<PAGE>
PROSPECTUS
SUPERIOR SUPPLEMENTS, INC.
500,000 UNITS, EACH UNIT CONSISTS OF TWO (2) SHARES
OF COMMON STOCK, PAR VALUE $.0001 PER SHARE, AND
TWO (2) CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANTS
OFFERING PRICE PER UNIT--$12.00
------------------------
Of the securities being offered hereby, 250,000 Units will be sold by
Superior Supplements, Inc. and 250,000 Units will be sold by the Selling
Securityholder. The Company will not receive any of the proceeds from the sale
of the Units by the Selling Securityholder. See 'Description of Securities,'
'Selling Securityholder,' and 'Underwriting.'
------------------------
Superior Supplements, Inc., a Delaware corporation (the 'Company' or 'SSI')
hereby offers 250,000 Units (each, a 'Unit'), each Unit consisting of two (2)
shares of common stock, par value $.0001 per share (the 'Common Stock' and
'Shares') and two (2) Class A Redeemable Common Stock Purchase Warrants (the
'Class A Warrants' and 'Warrants'). The securities comprising the Units will be
separately transferable immediately upon the date of this Offering (the 'Company
Offering'). See 'Description of Securities.' The Risk Factor section begins on
page 8 of this Prospectus.
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
February 25, 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.'
In addition, this Prospectus also covers the offer for sale by PMF, Inc.
('PMF'), a company wholly-owned and controlled by Barry Gersten, the founder of
the Company, of 250,000 Units consisting of an aggregate 500,000 shares of
Common Stock and 500,000 Class A Warrants at a price of 12.00 per Unit (the
'Selling Securityholder Offering'). PMF is referred to as the 'Selling
Securityholder.' The Company Offering and the Selling Securityholder Offering
are herein collectively referred to as the 'Offering.' The terms of the Class A
Warrants included in the Units offered for sale by the Selling Securityholder
are identical to the terms of the Class A Warrants included in the Units offered
for sale by the Company. 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 included in the Units being registered on
behalf of PMF constitute 14.3% of such outstanding shares prior to the Offering
and 12.5% of the outstanding shares of Common Stock upon completion of the
Offering. The Company will not receive any of the proceeds on the sale of the
Units by the Selling Securityholder. The costs incurred in connection with the
sale of these 250,000 Units will be borne by the Company.
The Company has applied for inclusion of the Units, the Common Stock and the
Class A Warrants on the NASD OTC Bulletin Board, under the symbols SPSUU, SPSU
and SPSUW, respectively, although there can be no assurance that an active
trading market will develop even if the securities are accepted for quotation.
See 'Risk Factors--Lack of Prior Market for Units, 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 Units, the
Common Stock or the Class A Warrants. The price of the Units, as well as the
exercise price of the Class A Warrants, have been determined by negotiations
between the Company, the Selling Securityholder 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 Units
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.'
------------------------
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 8 AND 'DILUTION' BEGINNING ON
PAGE 18.
------------------------
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.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO SELLING
PUBLIC AND COMMISSIONS(1) COMPANY(2) SECURITYHOLDER
<S> <C> <C> <C> <C>
Per Unit....................................... $12.00 $1.20 $10.80 $10.80
Total(3)....................................... $6,000,000(4) $600,000(5) $2,700,000 $2,700,000
</TABLE>
(1) Does not reflect additional compensation to be received by the Underwriters
in the form of: (i) a non-accountable expense allowance of $180,000
($207,000 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 Units at $19.80 per
Unit (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, and the Selling Securityholder 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 $677,000 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 Units to cover over-allotments which the
Underwriters have an option to purchase from the Selling Securityholder 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 payable by the Company including the Underwriters' non-accountable
expense allowance will be $6,900,000, $690,000, and $704,000, respectively,
and the total proceeds to the Company and the Selling Securityholder will be
$1,996,000 and $3,510,000 respectively. See 'Underwriting.'
(4) Of this amount, $3,000,000 represents 250,000 Units offered by the Company
at $12.00 per Unit, and $3,000,000 represents 250,000 Units offered by the
Selling Securityholder at $12.00 per Unit.
(5) Of this amount, $300,000 is underwriting discounts and commissions on
250,000 Units offered by the Company and $300,000 is underwriting discounts
and commissions on 250,000 Units offered by the Selling Securityholder. See
'Underwriting.'
------------------------
The Units 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 Class A Warrants and payment therefor will be made at the offices of the
Representative on or about March 4, 1997.
