products not capable of reformulation.
The Dietary Supplement Act of 1992 requires that the Comptroller
General of the United States and the Director of the Office of Technology
Assessment undertake separate studies of FDA regulation of dietary supplements
and make recommendations in Congress which would reduce or modify the FDA's
authority to regulate dietary supplements. While these bills have not been
enacted as law, there is a strong likelihood that Congress will again consider
such legislation. There is no assurance, however, that these bills will
ultimately be passed and signed into law.
40
<PAGE>
Any such legislation reducing the FDA's authority to modify dietary
supplements could result in the Company being subject to fewer regulatory
requirements and would, therefore, have no adverse impact on the Company. Any
modification which increases the FDA's regulatory authority could subject the
Company to additional expenses in order to comply with more stringent
requirements and could have a materially adverse impact on the Company by
limiting products or causing the Company to incur additional expenses in order
to comply with these regulations.
Conflict of Interests
After this Offering, PMF, a company wholly-owned and controlled by
Barry Gersten, will continue to own 75% of the Company's outstanding shares of
Common Stock, 100% of the shares of Series A Preferred Stock of the Company, par
value $.0001 per share (the "Series A Preferred Stock") and 100% of the
Company's outstanding Class A Warrants. In addition, in June 1996, PMF made a
loan of $200,000 to the Company pursuant to a promissory note. At present, PDK
is a major customer of the Company, accounting for essentially all of the
Company's total sales revenue and also supplies certain management and personnel
to the Company. In addition, Reginald Spinello, one of the Company's Directors,
holds a management position with PDK. Daniel Durchslag, one of the Company's
Directors, is also a Director of CGI, a customer and stockholder of the Company.
Reginald Spinello and Daniel Durchslag, together with Lawrence Simon, have
voting power over more than fifty percent (50%) of the Common Stock and
Preferred Stock of the Company pursuant to a voting trust agreement with PMF. It
is anticipated that PDK will continue to purchase a significant percentage of
the Company's products, at or near its minimum requirement of $2,500,000 per
annum. Because of PMF's ownership interest in the Company, PMF's role as a
creditor of the Company, the identity of certain management, the voting control
of certain management over PMF's Preferred Stock, CGI's role as a customer and
stockholder of the Company, and PDK's role as a significant customer to the
Company, certain conflicts of interest may occur between the Company and PMF,
CGI or PDK.
Product Liability Insurance
The Company, like other manufacturers of products that are ingested,
faces inherent risk of exposure to product liability claims. Accordingly,
currently the Company maintains product liability insurance as a named insured
on each of its suppliers' policies. The Company requires that its suppliers have
minimum coverage of $1,000,000 and that the Company is named insured on the
policy. Upon completion of the Offering, the Company will purchase its own
product liability insurance with coverage up to $1,000,000 on claims made. While
management believes that its insurance coverage is adequate, there can be no
assurance that any judgment against the Company will not exceed liability
coverage. A judgment significantly in excess of the amount of insurance coverage
would have a material adverse effect on the Company.
Facilities
The Company's headquarters, plant operations, warehousing and shipping
facilities are housed in a modern forty thousand (40,000) square foot building.
The Company leases the building pursuant to an agreement with Park Associates,
the Landlord, which expires on October 14, 1998. The lease provides for the
Company to pay rent in the following amounts:
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<PAGE>
from May 1, 1996 through August 1, 1996 no base rent shall be due. From August
1, 1996 through May 31, 1997 the base rent shall be $23,000 monthly. From June
1, 1997 through October 14, 1997 the base rent shall be $19,166.67 monthly. From
October 15, 1997 through October 14, 1998 the base rent shall be $20,833.33
monthly. In the judgment of management, the lease with the Landlord reflects a
rent at current fair market value.
The Facility is equipped with a modern, state-of-the-art dust
collection system which extracts dust particles from the air and recycles the
air through massive filters. The dust collection system is designed to ensure
that no contaminants are emitted into the environment.
The Facility will maintain a modern and well equipped pharmaceutical
laboratory. The Company believes that the one thousand five hundred (1,500)
square foot laboratory will have the capability of adhering to any current or
anticipated regulatory requirement.
Litigation
There is no material litigation pending or threatened against the
Company nor are there any such proceedings to which the Company is a party.
42
<PAGE>
MANAGEMENT
Directors and Executive Officers
The names and ages of the directors, executive officers and significant
employees, and promoters of the Company are set forth below.
<TABLE>
<CAPTION>
Name Age Position Held
- ------------------- --- -------------
<S> <C> <C>
Lawrence D. Simon 30 President, Chairman, Chief Financial Officer
and Director
Reginald Spinello 42 Director
Matthew L. Harriton 31 Director and Secretary
Steven F. Wasserman 39 Director
Dr. Daniel Durchslag 52 Director
</TABLE>
Background of Executive Officers and Directors
Lawrence D. Simon has been the President, Chairman, Chief Financial Officer and
a Director of the Company since May 1, 1996. He was the National Sales Director
for Futurebiotics, Inc. ("Futurebiotics") from October 1, 1995, until his
resignation on April 30, 1996. Futurebiotics distributes, markets and sells
vitamins, minerals, herbal formulations and specialty nutritional supplements
principally to health food stores through regional distributors. Prior to
joining Futurebiotics Mr. Simon was Regional Sales Manager for PDK Labs Inc.,
(from April 10, 1992 to September 30, 1995). Prior to PDK Labs Inc., Mr. Simon
was President of LDS Products Inc. (from March 1990 to March of 1991). LDS
Products Inc., is a brokerage corporation specializing in sales to wholesale
companies in Eastern Europe. Prior to LDS Products Inc., Mr. Simon was an
Auditor with Coopers & Lybrand LLP (from December 1988 to March 1990). He is a
graduate of Cleveland State University with a Bachelors Degree in Business
Administration.
Reginald Spinello has been a Director of the Company since May 1, 1996. He has
been the President and a Director of Futurebiotics since its formation in March,
1994. Futurebiotics distributes, markets and sells vitamins, minerals, herbal
formulations and specialty nutritional supplements principally to health food
stores through regional distributors. In addition, he is the Executive Vice
President of PDK Labs Inc., a position he has held since September 1993. Mr.
Spinello joined PDK Labs Inc. in September 1991 as Vice President of Operations.
Prior to joining PDK Labs Inc. Mr. Spinello was President and Founder of
Internal Reinforcements from 1985 to 1991, a specialty distributor and marketer
of natural vitamins and supplements. Prior to Internal Reinforcements, Mr.
Spinello was Founder and President of Superior Supplements (a company with no
affiliation to the Company). Mr. Spinello sold his entire interest in this
company in 1985 and the company was dissolved in 1992. Mr. Spinello graduated
from Bryant College with a B.S. Degree in Business Administration. Additionally,
he has studied in the field of nutrition and is a non-practicing nutrition
consultant. See "Risk Factors - Conflicts of Interest."
43
<PAGE>
Matthew L. Harriton has been a Director and Secretary of the Company since May
1, 1996. He has also been a director of Decor Group, Inc. since March 1996.
Decor Group, Inc. is the holding company of a subsidiary company formed to
acquire a business specializing in the design, manufacture and marketing of
metal wall, table and freestanding sculptures. Mr. Harriton has been the Chief
Financial Officer of Embryo Development Corporation since January 1996. Embryo
Development Corporation is a public company which specializes in developing and
distributing medical devices. Prior to joining Embryo Development Corporation,
Mr. Harriton's professional experience included positions at CIBC Wood Gundy
Securities Corporation as an associate (from June 1994 to December 1995),
Coopers & Lybrand as a senior associate (from December 1990 to May 1994), and
The First Boston Corporation as a senior accountant (from June 1986 to May
1988). Mr. Harriton has also served as a director of Perry's Majestic Beer, Inc.
since January 1996, a company involved in the microbrewery industry. He is a
graduate of Lehigh University and received his M.B.A. from Duke University's
Fuqua School of Business.
Steven F. Wasserman has been a Director of the Company since May 1, 1996. He has
also been a Director of Embryo Development Corporation since March , 1995.
Embryo Development Corporation is a public company which specializes in
developing and distributing medical devices. Mr. Wasserman has been engaged in
the practice of law at the firm of Bernstein & Wasserman, LLP, since 1984. See
"Legal Matters." Mr. Wasserman is a graduate of Union College and received his
J.D. from the Benjamin N. Cardozo School of Law.
Dr. Daniel Durchslag, DDS. has been a Director of the Company since May 1, 1996
and has practiced General Cosmetic and Sports Dentistry in Beverly Hills,
California since 1980. From 1973 until 1979, he was an Associate Professor and
Director of Clinics at the University of Southern California School of
Dentistry. He is a graduate of the University of Wisconsin and Loyola
University/Chicago College of Dental Surgery. He is presently team dentist for
the Oakland Raiders. In addition, he has been a Director of CGI since October
1995. See "Risk Factors - Conflicts of Interest."
There are no family relationships between the officers and directors of
the Company.
Executive Compensation
Details of the cash or other compensation paid or accrued by the
Company to or on behalf of the Company's President, Chairman and Chief Financial
Officer of the Company since its formation to the end of the Company's fiscal
year, June 30, 1996, are set forth in the tables listed below. Each director of
the Company is entitled to receive reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Directors of the Company. The members of the
Board of Directors intend to meet at least quarterly during the Company's fiscal
year, and at such other times duly called.
44
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------------------------------
Annual Compensation Awards Payouts
----------------------------- --------- ----------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted All
Other Stock LTIP Other
Annual Awards Options/ Payouts Compensation
Name and Principal Position Year Salary($) Bonus Compensation ($) SARs(#) ($) ($)
- --------------------------- ---- --------- ----- ------------ ------------ ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lawrence Simon, President 1996 $12,692 $-0- $ -0- $ -0- 100,000(1) $ -0- $ -0-
</TABLE>
(1) Represents issuance of options to acquire 100,000 shares of common
stock at $5.00 per share exercisable one year from the effective date
of the Company's initial public offering.
Option/SAR Grants -
Individual Grants
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities % of Total
Underlying Options/SARs
Options/ Granted to
SARS Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
- ---- ----------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
Lawrence Simon, President 100,000 100% $5.00 May 1, 2001
</TABLE>
Aggregated Option/SAR Exercises -
and FY-End Option/SAR Values
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
- ---- ----------------- ------------------ ------------------ -------------
<S> <C> <C> <C> <C>
Lawrence Simon, President -0- -0- 0/100,000 $-0-/-0- (2)
</TABLE>
(2) The exercise price of the options is equal to the public offering price
of the shares of common stock of the Company hereby offered.
45
<PAGE>
Employment Agreements
As of May 1, 1996, the Company entered into a one (1) year employment
agreement with Lawrence D. Simon, pursuant to which Mr. Simon serves as the
Company's President. The agreement provides for Mr. Simon to receive a salary of
$75,000 per annum. In addition, Mr. Simon has been granted the right to the
delivery, after the Effective Date hereof, of an option to purchase 100,000
shares of the outstanding Common Stock of the Company exercisable (i) at an
exercise price equal to the public offering price of the shares of Common Stock
of the Company offered for sale in the Offering commencing one year from the
Effective Date of the Offering, and (ii) only at a time when Mr. Simon is
employed by the Company. The agreement can be terminated by the Company, with or
without cause, upon ninety (90) days' notice and contains prohibitions on the
disclosure of confidential information and covenants not to compete with the
Company which survive any such termination.
1996 Stock Plan
In June 1996, the Board of Directors of the Company adopted, and the
stockholders of the Company approved the adoption of, the 1996 Stock Plan
(hereinafter called the "1996 Plan"). The purpose of the 1996 Plan is to provide
an incentive and reward for those executive officers and other key employees in
a position to contribute substantially to the progress and success of the
Company, to closely align the interests of such employees with the interests of
stockholders of the Company by linking benefits to stock performance and to
retain the services of such employees, as well as to attract new key employees.