VTR CAPITAL, INC.
INVESTMENT BANKERS
THE DATE OF THIS PROSPECTUS IS FEBRUARY 26, 1997
<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). The 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 UNITS, 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 UNITS 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 UNITS OR 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 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 UNITS OR THE COMMON STOCK AND CLASS A
WARRANTS CONTAINED THEREIN. 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 UNITS, 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.
2
<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) 500,000 shares of Common Stock issuable upon
exercise of the Class A Warrants included in the Units offered by the Company,
(ii) 500,000 shares of Common Stock issuable upon exercise of the Class A
Warrants included in the Units offered on behalf of the Selling Securityholder,
(iii) 75,000 Units consisting of 150,000 shares of Common Stock and 150,000
Class A Warrants issuable upon exercise of the Over-Allotment Option; (iv)
150,000 shares of Common Stock issuable upon exercise of the Class A Warrants
included in the Over-Allotment Option; (v) 50,000 Units consisting of 100,000
shares of Common Stock and 100,000 Class A Warrants issuable upon exercise of
the Underwriters' Option; (vi) 100,000 shares of Common Stock issuable upon
exercise of the Class A Warrants included in the Underwriters' Option; (vii)
2,500,000 shares of Common Stock issuable upon exercise of the Class A Warrants
held by PMF, Inc. ('PMF'), a company wholly-owned and controlled by Barry
Gersten, the founder of the Company, which are not being offered for sale in
this Offering, and (viii) employee stock options. See 'Description of
Securities,' 'Certain Transactions,' 'Selling Securityholder', '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 completion 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 fully 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' trademark
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
3
<PAGE>
Stock of the Company pursuant to a Voting Trust Agreement with PMF. Messrs.
Spinello, Durchslag, Simon and Harriton may be deemed to be founders of the
Company. 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. PMF is offering 250,000 Units for sale in this
Offering and is hereinafter referred to as the 'Selling Securityholder' or
'PMF.'
The Company intends to use the proceeds from this Offering received by the
Company to 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.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered by
the Company(1)....................... 250,000 Units at a price of $12.50 per
per Unit. Each Unit consists of two (2)
shares of Common Stock and two (2) Class
A Warrants. The securities comprising
the Units are separately transferable
immediately upon the Effective Date of
this Offering. The Class A Warrants
shall be exercisable commencing one (1)
year from 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 of this
Offering. See 'Description of
Securities.'
Securities Offered by the Selling
Securityholder(2).................... 250,000 Units at a price of $12.00 per
Unit. Each Unit is identical to the
Units being offered by the Company and
each Class A Warrant included in the
Units is identical in all respects to
the Class A Warrants offered by the
Company.
Terms of Redemption of Class A
Warrants............................. The Class A Warrants are each redeemable
by the Company for $.05 per Warrant, at
any time after February 25, 1998, upon
thirty
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
(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 quoted, 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) consecutive 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.'
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(3):
Common Stock......................... 4,000,000 Shares
Series A Preferred Stock............. 5,000,000 Shares
Class A Warrants..................... 3,500,000 Warrants
Use of Proceeds........................ The net proceeds to the Company from
the sale of the 250,000 Units offered
by the Company hereby, after deducting
Offering expenses and the $72,000
financial advisory fee, are estimated
to be $2,023,000. The net proceeds are e
expected to be applied for the following
purposes: acquisition of machinery and
equipment, marketing, 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; Benefits of
Offering to Selling Securityholder;
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; Voting Trust Agreement Granted to
Certain Directors; Limited Number of
Management Personnel; Risks Attendant to
Expansion; Product Liability Risks; No
Prior Public Market; Possible Volatility
of Stock Price; Lack of Prior Market for
Units, 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
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
involves a high degree of risk and and
immediate substantial dilution of the
book value of the Common Stock included
in the Units 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(4)............................ Units--SPSUU Common Stock--SPSU Class A
Warrants--SPSUW
</TABLE>
- ------------------
(1) The Company is registering the sale of 250,000 Units, consisting of 500,000
shares of Common Stock and 500,000 Class A Warrants. on behalf of the
Selling Securityholder. See 'Selling Securityholder' and 'Certain
Transactions.' If all of the Class A Warrants included in the Units offered
by the Company are exercised, of which there is no assurance, the Company
will receive gross proceeds therefrom aggregating up to an additional
$2,625,000. See 'Description of Securities.'
(2) The Selling Securityholder is wholly-owned and controlled by Barry Gersten,
the Company's founder. The Company will not receive any of the proceeds from
the sale of Units by the Selling Securityholder. See 'Selling
Securityholder.' If all of the Class A Warrants included in the Units
offered by the Selling Securityholder are exercised, of which there is no
assurance, the Company will receive gross proceeds therefrom aggregating up
to an additional $2,625,000. See 'Description of Securities.'
(3) Does not include (i) 500,000 shares of Common Stock issuable upon exercise
of the Class A Warrants included in the Units offered by the Company, (ii)
500,000 shares of Common Stock issuable upon exercise of the Class A
Warrants included in the Units offered by the Selling Securityholder, or
(iii) 2,500,000 shares of Common Stock issuable upon exercise of the Class A
Warrants held by the Selling Securityholder, PMF, Inc., a company
wholly-owned and controlled by Barry Gersten, which are not being offered
for sale in this Offering.
(4) Although the Company intends to apply for inclusion of the Units, 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 Units, Common Stock and Class A Warrants;
No Assurance of Public Trading Market.'
6
<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 six months ended
December 31, 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 SIX MONTHS ENDED CUMULATIVE DURING
(INCEPTION) TO JUNE 30, 1996 DECEMBER 31, 1996 DEVELOPMENT STAGE
---------------------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues........................................ $857,398 $ 1,406,493 $ 2,263,891
Gross Profit.................................... $119,358 $ 114,631 $ 233,989
Operating Income (Loss)......................... $ 48,389 $ (169,831) $ (121,442)
Loss on Sale of Securities...................... -- $ (382,500) $ (382,500)
Interest expense (net).......................... -- $ (21,705) $ (21,705)
Net Income (Loss)............................... $ 35,189 $ (574,036) $ (538,847)
Net Income (Loss) Per Share(1).................. $ .01 $ (.16) $ (.15)
Weighted Average Number of Common Shares
Outstanding(1)................................ 3,500,000 3,500,000 3,500,000
</TABLE>
SUMMARY BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER
JUNE 30, 31, DECEMBER 31, 1996
1996(1) 1996(1) AS ADJUSTED(2)
---------- ---------- -----------------
<S> <C> <C> <C>
Working Capital (Deficit)................................. $ 560 $ (363,042) $ 1,731,958
Total Assets.............................................. $2,565,537 $2,670,755 $ 4,765,755
Total Liabilities......................................... $1,285,448 $1,962,102 $ 1,962,102
Retained Earnings (Deficit)............................... $ 35,189 $ (538,847) $ (538,847)
Stockholders' Equity...................................... $1,280,089 $ 708,653 $ 2,803,653
</TABLE>
- ------------------
(1) Does not include the sale of 250,000 Units consisting of 500,000 shares of
Common Stock and 500,000 Class A Warrants offered hereby by the Company.
(2) Reflects initial application of net proceeds of the 250,000 Units offered
hereby by the Company at the assumed initial public offering price of $12.00
per Unit.
7
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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 $574,036 for
the six months ended December 31, 1996 and a cumulative net loss of $538,847
during the development stage of April 24, 1996 (inception) to December 31, 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 fully 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 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 December 31, 1996, the Company had stockholder's equity of
$708,653 and working capital deficiency of $363,042. The Company's operating
expenses can be expected to increase significantly as a result of the Company's
expansion 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
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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 as well as any proceeds received upon any exercise of
the Class A Warrants 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 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. Benefits of Offering to Selling Securityholder. The Registration
Statement, of which this Prospectus forms a part, includes 250,000 Units,
consisting of 500,000 shares of Common Stock and 500,000 Class A Warrants owned
by the Selling Securityholder. Although the costs incurred with the registration
of these securities are to be borne by the Company, the Selling Securityholder,
and not the Company, will receive the proceeds from their sale, thus receiving a
benefit from the Company. After payment of underwriting discounts, an aggregate
of $2,700,000 (or an aggregate of $3,672,000 if the Over-Allotment Option is
exercised) will be received by the Selling Securityholder for the sale of its
securities. The Company believes that except for $90,000 (or $117,000
Over-Allotment Option is exercised) representing the non-accountable expense
allowance payable to the Underwriter on behalf of the Units offered for sale
under this Prospectus by the Selling Securityholder, any increase in expenses
attributable to the inclusion in the Registration Statement, of which this
Prospectus forms a part, of the Units owned by the Selling Securityholder is
minimal. Payment by the Company of these expenses (including the non-accountable
expense allowance and the 25,000 Units included in the Underwriters' Option
attributable to the Units offered by the Selling Securityholder) results in
benefits to the Selling Securityholder and in less of the net proceeds of this
Offering being available for use by the Company. See 'Certain Transactions,'
'Description of Securities,' 'Selling Securityholder,' and 'Underwriting.'