In furtherance of that purpose, the 1996 Plan authorizes the grant to executives
and other key employees of the Company and its subsidiaries of stock options,
restricted stock, deferred stock, bonus shares, performance awards, dividend
equivalent rights, limited stock appreciation rights and other stock-based
awards, or any combination thereof. The 1996 Plan is expected to provide
flexibility to the Company's compensation methods, after giving due
consideration to competitive conditions and the impact of federal tax laws.
The maximum number of shares of Common Stock with respect to which
awards may be granted pursuant to the 1996 Plan is initially 2,000,000 shares.
Shares issuable under the 1996 Plan may be either treasury shares or authorized
but unissued shares. The number of shares available for issuance will be subject
to adjustment to prevent dilution in the event of stock splits, stock dividends
or other changes in the capitalization of the Company.
The 1996 Plan will be administered by a committee consisting of not
less than two (2) members of the Board of Directors who are "disinterested"
within the meaning of Rule 16b-3 promulgated under the Exchange Act and "outside
directors" within the meaning of Section 162(m) of the Code (including persons
who may be deemed outside directors by virtue of any transitional rule which may
be adopted by the Internal Revenue Service implementing such Section). The Board
will determine the persons to whom awards will be granted, the type of award
and, if applicable, the number of shares to be covered by the award. During any
calendar
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<PAGE>
year, no person may be granted under the 1996 Plan awards aggregating more than
100,000 shares (which number shall be subject to adjustment to prevent dilution
in the event of stock splits, stock dividends or other changes in capitalization
of the Company).
Types of Awards
Stock Options. Options granted under the 1996 Plan may be "incentive
stock options" ("Incentive Options") within the meaning of Section 422 of the
Code or stock options which are not incentive stock options ("Non-Incentive
Options" and, collectively with Incentive Options, hereinafter referred to as
"Options"). The persons to whom Options will be granted, the number of shares
subject to each Option granted, the prices at which Options may be exercised
(which shall not be less than the fair market value of shares of Common Stock on
the date of grant), whether an Option will be an Incentive Option or a
Non-Incentive Option, the time or times and the extent to which Options may be
exercised and all other terms and conditions of Options will be determined by
the Committee.
Each Incentive Option shall terminate no later than ten (10) years from
the date of grant, except as provided below with respect to Incentive Options
granted to 10% Stockholders (as hereinafter defined). No Incentive Option may be
granted at any time after May 2006. Each Non-Incentive Option shall terminate
not later than fifteen (15) years from the date of grant. The exercise price at
which the shares may be purchased may not be less than the Fair Market Value of
shares of Common Stock at the time the Option is granted, except as provided
below with respect to Incentive Options granted to 10% Stockholders. Options
granted to executive officers may not be exercised at any time prior to six (6)
months after the date of grant.
The exercise price of an Incentive Option granted to a person
possessing more than 10% of the total combined voting power of all shares of
stock of the Company or a parent or subsidiary of the Company ("10%
Stockholder") shall in no event be less than 110% of the Fair Market Value of
the shares of the Common Stock at the time the Incentive Option is granted. The
term of an Incentive Option granted to a 10% Stockholder shall not exceed five
(5) years from the date of grant.
The exercise price of the shares to be purchased pursuant to each
Option shall be paid (i) in full in cash, (ii) by delivery (i.e., surrender) of
shares of the Company's Common Stock owned by the optionee at the time of the
exercise of the Option, (iii) in installments, payable in cash, if permitted by
the Committee or (iv) any combination of the foregoing. The stock-for-stock
payment method permits an optionee to deliver one (1) or more shares of
previously owned Common Stock of the Company in satisfaction of the exercise
price of subsequent Options. The optionee may use the shares obtained on each
exercise to purchase a larger number of shares on the next exercise. (The
foregoing assumes an appreciation in value of previously acquired shares). The
result of the stock-for-stock payment method is that the optionee can generally
avoid immediate tax liability with respect to any appreciation in the value of
the stock utilized to exercise the Option.
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<PAGE>
Shares received by an optionee upon exercise of a Non-Incentive Option
may not be sold or otherwise disposed of for a period determined by the Board
upon grant of the Option, which period shall be not less than six (6) months nor
more than three (3) years from the date of acquisition of the shares (the
"Restricted Period"), except that, during the Restricted Period (i) the optionee
may offer the shares to the Company and the Company may, in its discretion,
purchase up to all the shares offered at the exercise price and (ii) if the
optionee's employment terminates during the Restricted Period (except in limited
instances), the optionee, upon written request of the Company, must offer to
sell the shares to the Company at the exercise price within seven (7) business
days. The Restricted Period shall terminate in the event of a Change in Control
of the Company (as defined), or at the discretion of the Board. After the
Restricted Period, an optionee wishing to sell must first offer such shares to
the Company at the Fair Market Value.
Limited Stock Appreciation Rights. The Committee is authorized, in
connection with any Option granted under the 1996 Plan, to grant the holder of
such Option a limited stock appreciation right ("LSAR"), entitling the holder to
receive, within sixty (60) days following a Change in Control, an amount in cash
equal to the difference between the exercise price of the Option and the market
value of the Common Stock on the effective date of the Change in Control. The
LSAR may be granted in tandem with an Option or subsequent to grant of the
Option. The LSAR will only be exercisable to the extent the related Option is
exercisable and will terminate if and when the Option is exercised.
Restricted and Deferred Stock. An award of restricted stock or deferred
stock may be granted under the 1996 Plan. Restricted stock is subject to
restrictions on transferability and other restrictions as may be imposed by the
Committee at the time of grant. In the event that the holder of restricted stock
ceases to be employed by the Company during the applicable restrictive period,
restricted stock that is at the time subject to restrictions shall be forfeited
and reacquired by the Company. Except as otherwise provided by the Committee at
the time of grant, a holder of restricted stock shall have all the rights of a
stockholder including, without limitation, the right to vote restricted stock
and the right to recover dividends thereon. An award of deferred stock is an
award that provides for the issuance of stock upon expiration of a deferral
period established by the Committee. Except as otherwise determined by the
Committee, upon termination of employment of the recipient of the award during
the applicable deferral period, all stock that is at the time subject to
deferral shall be forfeited. Until such time as the stock which is the subject
of the award is issued, the recipient of the award has no rights as a
stockholder.
Dividend Equivalent Awards. A dividend equivalent gives the recipient
the right to receive cash or other property equal in value to the dividends that
would be paid if the recipient held a specified number of shares of Common
Stock. A dividend equivalent right may be granted as a component of another
award or as a free standing award.
Bonus Shares and other Share Based Awards. The 1996 Plan authorizes the
Committee to grant shares as a bonus, or to grant shares or other awards in lieu
of obligations of the Company to pay cash under other plans or compensatory
arrangements, upon such terms as shall
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<PAGE>
be determined by the Committee. The 1996 Plan also authorizes the Committee to
grant other forms of awards based upon, payable in, or otherwise related in
whole or in part to, Common Stock, including, without limitation, convertible or
exchangeable debentures or other debt securities, other rights convertible or
exchangeable into shares, purchase rights for shares, awards contingent upon
performance of the Company, and awards valued by reference to the book value of
shares of Common Stock or awards determined by reference to the value of
securities of, or the performance of, specified subsidiaries.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of this
Prospectus with respect to the beneficial ownership of the Company's outstanding
voting securities by (i) any holder of more than five percent (5%) of the
outstanding shares; (ii) the Company's officers and directors; and (iii) the
directors and officers of the Company as a group:
<TABLE>
<CAPTION>
Shares of Percentage Percentage Shares of Percentage Percentage Percentage
Common (%) of (%) of Preferred (%) of Total (%) of Total (%) Total
Stock Owned Common Common Stock Combined Combined Combined
----------- Stock Before Stock After ----- Vote Before Vote After Vote After
Offering Offering Offering Offering Offering and
------------ -------- -------- -------- Resale by
Selling
Security
holders
-------
<S> <C> <C> <C> <C> <C> <C> <C>
Name and
Address of
Beneficial Owner
PMF, Inc.(1)(2) 3,000,000 85.7 75.0 5,000,000 94.1 88.9 66.7
Compare 500,000 14.3 12.5 0.0 6.25 5.6 5.6
Generiks, Inc.(3)
Lawrence D. 0.0 0.0 0.0 5,000,000 58.8 55.6 55.6
Simon
(1)(4)(6)
Reginald 0.0 0.0 0.0 5,000,000 58.8 55.6 55.6
Spinello
(1)(6)
Matthew L. 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Harriton
(1)
Dr. Daniel
Durchslag 0.0 0.0 0.0 5,000,000 58.8 55.6 55.6
(1)(6)
Steven F.
Wasserman (5) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
All officers and
directors as a
group (five (5) 0.0 0.0 0.0 5,000,000 58.8 55.6 55.6
persons)(6)
</TABLE>
(1) The address of each stockholder shown above is c/o Superior
Supplements, Inc., 270 Oser Avenue, Hauppauge, NY 11788.
(2) PMF, Inc., a corporation wholly owned by Barry Gersten, and the founder
of the Company is record holder of such shares. Mr. Gersten may be
deemed to hold sole investment and voting power over such shares.
(3) The address of Compare Generiks, Inc. is 300 Oser Avenue, Hauppauge,
New York 11788.
(4) Does not include an option to purchase 100,000 shares of Common Stock
delivery of which will be made to Mr. Simon after the Effective Date.
(5) The address of Steven F. Wasserman is 950 Third Avenue, New York, NY
10022. Mr. Wasserman is a partner in the firm of Bernstein & Wasserman,
LLP, which firm is passing upon certain legal matters in connection
with this Offering for the Company.
(6) Includes 5,000,000 shares of Preferred Stock owned by PMF, Inc. PMF,
Inc. granted a voting trust on May 1, 1996 for a period of five (5)
years to Lawrence D. Simon, Reginald Spinello and Dr. Durchslag. In the
event of any disagreement a majority decides how to vote. Accordingly,
each of them may be deemed to hold voting power over such shares. PMF,
Inc. has retained all other rights of beneficial ownership in such
shares.
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CERTAIN TRANSACTIONS
On April 24, 1996, the Company was formed in the State of Delaware.
On April 24, 1996, PMF, Inc., a company wholly-owned and controlled by
Barry Gersten, acquired (i) (a) 3,000,000 shares of Common Stock of the Company,
par value $.0001 per share, and (b) 3,000,000 Class A Warrants for a cash
consideration of $50,000, and (ii) 5,000,000 shares of Series A Preferred Stock
of the Company, par value $.0001, per share, for a cash consideration of $5,000.
The Series A Preferred Stock has no dividend rights and has a liquidation right
of $.02 per share. Each share of Series A Preferred Stock shall be entitled to
one (1) vote per share on all matters presented to stockholders of the Company.
See "Description of Securities." Each Class A Warrant entitles the holder to
purchase one (1) share of Common Stock of the Company at the initial public
offering price, commencing one (1) year after the Effective Date of the
Company's initial public offering.
On May 1, 1996 PMF, Inc. granted a voting trust for a period of five
(5) years to Lawrence D. Simon, Reginald Spinello and Dr. Daniel Durchslag over
the 5,000,000 Preferred Shares owned by PMF, Inc. The voting trust provides for
the majority decision to control the vote in the event of any disagreement
between the trustees.
As of May 1, 1996, the Company entered into a one (1) year employment
agreement with Lawrence D. Simon, pursuant to which Mr. Simon serves as the
Company's President. The agreement provides for Mr. Simon to receive a salary of
$75,000 per annum. In addition, Mr. Simon has been granted the right to the
delivery, after the Effective Date hereof, of an option to purchase 100,000
shares of the outstanding Common Stock of the Company exercisable (i) at an
exercise price equal to the public offering price of the shares of Common Stock
of the Company offered for sale in the Offering commencing one year from the
Effective Date of the Offering, and (ii) only at a time when Mr. Simon is
employed by the Company. The agreement can be terminated by the Company, with or
without cause, upon ninety (90) days' notice and contains prohibitions on the
disclosure of confidential information and covenants not to compete with the
Company which survive any such termination for a period of twenty four (24)
months.