7. 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 and better capitalized competitors.
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8. Dilution; Equity Securities Sold Previously at Below Offering Price.
Upon completion of the sale of the Company's Units in this Offering, 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 $.66. At the initial
public offering price of $6.00 per share offered hereby (assuming no value
attributable to the Class A Warrants), investors in this Offering will
experience an immediate dilution of approximately $5.34 or 89% in net tangible
book value per share and existing investors will experience an increase of
approximately $.50 per share. Neither the sale of the Selling Securityholder's
Units in this Offering nor the exercise of the Over-Allotment Option have any
effect upon the net tangible book value per share. The exercise of the Class A
Warrants sold to the public (including any Class A Warrants issuable upon
exercise of the Over-Allotment Option) or 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.
9. Conflicts of Interest. After this Offering, PMF, a company wholly-owned
and controlled by Barry Gersten, will continue to own 62.5% 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 71.4% 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.
10. Governmental Regulation. The processing, formulation, packaging,
labeling and 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
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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 operations 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 from 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 Regulation.'
11. 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.
12. Dependence on Key Personnel. The Company is substantially dependent on
the continued services of Lawrence D. Simon. The Company has entered into a one
(1) year employment agreement 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.'
13. 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 62.5% of the outstanding Common Stock and
100% of the outstanding Preferred Stock representing a combined percentage of
the total combined vote after the Offering of 83.3%, and 71.4% of the
outstanding Class A Warrants. See 'Principal Stockholders.' Since holders of
Common Stock do not have any cumulative voting rights and directors are elected
by a majority
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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, PMF would continue to own 71.4% of the outstanding Class A
Warrants, which, if exercised, would mean that PMF would own a further 2,500,000
shares of the outstanding Common Stock representing 38.5% 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 65.2%. 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.'
14. 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.
15. 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.'
16. 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 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.'
17. No Prior Public Market; Possible Volatility of Stock Price. Prior to
this Offering, there has been no public market for the Units, Common Stock or
Class A Warrants. The initial public offering price of the Units, as well as the
exercise price for the Class A Warrants, was determined by negotiation between
the Company, the Selling Securityholder 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 Units 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 Units 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.'
18. Lack of Prior Market for Units, Common Stock and Class A Warrants; No
Assurance of Public Trading Market. Prior to this Offering, no public trading
market existed for the Units, Common Stock and Class A Warrants. There can be no
assurances that a public trading market for the Units, Common Stock and Class A
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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 Units, Common Stock and Class A Warrants will be eligible for
inclusion on the NASD OTC Bulletin Board, no assurance can be given that the
Units, 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 Units, 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 Units, Common Stock and Class A
Warrants offered hereby, there can be no assurance that it will be maintained.
If for any reason the Units, 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 Units, 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 Units, Common Stock and Class A Warrants. See '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 Units may be sold to customers of the Underwriters.
The Units, Common Stock and Class A Warrrants 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.'
19. 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 November 25, 1997,
assuming a post-effective amendment is not filed by the Company. The Company
intends to qualify the sale of Units, Common Stock 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 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
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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.'
20. Impact on Market of Warrant Exercise. In the event of the exercise of
a substantial number of Class A Warrants offered as part of the Units or owned
by PMF, 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.'
21. Underwriters' Option. In connection with this Offering, the Company
will sell to the Underwriters, for nominal consideration, an option to purchase
50,000 Units consisting of 100,000 shares of Common Stock and 100,000 Class A
Warrants (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 $19.80 per Unit
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 Units,
Warrants and/or 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.'
22. 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. 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.'
23. '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 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.
14
<PAGE>
24. 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.'
25. 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 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.'
26. 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.'
27. 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 3,500,000 shares are 'restricted securities', all of which
are eligible for resale in April 1998 and 500,000 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.'
28. 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
15
<PAGE>
certain opportunities to sell or otherwise dispose of such securities at
above-market prices pursuant to such transactions. See 'Description of
Securities.'
29. 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.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 250,000 Units offered
hereby by the Company, are estimated to be $2,023,000 (after deducting
approximately $300,000 in underwriting discounts, other expenses of this
Offering estimated to be $677,000, which includes the Underwriters'
non-accountable expense allowance of $180,000, 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 59.3%
Expansion of Marketing(2)................................................. $ 215,000 10.6%
Working Capital(3)........................................................ $ 608,000 30.1%
------------ ------
Total..................................................................... $2,023,000 100.0%
</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) 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. In the event of
exercise of the Over-Allotment Option, the Company will be required to pay
the Underwriters an additional non-accountable expense allowance in the
amount of $27,000 and working capital will be reduced accordingly.
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, 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 and/or the proceeds of
this Offering decrease as a result of expense payable by the Company in
connection with the exercise by the Underwriters of their Over-Allotment Option,
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.
17
<PAGE>
DILUTION
At December 31, 1996, the Company had outstanding an aggregate of 3,500,000
shares of Common Stock having an aggregate net tangible value of $553,814 or
$.16 per share, based upon operating activity through December 31, 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 the sale of 250,000 Units consisting of 500,000
shares of Common Stock and 500,000 Class A Warrants by the Company (assuming no
value is attributable to the Class A Warrants) with net proceeds of $2,095,000
(without deducting the $72,000 financial advisory fee), the pro forma net
tangible book value of the Common Stock would have been $2,648,814 or
approximately $.66 per share. This represents an immediate increase in pro forma
net tangible book value of $.50 per share to the present stockholders and an
immediate dilution of $5.34 per share (89%) to the public purchasers. Neither
the sale of the Selling Securityholder's Units in this Offering nor the exercise
of the Over-Allotment Option have any effect upon the net tangible book value
per share. 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:
<TABLE>
<S> <C> <C>
Public offering price of each Share offered hereby(1)(4)................................ $6.00
Net tangible book value per share....................................................... $ .16
Increase per share attributable to the Shares offered hereby............................ $ .50
Pro Forma net tangible book value per share after Offering(3)........................... $ .66
Dilution of net tangible book value per share to purchasers in this Offering(2)(3)...... $5.34
</TABLE>
- ------------------
(1) Before deduction of underwriting discounts, commissions, fees and Offering
expenses.
(2) Assuming no exercise of the Underwriters' Option or the Class A Warrants
included in the Units offered by the Company and the Selling Securityholder
or issuable upon exercise of the Over-Allotment Option or Underwriters'
Option. See 'Underwriting' and 'Description of Securities.'
(3) Assuming no exercise of the 2,500,000 Class A Warrants held by PMF, a
company wholly-owned and controlled by Barry Gersten which are not being
offered for sale in this Offering. See 'Selling Securityholder' and 'Certain
Transactions.'
(4) No portion of the per Unit price has been assigned to the Class A Warrants.
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 December 31, 1996
and to be paid by purchasers pursuant to this Offering (based upon the
anticipated public offering price of $12.00 per Unit before deducting
underwriting discounts and commissions and estimated Offering expenses).
<TABLE>
<CAPTION>
SHARES OF AGGREGATE
COMMON CASH PERCENT OF
STOCK PERCENT OF CONSIDERATION TOTAL CASH AVERAGE PRICE
PURCHASED EQUITY OWNED PAID CONSIDERATION PER 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% $ 0.37
--------- ------------ ------------- ------------- -------------
Total................. 4,000,000 100% $ 4,305,000 100% $ 1.08
</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 and Class
A Warrants underlying the Units offered hereby by the Company but without giving
effect to the exercise of the Underwriters' Option, or any outstanding options
or warrants, including those held by PMF.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 and as adjusted gives effect to the sale by the Company of
250,000 Units consisting of 500,000 shares of Common Stock and 500,000 Class A
Warrants offered hereby and the application of net proceeds therefrom. The table
is not adjusted to give effect to the exercise of 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 $ 500,000
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 $3,399,100
Deficit........................................... $ (538,847) $ (538,847)
Unrealized loss on available for sale
investments..................................... $ (57,500) $ (57,500)
Total Stockholders' Equity........................ $ 708,653 $2,803,653
Total Capitalization.............................. $1,208,653 $3,303,653
</TABLE>
- ------------------
(1) Does not include the sale of 250,000 Units offered hereby by the Company.
(2) As Adjusted balance sheet reflects the sale of 250,000 Units offered hereby
by the Company and the anticipated application of the net proceeds of
$2,095,000 therefrom, after deducting estimated Offering expenses of
$905,000. 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.
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.
19
<PAGE>
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. 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. In order to
expedite NASD approval of the Offering, in February 1997, the Company repaid its
obligations under the Principal Bridge Notes and the Convertible Bridge Notes.