On May 14, 1996, the Company agreed to supply PDK Labs Inc. with
vitamins and dietary supplements in bulk tablet form at the Company's cost plus
fifteen percent (15%) pursuant to a supply agreement between the Company and PDK
Labs Inc. (the "PDK Agreement"). PDK Labs Inc. agreed to purchase products
having a minimum aggregate sales price of $2,500,000 per annum for each year
during the term of the PDK Agreement. In the event that PDK Labs Inc. fails to
purchase the minimum amount of products in any year, the Company will be paid
$100,000 as liquidated damages (pro-rated by reference to the percentage of said
minimum amount purchased during the related year). The term of the PDK Agreement
is for a period of three (3) years, automatically renewable for successive one
(1) year terms. See "Risk Factors - Conflicts of Interest."
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<PAGE>
On May 31, 1996, the Company agreed to exclusively supply Compare
Generiks, Inc. with vitamins in bulk tablet form (other than any vitamins sold
under the "Energex" trade mark or as part of the "Energex" product line) at the
Company's cost plus fifteen percent (15%) pursuant to a supply agreement between
the Company and Compare Generiks, Inc. (the "Compare Agreement"). The term of
the Compare Agreement is for a period of three (3) years, automatically
renewable for successive one (1) year terms. See "Risk Factors Conflicts of
Interest."
On May 31, 1996, Compare Generiks, Inc., acquired 500,000 shares of
Common Stock of the Company (14.29% of the issued and outstanding shares of
Common Stock prior to the Offering), par value $.0001 per share (i) for a cash
consideration of $100,000, and (ii) in consideration of the issuance of 200,000
shares of common stock of Compare Generiks, Inc. In June, 1996, a registration
statement filed by Compare Generiks, Inc. was declared effective by the
Securities and Exchange Commission registering the 200,000 shares of common
stock owned by the Company.
On May 31, 1996, the Company entered into a revolving credit agreement
with Dune Holdings, Inc., ("Dune") one of the Bridge Lenders, pursuant to which
the Company can borrow up to $200,000 for a period of twenty four (24) months at
an interest rate of fifteen percent (15%) interest per annum. The Company paid
Dune a commitment fee of $2,000 (one percent (1%) of the maximum amount
available under the revolving credit agreement). As of September 30, 1996, the
Company had not borrowed any funds pursuant to the revolving credit agreement.
In May, 1996, the Company borrowed an aggregate of $300,000 from two
(2) unaffiliated lenders, Dune Holdings, Inc. and Clinthill Investments Ltd.
(the "Bridge Lenders"). In exchange for making loans to the Company, each Bridge
Lender received two promissory notes (the "Bridge Notes"). Certain of the Bridge
Notes are in the aggregate principal amount of $200,000 (the "Principal Bridge
Notes") and the other Bridge Notes are in the aggregate principal amount equal
to $100,000 (the "Convertible Bridge Notes"). Each of the Bridge Notes bears
interest at the rate of eight percent (8%) per annum. The Bridge Notes are due
and payable upon the earlier of (i) April 30, 1997 or (ii) the closing of an
initial underwritten public offering of the Company's securities. The Company
intends to use a portion of the proceeds of this Offering to repay the Bridge
Lenders. See "Use of Proceeds." In addition, each Convertible Bridge Note
converts into a number of Class A Warrants equal to ten (10) times the principal
amount of such Convertible Bridge Note upon the consummation of this Offering.
The Company entered into the bridge financing transactions because it required
additional financing and no other sources of financing were available to the
Company at that time. Further, the Company agreed to register the resale of the
Class A Warrants issuable upon conversion of the Convertible Bridge Notes, as
well as the shares of Common Stock issuable upon the exercise of the Class A
Warrants in the first registration statement filed by the Company following the
date of the loan. Therefore, the Registration
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<PAGE>
Statement, of which this Prospectus forms a part, relates to the resale of the
1,000,000 Class A Warrants issuable upon conversion of the Convertible Bridge
Notes and 1,000,000 shares of Common Stock issuable upon exercise of the Class A
Warrants. See "Selling Securityholders" "Bridge Financings" and "Underwriting."
In June, 1996, the Company borrowed $200,000 from PMF, Inc., the
Company's founder, at an annual interest rate of eight percent (8%) pursuant to
a promissory note dated June 26, 1996, repayable on June 25, 1998.
On December 3, 1996, the Company sold 70,000 shares of common stock of
Compare Generiks, Inc. for $4.25 per share for net proceeds of $297,500.
On December 10, 1996, the Company sold 100,000 shares of common stock
of Compare Generiks, Inc. for $2.975 per share for net proceeds of $297,500. The
Company has retained 30,000 shares of Compare Generiks, Inc. with the intention
of securing the best possible price for the remaining shares.
The Company believes that all transactions with PDK, the Bridge Lenders
and officers or shareholders of the Company and their affiliates were made on
terms no less favorable to the Company than those available from unaffiliated
parties. The Company intends that in the future any such transactions shall also
be made on terms no less favorable than those available from unaffiliated
parties.
53
<PAGE>
DESCRIPTION OF SECURITIES
The Company is offering 500,000 shares of Common Stock, par value
$.0001 per share.
Common Stock
The Company is authorized to issue up to 25,000,000 shares of Common
Stock, of which 3,500,000 shares will be issued and outstanding as of the date
of this Prospectus. All of the issued and outstanding shares of Common Stock
will be fully paid, validly issued and non-assessable.
Subject to the rights of holders of Preferred Stock, if any, holders of
shares of Common Stock of the Company are entitled to share equally on a per
share basis in such dividends as may be declared by the Board of Directors out
of funds legally available therefor. There are presently no plans to pay
dividends with respect to the shares of Common Stock. See "Dividend Policy."
Upon liquidation, dissolution or winding up of the Company, after payment of
creditors and the holders of any senior securities of the Company, including
Preferred Stock, if any, the assets of the Company will be divided pro rata on a
per share basis among the holders of the shares of Common Stock. The Common
Stock is not subject to any liability for further assessments. There are no
conversion or redemption privileges nor any sinking fund provisions with respect
to the Common Stock and the Common Stock is not subject to call. The holders of
Common Stock do not have any pre-emptive or other subscription rights.
Holders of shares of Common Stock are entitled to cast one (1) vote for
each share held at all stockholders' meetings including the annual meeting, for
all purposes, including the election of directors. The Common Stock does not
have cumulative voting rights.
Preferred Stock
The Company's Certificate of Incorporation authorizes 10,000,000 shares
of "blank check" Preferred Stock, whereby the Board of Directors of the Company
shall have the authority, without further action by the holders of the
outstanding Common Stock, to issue shares of Preferred Stock from time to time
in one or more classes or series, to fix the number of shares constituting any
class or series and the stated value thereof, if different from the par value,
and to fix the term of any such series or class, including dividend rights,
dividend rates, conversion or exchange rights, voting rights, rights and terms
of redemption (including sinking fund provisions), the redemption price and the
liquidation preference of such class or series. As of the date of this
Prospectus, there are 5,000,000 shares of Series A Preferred Stock issued and
outstanding. The Company has agreed with the Underwriters that it will not issue
any additional shares of preferred stock for a period of twenty four (24) months
from the date of this Prospectus without the prior written consent of the
Underwriter.
54
<PAGE>
Series A Preferred Stock
Designation and Amount; Par Value. The shares of such series are
designated as Series A Preferred Stock and the number of shares constituting
such series is 5,000,000, 5,000,000 of which are issued and outstanding prior to
the Effective Date of the Offering. The Series A Preferred Stock has $.0001 par
value per share.
Dividends. Holders of the Series A Preferred Stock do not have any
right to the payment of any dividend.
Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Company, the shares
of Series A Preferred Stock shall have a liquidation preference in the aggregate
amount of $100,000 or $.02 per share of Series A Preferred Stock.
Voting Rights. Each holder of Series A Preferred Stock shall be
entitled to one (1) vote per share on all matters presented to the stockholders
of the Company.
Rank. The shares of Series A Preferred Stock rank senior to all series
of preferred stock and the Common Stock in all respects.
Class A Warrants
Each Class A Warrant entitles the holder to purchase one (1) share of
Common Stock at a price of $5.25 per share for a period of four (4) years
commencing one (1) year from the Effective Date of this Offering. As of the date
of this Prospectus, there are 3,000,000 Class A Warrants issued and outstanding.
Each Class A Warrant is redeemable by the Company for $.05 per Class A Warrant,
at any time after ____, 1998, upon thirty (30) days' prior written notice, if
the closing price of the Common Stock, as reported by the principal exchange on
which the Common Stock is traded, the NASD OTC Bulletin Board or the National
Quotation Bureau Incorporated, as the case may be, exceeds $10.00 per share for
twenty (20) consecutive trading days prior to the date of the notice of
redemption. Upon thirty (30) days' written notice to all holders of Class A
Warrants, the Company shall have the right, subject to compliance with Rule
13E-4 under the Securities Exchange Act of 1934 and the filing of Schedule 13E-4
and, if required, a post-effective amendment to this registration statement, to
reduce the exercise price and/or extend the term of the Class A Warrants.
The Class A Warrants can only be exercised when there is a current
effective registration statement covering the shares of Common Stock underlying
the Class A Warrants. If the Company does not or is unable to maintain a current
effective registration statement, the holders of Class A Warrant certificates
will be unable to exercise the Class A Warrants and the Class A Warrants may
become valueless. Moreover, if the shares of Common Stock underlying the Class A
Warrants are not registered or qualified for sale in the state in which a
55
<PAGE>
holder of Class A Warrant certificates resides, such holder might not be
permitted to exercise the Warrants. See "Risk Factors - Current Prospectus and
State Blue Sky Registration in Connection with the Exercise of the Warrants."
Each Class A Warrant may be exercised by surrendering the Warrant
certificate, with the form of election to purchase on the reverse side of the
Class A Warrant certificate properly completed and executed, together with
payment of the exercise price, or $5.25 per share, to the Transfer Agent. The
Class A Warrants may be exercised in whole or from time to time in part. If less
than all of the Class A Warrants evidenced by a Warrant certificate are
exercised, a new Class A Warrant certificate will be issued for the remaining
number of Class A Warrants.
Holders of the Class A Warrants are protected against dilution of the
equity interest represented by the underlying shares of Common Stock upon the
occurrence of certain events, including, but not limited to, issuance of stock
dividends. If the Company merges, reorganizes or is acquired in such a way as to
terminate the Class A Warrants, the Class A Warrants may be exercised
immediately prior to such action. In the event of liquidation, dissolution or
winding up of the Company, holders of the Class A Warrants are not entitled to
participate in the Company's assets.
For the life of the Class A Warrants, the holders thereof are given the
opportunity, at nominal cost, to profit from a rise in the market price of the
Common Stock. The exercise of the Class A Warrants will result in the dilution
of the then book value of the Common Stock of the Company held by the public
investors and would result in a dilution of their percentage ownership of the
Company.
Delaware Anti-Takeover Law
The Company is governed by the provisions of Section 203 of the General
Corporation Law of Delaware, an anti-takeover law enacted in 1988. In general,
the law prohibits a Delaware public corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three (3) years
after the date of the transaction in which the person became an interested
stockholder, unless it is approved in a prescribed manner. As a result of
Section 203, potential acquirors of the Company may be discouraged from
attempting to effect acquisition transactions with the Company, thereby possibly
depriving holders of the Company's securities of certain opportunities to sell
or otherwise dispose of such securities at above-market prices pursuant to such
transactions.
Limitation on Liability of Directors
In connection with the Offering, the Underwriters have agreed to
indemnify the Company, its directors, and each person who controls it within the
meaning of Section 15 of the Securities Act with respect to any statement in or
omission from the registration statement
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<PAGE>
or the Prospectus or any amendment or supplement thereto if such statement or
omission was made in reliance upon information furnished in writing to the
Company by the Underwriters specifically for or in connection with the
preparation of the registration statement, the prospectus, or any such amendment
or supplement thereto.