As a result, the holders of the Convertible Bridge Notes have forfeited their
right to convert such Notes into Class A Warrants.
20
<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 six months ended
December 31, 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 SIX MONTHS ENDED CUMULATIVE DURING
(INCEPTION) TO JUNE 30, 1996 DECEMBER 31, 1996 DEVELOPMENT STAGE
---------------------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues........................................ $857,398 $ 1,406,493 $ 2,263,891
Gross Profit.................................... $119,358 $ 114,631 $ 233,989
Operating Income (Loss)......................... $ 48,389 $ (169,831) $ (121,442)
Loss on Sale of Securities...................... -- $ (382,500) $ (382,500)
Interest expense (net).......................... -- $ (21,705) $ (21,705)
Net Income (Loss)............................... $ 35,189 $ (574,036) $ (538,847)
Net Income (Loss) Per Share(1).................. $ .01 $ (.16) $ (.15)
Weighted Average Number of Common Shares
Outstanding(1)................................ 3,500,000 3,500,000 3,500,000
</TABLE>
SUMMARY BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER
31, DECEMBER 31, 1996
JUNE 30, 1996(1) 1996(1) AS ADJUSTED(2)
---------------- ---------- -----------------
<S> <C> <C> <C>
Working Capital (Deficit)................................ $ 560 $ (363,042) $ 1,731,958
Assets................................................... $2,565,537 $2,670,755 $ 4,765,755
Total Liabilities........................................ $1,285,448 $1,962,102 $ 1,962,102
Retained Earnings (Deficit).............................. $ 35,189 $ (538,847) $ (538,847)
Stockholders' Equity..................................... $1,280,089 $ 708,653 $ 2,803,653
</TABLE>
- ------------------
(1) Does not include the sale of 250,000 Units consisting of 500,000 shares of
Common Stock and 500,000 Class A Warrants offered hereby by the Company.
(2) Reflects initial application of net proceeds of the 250,000 Units offered
hereby by the Company at the assumed initial public offering price of $12.00
per Unit.
21
<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 December 31, 1996,
the Company has not fully commenced manufacturing operations.
The Company's cumulative results of operations during the development stage
(April 24, 1996 (inception) to December 31, 1996) reflect revenues of
approximately $2,264,000. Approximately 99 percent of these sales were derived
from PDK Labs Inc. ('PDK'). The gross profit on cumulative sales during the
development stage was approximately $234,000 or 10 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.
In December 1996, the Company sold 170,000 shares of Compare Generiks, Inc.
common stock in two separate transactions. In connection with the sale of such
shares, the Company received proceeds of $595,000 and realized a loss of
$382,500.
In January 1997, the Company sold 30,000 shares of Compare Generiks, Inc.
common stock and received proceeds of $105,000. The Company realized a loss of
$67,500 in connection with the sale of such shares.
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 December 31, 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 according to the progress made in the marketing and distribution of
its products. The Company intends to hire additional administrative, sales,
production 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.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had a working capital deficit of
$363,042. The Company remains in the development stage as it has not fully
commenced its manufacturing operations and requires the proceeds of this
Offering or alternative financing to acquire additional machinery, execute
meaningful marketing activities, and become fully operational. 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 expand 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' Option) will be sufficient to
fund its liquidity needs for at least the next twelve months.
In order to expedite NASD approval of the Offering, in February 1997, the
Company repaid its obligations under the Principal Bridge Notes and the
Convertible Bridge Notes. As a result, the holders of the Convertible Bridge
Notes have forfeited their right to convert such Notes into Class A Warrants.
23
<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 completion 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 fully 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' trademark
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. Messrs. Spinello, Durchslag, Simon and Harriton may be
deemed to be founders of the Company. 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.
24
<PAGE>
The Company intends to use the proceeds from this Offering received by the
Company to 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 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,
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<PAGE>
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.
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 December 31, 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.'
26
<PAGE>
MANAGEMENT AND EMPLOYEES
As of December 31, 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 ('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
27
<PAGE>
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.
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 62.5% 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 71.4% 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
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$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: 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.
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<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(S) HELD WITH THE COMPANY
- ----------------------- --- ----------------------------------------------
<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.'
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
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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.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- --------- -------------------
(E) (F) (H) (I)
OTHER RESTRICTED (G) LTIP ALL OTHER
(A) (B) (C) (D) ANNUAL STOCK OPTIONS/ PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS COMPENSATION AWARDS($) SARS(#) ($) ($)
- ----------------------------------- ---- --------- ----- ------------ --------- -------- ------- ------------
<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
$5.00 per share exercisable one year from the Effective Date of the
Company's initial public offering.
OPTION/SAR GRANTS
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
(B) (C)
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO (D) (E)
(A) OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED(#) FISCAL YEAR PRICE ($/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>
(D)
NUMBER OF (E)
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
(B) FY-END (#) FY-END ($)
(A) SHARES ACQUIRED (C) EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) 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 included in the Units hereby
offered.
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 included in the Units 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
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<PAGE>
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 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
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<PAGE>
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.
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 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.
34
<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>
PERCENTAGE (%)
NAME AND SHARES OF PERCENTAGE (%) OF PERCENTAGE (%) OF OF TOTAL
ADDRESS OF COMMON COMMON STOCK COMMON STOCK SHARES OF COMBINED VOTE
BENEFICIAL OWNER STOCK OWNED BEFORE OFFERING AFTER OFFERING PREFERRED STOCK BEFORE OFFERING
- ------------------------------ ----------- ----------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
PMF, Inc.(1)(2) .............. 3,000,000 85.7 62.5 5,000,000 94.1
Compare Generiks, Inc.(3) .... 500,000 14.3 12.5 0.0 5.89
Lawrence D. Simon(1)(4)(6) ... 0.0 0.0 0.0 5,000,000 58.8
Reginald Spinello(1)(6) ...... 0.0 0.0 0.0 5,000,000 58.8
Matthew L. Harriton(1) ....... 0.0 0.0 0.0 0.0 0.0
Dr. Daniel
Durchslag(1)(6) ............ 0.0 0.0 0.0 5,000,000 58.8
Steven F. Wasserman(5) ....... 0.0 0.0 0.0 0.0 0.0
All officers and directors as
a group (five (5)
persons)(6) ................ 0.0 0.0 0.0 5,000,000 58.8
<CAPTION>
PERCENTAGE (%)
NAME AND OF TOTAL
ADDRESS OF COMBINED VOTE
BENEFICIAL OWNER AFTER OFFERING
- ------------------------------ --------------
<S> <C>
PMF, Inc.(1)(2) .............. 83.3
Compare Generiks, Inc.(3) .... 5.6
Lawrence D. Simon(1)(4)(6) ... 55.6
Reginald Spinello(1)(6) ...... 55.6
Matthew L. Harriton(1) ....... 0.0
Dr. Daniel
Durchslag(1)(6) ............ 55.6
Steven F. Wasserman(5) ....... 0.0
All officers and directors as
a group (five (5)
persons)(6) ................ 55.6
</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. Assumes no
exercise of the Over-Allotment Option. In the event the Over-Allotment
Option is exercised, PMF, Inc.'s percentage of Common Stock after the
Offering will be 58.8 and PMF, Inc.'s percentage of the total combined vote
after the Offering will be 81.7.
(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.
35
<PAGE>
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 included in the Units 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.'
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' trademark 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 December 31, 1996, the Company had
not borrowed any funds pursuant to the revolving credit agreement.
36
<PAGE>
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. 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. In order to expedite NASD
approval of the Offering, in February 1997, the Company repaid its obligations
under the Principal Bridge Notes and the Convertible Bridge Notes. As a result,
the holders of the Convertible Bridge Notes have forfeited their right to
convert such Notes into Class A Warrants.
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 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 proceeds of $297,500.
On January 29, 1997, the Company sold its remaining 30,000 shares of Common
Stock of Compare Generiks, Inc. for $3.50 per share for proceeds of $105,000.
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.
37
<PAGE>
DESCRIPTION OF SECURITIES
The Company is offering 250,000 Units, each Unit consisting of two (2)
shares of Common Stock, par value $.0001 per share and two (2) Class A Warrants.
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 preemptive 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.
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, all 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.
38
<PAGE>
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 February 25, 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 within a period of thirty (30)
trading days ending on the fifth trading day 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 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 or the Prospectus or any amendment or supplement
thereto if such
39
<PAGE>
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.
TRANSFER AGENT & REGISTRAR
The transfer agent and registrar for the Company's securities is American
Stock Transfer & Trust Company (the 'Transfer Agent').