Section 145 of the Delaware General Corporation Law empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of the performance of their duties as
directors and officers provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) arising under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of stockholders or otherwise.
Article Ninth of the Company's Certificate of Incorporation eliminates
the personal liability of directors to the fullest extent permitted by Section
102 of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
The Company does not currently have any liability insurance coverage
for its officers and directors.
Commission Policy
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and other agents of the Company, the Company
has been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
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<PAGE>
Transfer Agent & Registrar
The transfer agent and registrar for the Company's securities is
American Stock Transfer & Trust Company (the "Transfer Agent").
58
<PAGE>
SELLING SECURITYHOLDERS
The registration statement of which this Prospectus forms a part also
covers the resale of (i) (a) 1,000,000 Class A Warrants issuable upon conversion
of the Convertible Bridge Notes, and (b) 1,000,000 shares of Common Stock
issuable upon exercise of the Class A Warrants and (ii) (a) 2,000,000 shares of
Common Stock, (b) 2,000,000 Class A Warrants, and (c) 2,000,000 shares of Common
Stock issuable upon exercise of the Class A Warrants all of which are held by
PMF, Inc. ("PMF") (hereinafter collectively referred to as the "Selling
Securityholders"). The Selling Securityholders cannot resell any of the
securities owned by them until the Over-Allotment Option has either been
exercised in full or terminated. PMF is wholly-owned and controlled by Barry
Gersten. PMF owned 85.7% of the outstanding shares of Common Stock of the
Company prior to the Offering and the shares being registered on behalf of PMF
constitute 57.1% of such outstanding shares prior to the Offering and 50% of the
outstanding shares of Common Stock upon completion of the Offering. The Company
will not receive any of the proceeds on the resale of the securities by the
Selling Securityholders. The resale of the securities of the Selling
Securityholders are subject to Prospectus delivery and other requirements of the
Securities Act of 1933, as amended (the "Act"). Sales of such securities or the
potential of such sales at any time may have an adverse effect on the market
prices of the securities offered hereby. See "Risk Factors - Shares Eligible for
Future Sale May Adversely Affect the Market."
The following table sets forth the holders of the shares of Common
Stock which are being offered by the Selling Securityholders (assuming the
conversion of the Convertible Bridge Notes) and the number of shares owned
before the Offering, the number of shares being offered and the number of shares
and the percentage of the class to be owned after the Offering is complete,
assuming the completion of both the Offering and the offering by Selling
Securityholders.
59
<PAGE>
<TABLE>
<CAPTION>
Name Shares of Class A Shares of Class A Shares of Class A Percent of Percent of
Common Warrants Common Warrants Stock Owned Warrants Common Class A
Stock Owned Owned Stock Offered After Owned After Stock After Warrants
Before Before Offered Hereby Offering Offering Offering After
Offering Offering Hereby Offering
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PMF, Inc. 3,000,000 3,000,000 2,000,000 2,000,000 1,000,000 1,000,000 25.0 33.3
Dune Holdings, 0 800,000 0 800,000 0 0 0 0
Inc.(1)
Clinthill Investments, 0 200,000 0 200,000 0 0 0 0
Ltd.(1)
Total 3,000,000 4,000,000 2,000,000 3,000,000 1,000,000 1,000,000 25.0 33.3
</TABLE>
(1) The principal stockholder, officer and director of Dune Holdings,
Inc. is Randolph K. Pace. The Company has been advised that there is no
affiliated relationship between Dune Holdings, Inc., and Clinthill Investments,
Ltd. Dune Holdings, Inc. owns 200,000 shares of Common Stock of PDK Labs, Inc.
60
<PAGE>
The securities offered hereby may be sold from time to time directly by
the Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such securities through underwriters, dealers or agents. The
Selling Securityholders are not required to effect sales through VTR Capital,
Inc. and the Company has been advised by VTR Capital Inc. that it has no current
or future plans, proposals, arrangements or understandings with respect to
engaging in transactions with the Selling Securityholders, including
transactions involving short selling. The distribution of securities by the
Selling Securityholders may be effected in one or more transactions that may
take place on the over-the-counter market, including ordinary broker's
transactions, privately-negotiated transactions or through sales to one or more
broker-dealers for resale of such shares and/or warrants as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with such sales of securities. The securities
offered by the Selling Securityholders may be sold by one or more of the
following methods, without limitations: (a) a block trade in which a broker or
dealer so engaged will attempt to sell the shares and/or warrants as agent but
may position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers,
and (d) face-to-face transactions between sellers and purchasers without a
broker-dealer. In effecting sales, brokers or dealers engaged by the Selling
Securityholders may arrange for other brokers or dealers to participate. The
Selling Securityholders and intermediaries through whom such securities are sold
may be deemed "underwriters" within the meaning of the Act with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation.
The Company has undertaken that until the distribution of securities in
connection with this Offering is deemed complete, that it will file a
post-effective amendment to this Registration Statement at such time as it is
notified by any named underwriter that it has entered into a transaction to act
as an underwriter (as such term is defined in Section 2(11) of the Act and Rule
144 of the Regulations) for the purpose of a distribution of more than 10% of
the aggregate securities registered by Selling Securityholders and will sticker
the prospectus if such agreement pertains to between 5% and 10% of the aggregate
securities registered by the Selling Securityholders.
At the time a particular offer of securities is made by or on behalf of
a Selling Securityholder, to the extent required, a Prospectus will be
distributed which will set forth the number of shares and/or warrants being
offered and the terms of the Offering, including the name or names of any
underwriters, dealers or agents, if any, the purchase price paid by any
Underwriters for sales purchased from the Selling Securityholder and any
discounts, commissions or concessions allowed or reallowed or paid to dealers
and the proposed selling price to the public.
61
<PAGE>
Resales of securities by the Selling Securityholders or even the
potential of such resales would likely have an adverse effect on the market
prices of the securities offered hereby.
62
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a
copy of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, the Underwriters, as set forth below and for whom VTR
Capital is acting as the Representative, have agreed to purchase from the
Company 500,000 shares of Common Stock offered hereby from the Company on a
"firm commitment" basis, if any are purchased. The Underwriters have advised the
Company that they propose to offer the Shares to the public at $6.00 per Share
as set forth on the cover page of this Prospectus and that they may allow to
certain dealers who are NASD members concessions not to exceed $ per Share, of
which not in excess of $ per Share may be reallowed to other dealers who are
members of the NASD. The Underwriters do not intend to sell any of the Company's
Shares to accounts for which they exercise discretionary authority. After the
initial public offering, the public offering price, concession and reallowance
may be changed by the Underwriters.
<TABLE>
<CAPTION>
Underwriter Number of Shares
- ----------- ----------------
<S> <C>
VTR Capital, Inc.......... ----
..........
..........
</TABLE>
The public offering price of the Shares was arbitrarily determined by
negotiations between the Company and the Representative and do not necessarily
relate to the assets, book value or results of operations of the Company or any
other established criteria of value.
The Company has granted an option to the Underwriters, exercisable
during the thirty (30) day period from the date of this Prospectus, to purchase
up to a maximum of 75,000 additional Shares at the Offering price, less the
underwriting discount, to cover over-allotments, if any.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriters against certain liabilities in
connection with the Registration Statement, including liabilities arising under
the Act. Insofar as indemnification for liabilities arising under the Act may be
provided to officers, directors or persons controlling the Company, the Company
has been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy and is therefore unenforceable.
The Company has agreed to pay to the Underwriters a non-accountable
expense allowance of three percent (3%) of the aggregate Offering price of the
Shares, including any Shares purchased pursuant to the Over-Allotment Option.
The Company has agreed to sell to the Underwriters, or their designees,
for an aggregate purchase price of $50, an option (the "Underwriters' Option")
to purchase up to an aggregate of 50,000 Shares. The Underwriters' Option shall
be exercisable during a four (4)
63
<PAGE>
year period commencing one (1) year from the Effective Date. The Underwriters'
Option may not be assigned, transferred, sold or hypothecated by the
Underwriters until twelve (12) months after the Effective Date of this
Prospectus, except to officers of the Representative or the Underwriters or to
selling group members or their officers or partners in this Offering. Any
profits realized upon the sale of the Shares issuable upon exercise of the
Underwriters' Option may be deemed to be additional underwriting compensation.
The exercise price of the Shares issuable upon exercise of the Underwriters'
Option during the period of exercisability shall be one hundred sixty five
percent (165%) of the initial public offering price of the Shares. The exercise
of the Underwriters' Option and the number of Shares covered thereby are subject
to adjustment in certain events to prevent dilution. For the life of the
Underwriters' Option, the holders thereof are given, at a nominal cost, the
opportunity to profit from a rise in the market price of the Company's Common
Stock with a resulting dilution in the interest of other stockholders. The
Company may find it more difficult to raise capital for its business if the need
should arise while the Underwriters' Option is outstanding. At any time when the
holders of the Underwriters' Option might be expected to exercise it, the
Company would probably be able to obtain additional capital on more favorable
terms.
If the Company enters into a transaction (including a merger, joint
venture, equity financing, debt financing, or the acquisition of another entity)
introduced to the Company by the Representative, the Company has agreed to pay
the Representative a finder's fee equal to five percent (5%) of the first
$4,000,000 of consideration involved in the transaction, ranging in $1,000,000
increments down to two percent (2%) of the excess, if any, over $6,000,000.
Upon the closing of the sale of the Shares offered hereby, the Company
will enter into a two (2) year financial advisory and investment banking
agreement with the Representative, pursuant to which the Company will be
obligated to pay the Representative $72,000 in advance upon the closing of the
Offering, for financial and investment advisory services to the Company to be
provided to the Company for no more than two (2) business days per month.
The Company has agreed with the Representative that, commencing one (1)
year from the date hereof the Company will pay to the Representative a warrant
solicitation fee (the "Warrant Solicitation Fee") equal to four percent (4%) of
the exercise price of the Class A Warrants exercised, a portion of which may be
re-allowed to any dealer who solicited the exercise to the extent not
inconsistent with the guidelines of the NASD and the rules and regulations of
the Commission. Such Warrant Solicitation Fee will be paid to the Representative
if (a) the market price of the Common Stock on the date that any Class A
Warrants is exercised is greater than the exercise price of the Class A Warrant;
(b) the exercise of such Class A Warrant was solicited by the Representative or
other NASD members; (c) prior specific written approval for exercise is received
from the customer if the Class A Warrant is held in a discretionary account; (d)
disclosure of this compensation agreement is made prior to or upon the exercise
of such Class A Warrant; (e) solicitation of the exercise is not in violation of
Rule 10b-6 of the Exchange Act; and (f) solicitation of the exercise is in
compliance with NASD Notice to Member 81-38. Unless granted an exemption
64
<PAGE>
by the Securities and Exchange Commission from Rule 10b-6, the Underwriters and
any solicitation broker-dealers are prohibited from engaging in any market
making activities with regard to the issuer's securities for the period from two
or nine business days prior to any solicitation of the exercise of warrants
until the later of termination of such solicitation activity or the termination
(by waiver or otherwise) of any right that the Underwriters and soliciting
broker-dealers may have to receive a fee for the exercise of warrants following
such solicitation. As a result, the Underwriters and soliciting broker-dealers
may be unable to continue to provide a market for the Company's securities
during certain periods while the warrants are exercisable. See "Risk Factors -
Lack of Prior Market for Common Stock and Class A Warrants; No Assurance of
Public Trading Market."
The Representative has limited experience as an underwriter of public
offerings. The Underwriter has been the underwriter or co-underwriter in the
eight firm commitment offerings listed below: U.S. Opportunity Search, Inc.,
Interiors, Inc., Conolog, Inc., New Day Beverage, Inc., Perry's Majestic Beer,
Inc., Micro-Energy, Inc., Compare Generiks, Inc. and Decor Group, Inc. The
Company's offering is expected to be VTR's ninth firm commitment offering. There
can be no assurance that the Representative's limited experience as an
underwriter of public offerings will not adversely affect the proposed public
offering of the Shares the subsequent development of a trading market, if any,
or the market for and liquidity of the Company's securities. Therefore,
purchasers of the securities offered hereby may suffer a lack of liquidity in
their investment or a material diminution of the value of their investment.
The foregoing is a summary of certain provisions of the Underwriting
Agreement and Underwriters' Option which have been filed as exhibits hereto.
Determination of Public Offering Price
Prior to this Offering, there has been no public market for the Common
Stock and the Class A Warrants. The initial public offering price for the Shares
and the exercise price of the Class A Warrants have been determined by
negotiations between the Company and the Representative. Among the factors
considered in the negotiations were the market price of the Company's Common
Stock, an analysis of the areas of activity in which the Company is engaged, the
present state of the Company's business, the Company's financial condition, the
Company's prospects, an assessment of management, the general condition of the
securities market at the time of this Offering and the demand for similar
securities of comparable companies. The public offering price of the Shares and
the exercise price of the Class A Warrants does not necessarily bear any
relationship to assets, earnings, book value or other criteria of value
applicable to the Company.
The Company anticipates that the Common Stock and the Class A Warrants
will be listed for quotation on the NASD OTC Bulletin Board under the symbols,
______ and _____, respectively, but there can be no assurances that an active
trading market will develop, even if the securities are accepted for quotation.
The Underwriters intend to make a market in all of
65
<PAGE>
the publicly-traded securities of the Company.
LEGAL MATTERS
The validity of the securities being offered hereby will be passed upon
for the Company by Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY
10022. Bernstein & Wasserman, LLP, has served, and continues to serve, as
counsel to the Underwriters in matters unrelated to this Offering. Certain legal
matters will be passed upon for the Underwriters by Lester Morse, P.C., 111
Great Neck Road, Great Neck, N.Y. 11021. Steven F. Wasserman, a partner at
Bernstein & Wasserman, LLP, is one of the Directors of the Company. See
"Management" and "Principal Stockholders."
EXPERTS
Certain of the financial statements of the Company included in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been examined by Holtz Rubenstein &
Co., LLP, independent certified public accountants, whose reports contain an
explanatory paragraph regarding uncertainties as to the ability of the Company
to continue as a going concern, which appear elsewhere herein and in the
Registration Statement.
ADDITIONAL INFORMATION
This Prospectus constitutes part of a Registration Statement on Form
SB-2 filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act and omits certain information contained
in the Registration Statement. Reference is hereby made to the Registration
Statement and to its exhibits for further information with respect to the
Company and the Common Stock offered hereby. Statements contained herein
concerning provisions of documents are necessarily summaries of such documents,
and each statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission.
The Registration Statement, including the exhibits thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at: 450 Fifth Street, Washington, D.C. 20549; and at the offices of
the Commission located at 7 World Trade Center, New York, NY 10048; and copies
of such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, Washington, D.C. 20549 at prescribed rates.
66
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A Development Stage Company)
REPORT ON AUDIT OF
FINANCIAL STATEMENTS
PERIOD APRIL 24, 1996 (INCEPTION)
TO JUNE 30, 1996
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Certified Public Accountants F-1
Financial Statements:
Balance sheets as of June 30, 1996 and September 30, 1996 (unaudited) F-2
Statements of operations for the period April 24, 1996 (inception) to June
30, 1996, three months ended September 30, 1996
(unaudited), and cumulative during development stage (unaudited) F-3
Statement of stockholders' equity for the period April 24, 1996 (inception)
to June 30, 1996, and three months ended September 30, 1996 (unaudited) F-4
Statements of cash flows for the period April 24, 1996 (inception) to June
30, 1996, and three months ended September 30, 1996
(unaudited), and cumulative during development stage (unaudited) F-5
Notes to financial statements F-6 - F-12
</TABLE>
<PAGE>
Holtz Rubenstein & CO., LLP
Certified Public Accountants
Independent Auditors' Report
Board of Directors and Stockholders
Superior Supplements, Inc.
Hauppauge, New York
We have audited the balance sheet of Superior Supplements, Inc. (a development
stage company) as of June 30, 1996, and the related statements of operations,
stockholders' equity and cash flows for the period April 24, 1996 (inception) to
June 30, 1996. 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 statement referred to above present fairly, in all
material respects, the financial position of Superior Supplements, Inc. as of
June 30, 1996 and the results of its operations and its cash flows for the
period April 24, 1996 (inception) to June 30, 1996, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1, Superior
Supplements, Inc. is in the development stage and the Company's ability to
continue in the normal course of business is dependent upon successful
completion of its planned public offering of equity securities to raise capital
and the success of future operations. These uncertainties raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
/s/ Holtz Rubensten & Co., LLP
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
July 11, 1996
[LOGO]
125 Baylis Road, Melville, NY 11747-3823 o FAX 516/752-1742 o 516/752-7400
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
ASSETS (Note 14) 1996 1996
------ ------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 594,175 $ 134,427
Accounts receivable (Note 10) 392,247 486,027
Inventory 99,586 413,623
Prepaid expense - 14,124
------------- -----------
Total current assets 1,086,008 1,048,201
PROPERTY AND EQUIPMENT, net (Note 3) 341,328 828,824
INVESTMENT IN AVAILABLE-FOR-SALE
SECURITIES (Notes 7 and 14) 1,067,000 1,034,000
DEFERRED TAX ASSET (Note 8) 33,700 45,200
OTHER ASSETS, net 37,501 209,478
------------- -----------
$ 2,565,537 $ 3,165,703
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Bridge notes payable (Note 4) $ 300,000 $ 300,000
Accounts payable and accrued expenses 761,448 1,435,297
Income taxes payable (Note 8) 24,000 11,300
------------- -----------
Total current liabilities 1,085,448 1,746,597
------------- -----------
NOTE PAYABLE (Note 5) 200,000 200,000
------------- -----------
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY: (Note 7)
Common stock, $.0001 par value; authorized 25,000,000
shares; 3,500,000 issued and outstanding 350 350
Preferred stock, $.0001 par value; authorized 10,000,000
shares; 5,000,000 shares issued and outstanding 500 500
Additional paid-in capital 1,304,150 1,304,150
Unrealized loss on available-for-sale investments (60,100) (84,000)
(Deficit) retained earnings accumulated
during the development stage 35,189 (1,894)
------------- -----------
1,280,089 1,219,106
------------- -----------
$ 2,565,537 $ 3,165,703
============= ===========
</TABLE>
See notes to financial statements
F-2
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period Three Months Cumulative
April 24, 1996 Ended During
(Inception) September 30, Development
June 30, 1996 1996 Stage
--------------- ---------------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
REVENUE (Note 10) $ 857,398 $ 770,954 $ 1,628,352
----------- ---------- -------------
COSTS AND EXPENSES:
Cost of sales 738,040 670,464 1,408,504
General and administrative (Note 9) 70,969 123,123 194,092
Interest expense - 14,450 14,450
----------- ---------- -------------
809,009 808,037 1,617,046
----------- ---------- -------------
EARNINGS (LOSS) FROM OPERATIONS
BEFORE INCOME TAX 48,389 (37,083) 11,306
PROVISION FOR INCOME TAX (Note 8) 13,200 - 13,200
----------- ---------- -------------
NET (LOSS) INCOME $ 35,189 $ (37,083) $ (1,894)
=========== ========== =============
NET (LOSS) INCOME PER SHARE (Note 2) $.01 $(.01) $(.01)
==== ===== =====
WEIGHTED AVERAGE NUMBER OF
SHARES OF COMMON STOCK
OUTSTANDING (Note 2) 3,500,000 3,500,000 3,500,000
========= ========= =========
</TABLE>
See notes to financial statements
F-3
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
(Note 7)
<TABLE>
<CAPTION>
Common Stock Preferred Stock
25,000,000 Shares 10,000,000 Shares Unrealized
$.0001 Par Value $.0001 Par Value Loss on
-------------------- --------------------- Additional Investment
Par Par Paid-in Available-
Shares Value Shares Value Capital for-Sale
----------- ------ --------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of stock for cash at inception 3,000,000 $ 300 5,000,000 $ 500 $ 54,200 $ -
Issuance of stock for cash and stock
of Compare Generik, Inc. 500,000 50 - - 1,249,950 -
Unrealized loss on investment available-for-sale - - - - - (60,100)
Net income - - - - - -
--------- ------ --------- ------- ------------ ----------
Balance, June 30, 1996 3,500,000 350 5,000,000 500 1,304,150 (60,100)
Unrealized loss on investment
available-for-sale (unaudited) - - - - - (23,900)
Net loss (unaudited) - - - - - -
--------- ------ --------- ------- ------------ ----------
Balance, September 30, 1996 (unaudited) 3,500,000 $ 350 5,000,000 $ 500 $ 1,304,150 $ (84,000)
========= ====== ========= ======= ============ ==========
</TABLE>
<TABLE>
<CAPTION>
(Deficit)
Retained
Earnings
Accumulated
During the
Development
Stage Total
----------- ------------
<S> <C> <C>
Issuance of stock for cash at inception $ - $ 55,000
Issuance of stock for cash and stock
of Compare Generik, Inc. - 1,250,000
Unrealized loss on investment available-for-sale - (60,100)
Net income 35,189 35,189
---------- ------------
Balance, June 30, 1996 35,189 1,280,089
Unrealized loss on investment
available-for-sale (unaudited) - (23,900)
Net loss (unaudited) (37,083) (37,083)
---------- ------------
Balance, September 30, 1996 (unaudited) $ (1,894) $ 1,219,106
========== ============
</TABLE>
See notes to financial statements
F-4
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period Three Months Cumulative
April 24, 1996 Ended During
(Inception) September 30, Development
June 30, 1996 1996 Stage
--------------- ---------------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ 35,189 $ (37,083) $ (1,894)
----------- ---------- ------------
Adjustments to reconcile net (loss) income
to net cash provided by operations:
Deferred income taxes (10,800) (2,400) (13,200)
Depreciation - 13,486 13,486
Amortization 1,666 5,330 6,996
Increase in assets:
Accounts receivable (392,247) (93,780) (486,027)
Inventory (99,586) (314,037) (413,623)
Prepaid expense - (14,124) (14,124)
Other assets (39,167) (177,307) (216,474)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 761,448 673,849 1,435,297
Taxes payable 24,000 (12,700) 11,300
----------- ---------- ------------
Total adjustments 245,314 78,317 323,631
----------- ---------- ------------
Net cash provided by operating activities 280,503 41,234 321,737
----------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (341,328) (500,982) (842,310)
----------- ---------- ------------
Net cash used in investing activities (341,328) (500,982) (842,310)
----------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock 155,000 - 155,000
Proceeds from notes payable 200,000 - 200,000
Proceeds from bridge notes payable 300,000 - 300,000
----------- ---------- ------------
Net cash provided by financing activities 655,000 - 655,000
----------- ---------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 594,175 (459,748) 134,427
CASH AND CASH EQUIVALENTS,
beginning of period - 594,175 -
----------- ---------- -----------
CASH AND CASH EQUIVALENTS,
end of period $ 594,175 $ 134,427 $ 134,427
=========== ========== ============
</TABLE>
See notes to financial statements
F-5
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
PERIOD APRIL 24, 1996 (INCEPTION) TO JUNE 30, 1996
AND THREE MONTHS ENDED SEPTEMBER 30, 1996
(Information with respect to the three months ended
September 30, 1996 is unaudited)
1. Organization and Nature of Operations:
Superior Supplements, Inc. (the "Company") is a Delaware Corporation
which was formed on April 24, 1996. It is the Company's intention to be engaged
in the development, manufacture, marketing and sale of dietary supplements
including vitamins, minerals, herbs and specialty nutritional supplements, in
bulk tablet, capsule and powder form. Prior to the setting up of its
manufacturing facility, the Company acted as a wholesaler for these products.
The Company's fiscal year end is June 30.
The Company is in the development stage, as defined in Financial
Accounting Standards Board Statement No. 7. To date, the Company has devoted its
efforts to various organizational activities, including developing its business
strategy, raising capital, and undertaking preliminary activities for the
commencement of operations.
As reflected in the accompanying financial statements, the Company has
incurred cumulative losses of approximately $1,900. The Company has entered into
a letter of intent with an underwriter for the public sale of the Company's
securities (Note 7e). Management is of the opinion that the proceeds of this
proposed offering will be sufficient to meet the working capital needs of the
Company for the twelve-month period following the successful completion of this
proposed offering, including the payment of certain indebtedness of the Company.
There can be no assurance that additional financing will not be required to
successfully penetrate the market and for continued operations. If additional
financing is required, there is no assurance that such funds will be available
to the Company. In addition, there is no assurance that the proposed public
offering will occur.
The above factors raise substantial doubt about the ability of the
Company to continue as a going concern. The accompanying financial statements do
not include any adjustments relating to the recoverability and classification of
the recorded asset amounts and classifications of liabilities that might result
should the Company be unable to continue as a going concern.
2. Summary of Significant Accounting Policies:
a. Inventory
Inventory, consisting of finished goods, are valued at lower of cost
(first-in, first-out method) or market.
b. Depreciation
Depreciation is computed on the straight-line method over the useful
lives of the related assets (5-10 years). Leasehold improvements are amortized
over their expected useful lives.
F-6
<PAGE>
2. Summary of Significant Accounting Policies: (Cont'd)
c. Income taxes
Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
d. Statement of cash flows
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
e. Net (Loss) Income Per Share
Net (loss) income per share is computed using the weighted average
number of common and common equivalent shares outstanding during the period.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin, all
common stock issued by the Company during the twelve months preceding the
offering date at prices below the offering price have been included in the
calculation of weighted average shares outstanding as if they were outstanding
for the entire period.
f. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. A significant estimate has been made by management with
respect to the valuation of the company's investment in the shares of common
stock of Compare Generiks, Inc. (see Note 7c). Actual results could differ
significantly from these estimates making it reasonably possible that a change
in these estimates could occur in the near term. See Note 14 for additional
information with respect to this estimate.
g. Concentration of credit risk
Financial instruments which potentially expose the Company to credit
risk, as defined by Statement of Financial Accounting Standard No. 105 ("FAS
105"), consists primarily of trade accounts receivable. Wholesale distributors
of dietary supplements and over-the-counter pharmaceuticals account for all of
the Company's trade receivables. The risk associated with this concentration is
limited due to their geographic dispersion.
h. Accounting for stock-based compensation
The Company accounts for its stock-based compensation costs using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25 and
will provide pro forma disclosures of net income and earnings per share as if
the fair value-based method prescribed by Financial Accounting Standards Board
Statement No. 123 ("FASB") had been applied in measuring compensation expense.
F-7
<PAGE>
3. Property and Equipment:
Property and equipment is recorded at cost and is summarized as follows:
<TABLE>
<CAPTION>
June 30, September 30,
1996 1996
---------- -----------
(Unaudited)
<S> <C> <C>
Equipment $ 277,832 $ 517,416
Leasehold improvements 63,496 288,814
Furniture and fixtures - 17,780
Computer equipment - 18,300
---------- -----------
341,328 842,310
Less accumulated depreciation - 13,486
---------- -----------
$ 341,328 $ 828,824
========== ===========
</TABLE>
No depreciation has been recorded as of June 30, 1996 as none of the
productive equipment has been put into operation.
4. Bridge Notes Payable:
On May 31, 1996 the Company borrowed $300,000 from two unrelated parties
at 8% due and payable upon the earlier of (i) April 30, 1997 or (ii) the
completion of a public offering of the Company's securities. In exchange for
making the loans to the Company each lender received a "Principal Bridge Note"
and a "Convertible Bridge Note." The Convertible Bridge Notes, which in the
aggregate equal $100,000, contain conversion features which entitles the holder
to convert the note into 1,000,000 Class A Warrants. Each Class A Warrant is
exercisable into one share of common stock at an exercise price equal to the
initial public offering price commencing one (1) year after the effective date
of the Company's initial public offering.
The Company has agreed to register the related Warrants as well as the
underlying shares of common stock issuable upon conversion of the Convertible
Bridge Notes.
5. Note Payable:
On June 26, 1996, the Company borrowed $200,000 from PMF, Inc., the
Company's founder. This note bears interest at 8% per annum. Principal and
accrued interest is due on June 25, 1998.
6. Revolving Credit Agreement:
In May 1996, the Company entered into a revolving credit agreement with
Dune Holdings, Inc. ("Dune"), one of the Company's Bridge Lenders, pursuant to
which the Company can borrow up to $200,000 for a period of twenty four (24)
months at an interest rate of fifteen percent (15%) per annum. As of September
30, 1996, the Company had no outstanding balance.
7. Stockholders' Equity:
a. Capitalization
Pursuant to the Company's certificate of incorporation, the Company is
authorized to issue 25,000,000 shares of common stock and 10,000,000 shares of
preferred stock. All stock has a $.0001 par value. Each share of common and
preferred has one vote in all matters.
F-8
<PAGE>
7. Stockholders' Equity: (Cont'd)
b. Initial capitalization
In April 1996, the Company issued 3,000,000 shares of common stock,
3,000,000 Class A Warrants and 5,000,000 shares of preferred stock for $55,000
("Founders' Stock"). The preferred shares, issued in April 1996, are designated
as Series A Preferred Shares. The Board of Directors has the authority to issue
preferred stock in one or more series and to fix the rights and other terms. The
Series A Preferred Shares rank senior to all series of preferred and common
stock, do not have any right to the payment of any dividend, and in the event of
any voluntary or involuntary liquidation of the Company are entitled to $.02 per
share.
Each Class A Warrant entitles the holder to purchase one (1) share of
common stock of the Company at the initial public offering price, commencing one
(1) year after the effective date of the Company's initial public offering.
c. Issuance of stock for stock and cash
On May 31, 1996, Compare Generiks, Inc. ("Compare") (see Note 9c)
acquired 500,000 shares of common stock of the Company, for $100,000 and the
issuance of 200,000 shares of common stock of Compare Generiks, Inc. The value
of the shares ($1,150,000) issued in connection with this transaction have been
determined using a fair value of $5.75 per share representing approximately
two-thirds of the market value of Compare's stock at May 31, 1996. As of
September 30, 1996 and June 30, 1996, available-for-sale investments were
composed of the aforementioned Compare shares with a historical cost basis of
$1,150,000 and an approximate market value of $1,034,000 and $1,067,000,
respectively. Unrealized loss, which is reported as a part of stockholders'
equity, was approximately $84,000 as of September 30, 1996, net of deferred
income taxes of $32,000 and $60,100 as of June 30, 1996, net of deferred income
taxes of $22,900. In June 1996, Compare registered the aforementioned 200,000
shares of common stock owned by the Company.
d. Reserved shares
At September 30, 1996, the Company has 6,100,000 shares of common
stock reserved for future issuances.
e. Proposed public offering
The Company intends to file a registration statement on Form SB-2 in
connection with a public offering of its securities. The proposed transaction
would be in the form of a unit offering consisting of two shares of common stock
and one Class A Warrant. The unit offering price will be dependent upon market
conditions on the effective date. Accordingly, the extent to which this
transaction will be successful, or if it will be successful at all, cannot be
ascertained prior to its completion.
f. Stock option plan
The Company has adopted a Stock Option Plan (the "Plan") covering
2,000,000 shares of common stock of the Company. Options under the Plan are
granted at terms set by the Board of Directors at the time of issuance. To date,
no options have been granted under the Plan.
F-9
<PAGE>
8. Income Taxes:
Income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
Period Three Months
April 24, 1996 Ended
(Inception) September 30,
June 30, 1996 1996
----------------- -----------
(Unaudited)
<S> <C> <C>
Federal:
Current $ 14,000 $ 1,400
Deferred (6,350) (1,350)
---------- ----------
7,650 50
---------- ----------
State:
Current 10,000 1,000
Deferred (4,450) (1,050)
---------- ----------
5,550 (50)
---------- ----------
$ 13,200 $ -
========== =========
</TABLE>
Deferred income taxes are provided as a result of transactions being
reported in different periods for financial accounting and income tax purposes.
The difference between the corporation's effective income tax rate and
the United States Statutory rate is reconciled below:
<TABLE>
<CAPTION>
Period Three Months
April 24, 1996 Ended
(Inception) September 30,
June 30, 1996 1996
----------------- -----------
(Unaudited)
<S> <C> <C>
United States statutory rate 34.0% (34.0)%
State income taxes, net of Federal income tax benefit 7.0 (7.0)
Effect of graduated rates (13.7) 14.0
Other - 27.0
------- -------
27.3% - %
======= =======
</TABLE>
9. Commitments:
a. Employment agreement
On May 1, 1996 the Company entered into a one year employment
agreement with its president. The agreement provides for an aggregate annual
salary of $75,000 and an option to purchase 100,000 shares of the outstanding
common stock of the Company exercisable at an exercise price equal to the public
offering price commencing one (1) year after the effective date of the Company's
initial public offering. The Company accounts for its stock-based compensation
costs under APB Opinion No. 25. Accordingly, no compensation cost has been
recognized as of September 30, 1996. Had compensation cost been determined on
the basis of FASB No. 123, net (loss) income and (loss) earnings per share would
have been as follows:
F-10
<PAGE>
9. Commitments: (Cont'd)
a. Employment agreement (Cont'd)
<TABLE>
<CAPTION>
Period Three Months
April 24, 1996 Ended
(Inception) September 30,
June 30, 1996 1996
----------------- -----------
(Unaudited)
<S> <C> <C>
Net (loss) income:
As reported $ 35,189 $ (37,083)
========== ==========
Pro forma $ 32,604 $ (44,832)
========== ==========
(Loss) earnings per share:
As reported $.01 $(.01)
==== =====
Pro forma $.01 $(.01)
==== =====
</TABLE>
b. Lease
On May 1, 1996 the Company entered into a 30-month lease agreement for
its office and warehouse space. The lease provides for no monthly rental
payments through July 1996, $23,000 per month beginning August 1996 to May 1996,
$19,166 per month from the June 1997 to October 14, 1997 and $20,833 per month
from October 15, 1997 to October 14, 1998. According, the Company has given
effect to such rent concessions and has accrued rent expense aggregating $38,500
and $55,655 as of June 30, 1996 and September 30, 1996, respectively, using the
straight-line basis over the term of the lease.
c. Supply agreements
In May, 1996 the Company entered into two separate three year "Supply
Agreements" with PDK and Compare, which provide for the Company to supply PDK
and Compare certain products at a price equal to material cost plus 15%. PDK
agreed to purchase products having a minimum aggregate sales price of $2,500,000
per year during the term of the agreement. In the event that PDK fails to
purchase the minimum amount of products in any year, the Company will be paid up
to $100,000, on a pro-rata basis, as liquidated damages.
10. Major Customer:
Sales to one major customer approximated 100% and 96% of revenue for the
periods ended September 30, 1996 and June 30, 1996, respectively. Amounts due
from this customer included in accounts receivable approximated $492,553 at
September 30, 1996 and $357,087 at June 30, 1996.
11. Fair Value of Financial Instruments:
The methods and assumptions used to estimate the value of the following
classes of financial instruments were:
Current Assets and Current Liabilities: The carrying amount of cash,
current receivables and payables and certain other short-term financial
instruments approximate their fair value.
Long-Term Debt: The fair value of the Company's long-term debt is
estimated using current incremental borrowing rates for similar types of
borrowing arrangements.
F-11
<PAGE>
11. Fair Value of Financial Instruments: (Cont'd)
The carrying amount and fair value of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
June 30, 1996 September 30, 1996
------------------------------- ------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 594,175 $ 594,175 $ 134,427 $ 134,427
Accounts receivable 392,247 392,247 486,027 486,027
Investment available-for-sale 1,067,000 1,067,000 1,034,000 1,034,000
Notes payable 500,000 500,000 500,000 500,000
Other current liabilities 785,448 785,448 1,386,597 1,386,597
</TABLE>
12. Supplementary Information - Statement of Cash Flows:
Cash paid for interest was $14,450 for the three months ended September
30, 1996.
In May 1996, Compare acquired 500,000 shares of common stock of the
Company, for $100,000 and the issuance of 200,000 shares of common stock of
Compare (valued at $1,150,000).
13. Unaudited Financial Statements:
The financial statements as of September 30, 1996 and the three months
ended September 30, 1996 are unaudited; however, in the opinion of management
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the financial statements for this interim period have
been made. The results of the interim period are not necessarily indicative of
the results to be obtained for a full fiscal year.
14. Subsequent Event:
In December 1996, in two separate transactions, the Company sold 170,000
shares of common stock of Compare Generiks, Inc. (see Note 7c). In connection
with the sale of such shares, the Company received an aggregate of $595,000.
These transactions resulted in a realized loss of $382,500.
F-12
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or any Underwriter. Neither the delivery
of this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus does not constitute an offer of
any securities other than the securities to which it relates or an offer to any
person in any jurisdiction in which such an offer would be unlawful.
TABLE OF CONTENTS
Page
Available Information.........
Prospectus Summary..........
The Company...................
The Offering....................
Summary Financial
Information....................
Risk Factors.....................
Use of Proceeds.................
Dilution...............
Capitalization......................
Dividend Policy...............
Selected Financial Data.......
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations...................
Business......................
Management....................
Principal Stockholders........
Certain Transactions..........
Description of
Securities...................
Selling Security holders.......
Underwriting..................
Legal Matters.................
Experts.......................
Additional Information........
Financial Statements..........
Until , 1997 (90 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
500,000 Shares of Common Stock, par value .0001
per share
SUPERIOR SUPPLEMENTS, INC.
----------
PROSPECTUS
----------
VTR Capital, Inc.
___________, 1997
-------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 8, 1997
ALTERNATE
PROSPECTUS
SUPERIOR SUPPLEMENTS, INC.
2,000,000 shares of Common Stock
3,000,000 Class A Warrants
------------------
This Prospectus relates to the resale of (a) (i) 1,000,000 Class A
Redeemable Common Stock Purchase Warrants (the "Class A Warrants") issuable upon
conversion of certain Convertible Bridge Notes held by certain unaffiliated
bridge lenders to the Company (the "Bridge Lenders"), and (ii) 1,000,000 shares
of Common Stock issuable upon exercise of the Class A Warrants and (b) (i)
2,000,000 shares of Common Stock, (ii) 2,000,000 Class A Warrants, and (iii)
2,000,000 shares of Common Stock issuable upon exercise of the Class A Warrants
all of which are held by PMF, Inc., a company wholly-owned and controlled by
Barry Gersten, ("PMF"). The Bridge Lenders and PMF are hereinafter collectively
referred to as the "Selling Securityholders." The Company will not receive any
of the proceeds on the resale of the securities by the Selling Securityholders.
PMF owned 85.7% of the outstanding shares of Common Stock of the Company prior
to the Offering. The shares being registered on behalf of PMF constitute 57.1%
of such outstanding shares prior to the Offering and 50% of the outstanding
shares of Common Stock upon completion of the Offering. The resale of the
securities of the Selling Securityholders are subject to Prospectus delivery and
other requirements of the Securities Act of 1933, as amended (the "Act"). Sales
of such securities or the potential of such sales at any time may have an
adverse effect on the market prices of the securities offered hereby. See
"Selling Securityholders" and "Risk Factors - Shares Eligible for Future Sale
May Adversely Affect the Market."
The Class A Warrants shall be exercisable commencing one (1) year after
the date hereof (the "Effective Date"). Each Class A Warrant entitles the holder
to purchase one (1) share of Common Stock at a price of $5.25 per share during
the four (4) year period commencing one (1) year from the Effective Date. The
Class A Warrants are redeemable by the Company for $.05 per Warrant, at any time
after , 1998, upon thirty (30) days' prior written notice, if the closing bid
price of the Common Stock, as reported by the principal exchange on which the
Common Stock is traded, the NASD OTC Bulletin Board or the National Quotation
Bureau Incorporated, as the case may be, equals or exceeds $____ per share, for
any twenty (20) consecutive trading days ending five (5) days prior to the date
of the notice of redemption. Upon thirty (30) days' written notice to all
holders of the Class A Warrants, the Company shall have the right to reduce the
exercise price and/or extend the term of the Class A Warrants. See "Description
of Securities."
<PAGE>
The Company has applied for inclusion of the Common Stock and the Class
A Warrants on the NASD OTC Bulletin Board, although there can be no assurances
that an active trading market will develop even if the securities are accepted
for quotation. See "Risk Factors - Lack of Prior Market for Common Stock and
Class A Warrants; No Assurance of Public Trading Market."
The Common Stock offered by this Prospectus may be sold from time to
time by the Selling Securityholders, or by their transferees. No underwriting
arrangements have been entered into by the Selling Securityholders. The
distribution of the securities by the Selling Securityholders may be effected in
one or more transactions that may take place on the over-the-counter market
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more dealers for resale of such shares as principals at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with sales of such securities.
The Selling Securityholders and intermediaries through whom such
securities may be sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Act"), with respect to the securities
offered and any profits realized or commissions received may be deemed
underwriting compensation. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Act.
The Company will not receive any of the proceeds from the resale of the
securities by the Selling Securityholders. All costs incurred in the
registration of the securities of the Selling Securityholders are being borne by
the Company. See "Selling Securityholders."
----------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK
OFFERED HEREBY AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS
OF THEIR ENTIRE INVESTMENT. FOR A DISCUSSION OF CERTAIN MATERIAL RISKS SEE "RISK
FACTORS" BEGINNING ON PAGE __ AND "DILUTION" BEGINNING ON PAGE __.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _____________, 1997
Alt - ii
<PAGE>
ALTERNATE
COMPANY OFFERING
On the date of this Prospectus, a Registration Statement under the Act
with respect to an underwritten public offering (the "Offering") of 500,000
shares of Common Stock (without giving effect to the Over-Allotment Option
granted to the Underwriters of the Offering) by the Company was declared
effective by the Securities and Exchange Commission ("SEC"), and the Company
commenced the sale of shares of Common Stock offered thereby. Sales of
securities under this Prospectus by the Selling Securityholders or even the
potential of such sales may have an adverse effect on the market price of the
Company's securities.
SELLING SECURITYHOLDERS
The registration statement of which this Prospectus forms a part also
covers the sale of (i) (a) 1,000,000 Class A Warrants issuable upon conversion
of the Convertible Bridge Notes, and (b) 1,000,000 shares of Common Stock
issuable upon exercise of the Class A Warrants and (ii) (a) 2,000,000 shares of
Common Stock, (b) 2,000,000 Class A Warrants, and (c) 2,000,000 shares of Common
Stock issuable upon exercise of the Class A Warrants, all of which are held by
PMF, Inc., a company wholly-owned and controlled by Barry Gersten ("PMF"). The
Bridge Lenders and PMF are hereinafter collectively referred to as the "Selling
Securityholders." PMF owned 85.7% of the outstanding shares of Common Stock of
the Company prior to the Offering. The shares being registered on behalf of PMF
constitute 57.1% of such outstanding shares prior to the Offering and 50% of the
outstanding shares of Common Stock upon completion of the Offering. The Company
will not receive any of the proceeds on the resale of the securities by the
Selling Securityholders. The resale of the securities of the Selling
Securityholders are subject to Prospectus delivery and other requirements of the
Securities Act of 1933, as amended (the "Act"). Sales of such securities or the
potential of such sales at any time may have an adverse effect on the market
prices of the securities offered hereby. See "Risk Factors - Shares Eligible for
Future Sale May Adversely Affect the Market." The resale of the securities by
the Selling Securityholders is subject to Prospectus delivery and other
requirements of the Act. Accordingly, an additional 2,000,000 shares of Common
Stock will become transferrable at such time.
The following table sets forth the holders of the shares of Common
Stock which are being offered by the Selling Securityholders (assuming the
conversion of the Convertible Bridge Notes) and the number of shares owned
before the Offering, the number of shares being offered and the number of shares
and the percentage of the class to be owned after the Offering is complete,
assuming the completion of both the Offering and this offering by the Selling
Securityholder.
Alt - iii
<PAGE>
<TABLE>
<CAPTION>
Name Shares of Class A Shares of Class A Shares of Class A Percent of Percent of
Common Warrants Common Warrants Stock Owned Warrants Common Class A
Stock Owned Owned Stock Offered After Owned After Stock After Warrants
Before Before Offered Hereby Offering Offering Offering After
Offering Offering Hereby Offering
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PMF, Inc. 3,000,000 3,000,000 2,000,000 2,000,000 1,000,000 1,000,000 25.0 33.3
Dune Holdings, 0 800,000 0 800,000 0 0 0 0
Inc.(1)
Clinthill Investments, 0 200,000 0 200,000 0 0 0 0
Ltd.(1)
Total 3,000,000 4,000,000 2,000,000 3,000,000 1,000,000 1,000,000 25.0 33.3
</TABLE>
(1) The principal stockholder, officer and director of Dune Holdings,
Inc. is Randolph K. Pace. The Company has been advised that there is no
affiliated relationship between Dune Holdings, Inc., and Clinthill Investments,
Ltd. Dune Holdings, Inc. owns 200,000 shares of Common Stock of PDK Labs, Inc.
Alt - iv
<PAGE>
PLAN OF DISTRIBUTION
The securities offered hereby may be sold from time to time directly by
the Selling Securityholders. Alternatively, the Selling Securityholders may from
time to time offer such securities through underwriters, dealers or agents. The
Selling Securityholders are not required to effect sales through VTR Capital,
Inc. and the Company has been advised by VTR Capital Inc. that it has no current
or future plans, proposals, arrangements or understandings with respect to
engaging in transactions with the Selling Securityholders, including
transactions involving short selling. The distribution of securities by the
Selling Securityholders may be effected in one or more transactions that may
take place on the over-the-counter market, including ordinary broker's
transactions, privately-negotiated transactions or through sales to one or more
broker-dealers for resale of such shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Selling Securityholders in
connection with such sales of securities. The securities offered by the Selling
Securityholders may be sold by one or more of the following methods, without
limitations: (a) a block trade in which a broker or dealer so engaged will
attempt to sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction; (b) purchases by a broker or
dealer as principal and resale by such broker or dealer for its account pursuant
to this Prospectus; (c) ordinary brokerage transactions and transactions in
which the broker solicits purchasers, and (d) face-to-face transactions between
sellers and purchasers without a broker-dealer. In effecting sales, brokers or
dealers engaged by the Selling Securityholders may arrange for other brokers or
dealers to participate. The Selling Securityholders and intermediaries through
whom such securities are sold may be deemed "underwriters" within the meaning of
the Act with respect to the securities offered, and any profits realized or
commissions received may be deemed underwriting compensation.
At the time a particular offer of securities is made by or on behalf of
a Selling Securityholder, to the extent required, a Prospectus will be
distributed which will set forth the number of shares being offered and the
terms of the Offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for sales
purchased from the Selling Securityholder and any discounts, commissions or
concessions allowed or reallowed or paid to dealers and the proposed selling
price to the public.
Resales of securities by the Selling Securityholders or even the
potential of such resales would likely have an adverse effect on the market
prices of the securities offered hereby. See "Company Offering."
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or any Underwriter. Neither the delivery
of this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus does not constitute an offer of
any securities other than the securities to which it relates or an offer to any
person in any jurisdiction in which such an offer would be unlawful.
TABLE OF CONTENTS
Page
Available Information.........
Prospectus Summary............
The Company..................
The Offering..................
Summary Financial
Information.................
Risk Factors..................
Use of Proceeds...................
Dilution...............
Capitalization......................
Dividend Policy...............
Selected Financial Data.......
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations...................
Business......................
Management....................
Principal Stockholders........
Certain Transactions..........
Description of
Securities...................
Selling Securityholders.......
Underwriting..................
Legal Matters.................
Experts.......................
Additional Information........
Financial Statements..........
ALTERNATE
2,000,000 Shares of Common Stock
and
3,000,000 Class A Warrants
SUPERIOR SUPPLEMENTS, INC.
----------
PROSPECTUS
----------
VTR Capital, Inc.
_____________, 1997
Alt - vi
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
In connection with the Offering, the Underwriters agreed to indemnify
the Company, its directors, and each person who controls it within the meaning
of Section 15 of the Act with respect to any statement in or omission from the
registration statement or the Prospectus or any amendment or supplement thereto
if such statement or omission was made in reliance upon information furnished in
writing to the Company by the Underwriters specifically for or in connection
with the preparation of the registration statement, the prospectus, or any such
amendment or supplement thereto.
Section 145 of the Delaware General Corporation Law empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of the performance of their duties as
directors and officers provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) arising under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of Stockholders or otherwise.
Article Ninth of the Company's Certificate of Incorporation eliminates
the personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
II-1
<PAGE>
The Company does not currently have any liability insurance coverage
for its officers and directors.
Items 25. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with this Offering are as follows:
<TABLE>
<S> <C>
SEC filing fee*.......................... $ 10,000
NASD filing fee......................... $ 2,000
Accounting fees and expenses*........... $ 75,000
Legal fees and expenses*................ $175,000
Blue Sky fees and expenses*............. $ 55,000
Printing and engraving*................. $ 65,000
Transfer Agent's and Registrar's fees*.... $ 4,000
Miscellaneous expenses*................... $ 39,000
Total...................................... $425,000
</TABLE>
- ----------------
* Estimated
Item 26. Recent Sales of Unregistered Securities.
The following information sets forth all securities of the Company sold
by it since inception, which securities were not registered under the Securities
Act of 1933, as amended:
In April, 1996, the Company issued (i) (a) 3,000,000 shares of Common
Stock to PMF, Inc., a company wholly-owned and controlled by Barry Gersten, and
(b) 3,000,000 Class A Warrants for a cash consideration of $50,000 and (ii)
5,000,000 shares of Preferred Stock to PMF, Inc. for a cash consideration of
$5,000.
In May, 1996, the Company issued 500,000 shares of Common Stock to
Compare Generiks, Inc. ("CGI") (i) for a cash consideration of $100,000, and
(ii) in exchange for the issuance of 200,000 shares of common stock of CGI.
In May, 1996, the Company borrowed an aggregate of $300,000 from Dune
Holdings, Inc. and Clinthill Investment Ltd., two (2) unaffiliated lenders (the
"Bridge Lenders"). In exchange for making loans to the Company, each Bridge
Lender received two promissory notes (the "Bridge Notes"). Certain of the Bridge
Notes are in the aggregate principal amount of $200,000 (the "Principal Bridge
Notes") and the other Bridge Notes are in the aggregate principal amount equal
to $100,000 (the "Convertible Bridge Notes"). Each of the Bridge Note bears
interest at the rate of eight percent (8%) per annum. The Bridge Notes are due
and payable upon the earlier of (i) April 30, 1997 and (ii) the closing of an
initial underwritten
II-2
<PAGE>
public offering of the Company's securities. The Company intends to use a
portion of the proceeds of this Offering to repay the Bridge Lenders. See "Use
of Proceeds." In addition, each Convertible Bridge Note converts into a number
of Class A Warrants equal to ten (10) times the principal amount of such
Convertible Bridge Note upon consummation of the Offering. The Company entered
into the bridge financing transactions because it required additional financing
and no other sources of financing were available to the Company at that time.
Further, the Company agreed to register the Class A Warrants issuable upon
conversion of the Convertible Bridge Notes, as well as the shares of Common
Stock issuable upon exercise of the Class A Warrants in the first registration
statement filed by the Company following the date of the loan. Therefore, the
Registration Statement, of which this Prospectus forms a part, relates to the
1,000,000 Class A Warrants issuable upon conversion of the Convertible Bridge
Notes and 1,000,000 shares of Common Stock issuable upon exercise of the Class A
Warrants. See "Selling Securityholders," "Certain Transactions," "Bridge
Financing" and "Underwriting."
The Company has relied on Section 4(2) of the Securities Act of 1933,
as amended, and the provisions of Regulation D promulgated thereunder for its
private placement exemption, such that the sales of the securities were
transactions by an issuer not involving any public offering.
Reference is also made hereby to "Certain Transactions," "Dilution,"
"Principal Stockholders" and "Description of Securities" in the Prospectus for
more information with respect to the previous issuance and sale of the Company's
securities.
All of the aforesaid securities have been appropriately marked with a
restricted legend and are "restricted securities" as defined in Rule 144 of the
rules and the regulations of the Securities and Exchange Commission, Washington
D.C. 20549. All of the aforesaid securities were issued for investment purposes
only and not with a view to redistribution, absent registration. All of the
aforesaid persons have been fully informed and advised concerning the
Registrant, its business, financial and other matters. Transactions by the
Registrant involving the sales of these securities set forth above were issued
pursuant to the "private placement" exemptions under the Securities Act of 1933,
as amended, as transactions by an issuer not involving any public offering. The
Registrant has been informed that each person is able to bear the economic risk
of his investment and is aware that the securities were not registered under the
Securities Act of 1933, as amended, and cannot be re-offered or re-sold until
they have been so registered or until the availability of an exemption
therefrom. The Transfer Agent and registrar of the Registrant will be instructed
to mark "stop transfer" on its ledgers to assure that these securities will not
be transferred absent registration or until the availability of an exemption
therefrom is determined.
II-3
<PAGE>
Item 27. Exhibits.
--------
1.01*** Form of Underwriting Agreement.
1.02*** Form of Agreement Among Underwriters
1.03* Form of Consulting Agreement.
1.04*** Form of Selected Dealer Agreement.
1.05*** Form of Warrant Exercise Fee Agreement.
3.01* Certificate of Incorporation of the Company dated
April 24, 1996.
3.02* By-Laws of the Company.
3.03* Form of Certificate of Designation of Series A Preferred
Stock.
4.01** Specimen Certificate for shares of Common Stock.
4.02*** Specimen Certificate for shares of Series A Preferred Stock.
4.03** Specimen Certificate for Class A Redeemable Common Stock
Purchase Warrant.
4.04** Form of Warrant Agreement by and among the Company and
American Stock Transfer & Trust Company.
4.05*** Form of Representative's Warrant.
5.01*** Opinion of Bernstein & Wasserman, counsel to the Company.
9.01** Form of Voting Trust Agreement.
10.01* Supply Agreement between the Company and PDK dated as of May
14, 1996.
10.02* Supply Agreement between the Company and CGI dated as of May
31, 1996.
10.03** Lease between the Company and Park Associates dated as of May
1, 1996.
10.04* Subscription Agreement between the Company and CGI dated as of
May 31, 1996.
II-4
<PAGE>
10.05* Employment Agreement between the Company and Lawrence D. Simon
dated as of May 1, 1996.
10.06* Form of May, 1996 Bridge Loan Agreements.
10.07* Revolving Credit Agreement between the Company and Dune dated
May 31, 1996.
10.08* Promissory Note in favor of PMF dated June 26, 1996.
10.09* 1996 Stock Plan.
23.01*** Consent of Bernstein & Wasserman (to be included in Exhibit
5.01).
23.02 Consent of Holtz Rubenstein & Co., LLP
- -------------------------
* Previously filed on August 8, 1996 as an exhibit to the Company's
Registration Statement on Form SB-2 and incorporated herein by
reference.
** Previously filed on October 24, 1996 as an exhibit to Amendment No. 1
to the Company's Registration Statement on Form SB-2 and incorporated
herein by reference.
*** Previously filed on December 6, 1996 as an exhibit to Amendment No. 2
to the Company's Registration Statement on Form SB-2 and incorporated
herein by reference.
Item 28. Undertakings.
(a) Rule 415 Offering
The undersigned Registrant will:
1. File, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or in the aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation
II-5
<PAGE>
of Registration Fee" table in the effective registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
2. For determining liability under the Act, treat each such
post-effective amendment as a new registration statement of the securities
offered, and the Offering of such securities at that time shall be deemed to be
the initial bona fide offering.
3. File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the Offering.
(b) Equity Offerings of Nonreporting Small Business Issuers
The undersigned Registrant will provide to the Underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(c) Indemnification
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or controlling persons of the Registrant
pursuant to the provisions referred to in Item 22 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) Rule 430A
The undersigned Registrant will:
1. For determining any liability under the Act, treat the information
omitted from the form of Prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in the form of a prospectus filed by
the small business issuer under Rule 424(b)(1) or (4) or 497(h) under the Act as
part of this Registration Statement as of the time the Commission declared it
effective.
II-6
<PAGE>
2. For any liability under the Act, treat each post-effective amendment
that contains a form of prospectus as a new registration statement for the
securities offered in the Registration Statement, and that the Offering of the
securities at that time as the initial bona fide Offering of those securities.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant, certifies that it has reasonable grounds to believe
that it meets all the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in New
York, New York on January 7, 1997.
SUPERIOR SUPPLEMENTS, INC.
By: /s/Lawrence D. Simon
----------------------------------------
Lawrence D. Simon
President, Chairman, Chief
Financial Officer, Principal Accounting
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendments thereto has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Lawrence D. Simon President, Chairman, January 7, 1997
- ------------------------- Chief Financial Officer,
Lawrence D. Simon Principal Accounting
Officer and Director
/s/ Reginald Spinello Director January 7, 1997
- -------------------------
Reginald Spinello
/s/ Matthew L. Harriton Director, Secretary January 7, 1997
- -------------------------
Matthew L. Harriton
/s/ Steven F. Wasserman Director January 7, 1997
- -------------------------
Steven F. Wasserman
/s/ Dr. Daniel Durchslag Director January 7, 1997
- -------------------------
Dr. Daniel Durchslag
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Superior Supplements,
Inc. on Amendment No. 3 to Form SB-2 of our report on Superior Supplements, Inc.
dated July 11, 1996, appearing in the Prospectus which is part of this
Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such Prospectus.
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
January 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted
from the financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> JUN-30-1996 SEP-30-1996
<PERIOD-START> APR-24-1996 JUL-01-1996
<PERIOD-END> JUN-30-1996 SEP-30-1996
<CASH> 594,175 134,427
<SECURITIES> 1,067,000 1,034,000
<RECEIVABLES> 392,247 486,027
<ALLOWANCES> 0 0
<INVENTORY> 99,586 413,623
<CURRENT-ASSETS> 1,086,008 1,048,201
<PP&E> 341,328 828,824
<DEPRECIATION> 0 13,486
<TOTAL-ASSETS> 2,565,537 3,165,703
<CURRENT-LIABILITIES> 1,085,448 1,746,597
<BONDS> 500,000 500,000
0 0
500 500
<COMMON> 350 350
<OTHER-SE> 1,279,239 1,218,256
<TOTAL-LIABILITY-AND-EQUITY> 2,565,537 3,165,703
<SALES> 857,398 770,954
<TOTAL-REVENUES> 857,398 770,954
<CGS> 738,040 670,464
<TOTAL-COSTS> 738,040 670,464
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 14,450
<INCOME-PRETAX> 48,389 (37,083)
<INCOME-TAX> 13,200 0
<INCOME-CONTINUING> 35,189 (37,083)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 35,189 (37,083)
<EPS-PRIMARY> .01 (.01)
<EPS-DILUTED> .01 (.01)
</TABLE>