40
<PAGE>
SELLING SECURITYHOLDER
The Registration Statement of which this Prospectus forms a part also
covers the registration of an aggregate of 250,000 Units, consisting of 500,000
shares of Common Stock and 500,000 Class A Warrants, all of which are held by
PMF, Inc. ('PMF') (hereinafter referred to as the 'Selling Securityholder'). 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 included in the Units being registered on behalf of PMF constitute 14.3%
of such outstanding shares prior to the Offering and 12.5% of the outstanding
shares of Common Stock upon completion of the Offering. The Underwriter is
purchasing from the Selling Securityholder an aggregate of 250,000 Units on a
firm commitment basis for offer and sale to the public concurrently with the
offer and sale of 250,000 Units by the Company. The Company will not receive any
proceeds from the sale of these Units on behalf of the Selling Securityholder.
With respect to these Units, the Underwriter will receive from the Company a
non-accountable expense allowance equal to three percent of the total proceeds
of the offering of these additional 250,000 Units or $90,000 (or $117,000 if the
Over-Allotment Option is exercised). See 'Underwriting.' The costs of qualifying
these additional 250,000 Units under federal and state securities laws, together
with legal and accounting fees, printing and other costs in connection with this
Offering, will be paid by the Company. The Selling Securityholder 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
Units at the Offering price, less the underwriting discount, to cover
over-allotments, if any. In addition, as part of the Underwriter's Option, the
Company has agreed to sell to the Underwriter, for nominal consideration, an
option to acquire from the Company up to 50,000 Units, 25,000 Units of which
amount represents ten percent of the aggregate number of Units being offered by
the Selling Securityholder.
The following table sets forth the holders of the shares of Common Stock
and Class A Warrants included in the Units which are being offered by the
Selling Securityholder and the number of Shares and Class A Warrants owned
before the Offering, the number of Shares and Class A Warrants being offered and
the number of Shares and Class A Warrants and the percentage of the class to be
owned after the Offering is complete, assuming the completion of the Offering.
<TABLE>
<CAPTION>
SHARES OF CLASS A SHARES OF PERCENT OF
COMMON WARRANTS COMMON CLASS A SHARES OF CLASS A PERCENT OF CLASS A
STOCK OWNED OWNED STOCK WARRANTS STOCK OWNED WARRANTS COMMON WARRANTS
BEFORE BEFORE OFFERED OFFERED AFTER OWNED AFTER STOCK AFTER AFTER
NAME OFFERING OFFERING HEREBY HEREBY OFFERING OFFERING OFFERING OFFERING
----- ----------- --------- --------- -------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PMF, Inc....... 3,000,000 3,000,000 500,000 500,000 2,500,000 2,500,000 62.5 71.4
</TABLE>
41
<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, Inc. is acting as the Representative, have agreed to purchase (a) from
the Company 250,000 Units consisting of 500,000 shares of Common Stock and
500,000 Class A Warrants, and (b) from the Selling Securityholder 250,000 Units
consisting of 500,000 shares of Common Stock and 500,000 Class A Warrants,
offered hereby on a 'firm commitment' basis, if any are purchased. The
Underwriters have advised the Company that they propose to offer the Units to
the public at $12.00 per Unit 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 $0.60 per Unit, none of which may be reallowed to other dealers who
are members of the NASD. The Underwriters do not intend to sell any of the Units
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>
NUMBER OF
UNDERWRITERS UNITS
- ------------------------------ ---------
<S> <C>
VTR Capital, Inc.............. 375,000
Investors Associates, Inc..... 125,000
---------
Total....................... 500,000
</TABLE>
The public offering price of the Units and the exercise price and the terms
of the Warrants were arbitrarily determined by negotiations between the Company,
the Selling Securityholder 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 Selling Securityholder 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 Units at the Offering price,
less the underwriting discount, to cover over-allotments, if any.
The Underwriting Agreement provides for reciprocal indemnification between
(a) the Company and the Underwriters, and (b) the Company and the Selling
Securityholder, 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 been advised by each of the Company's officers and
directors that none of the Company's officers, directors or any of their
respective affiliates intend to purchase securities in the Offering.
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 Units
offered by the Company and the Selling Securityholder, including any Units
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 Units, which Units are identical in all
respects to those sold to the public in the Offering. The Underwriters' Option
shall be exercisable during a four (4) 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 Units issuable upon
exercise of the Underwriters' Option may be deemed to be additional underwriting
compensation. The exercise price of the Units 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
42
<PAGE>
price of the Units. The exercise of the Underwriters' Option and the number of
Units 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 Units, Common Stock and Warrants 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 Units 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
Regulation M (formerly 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 by the Securities and Exchange Commission from Regulation M
(formerly 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 one or five 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 Units, 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 Units, 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.
43
<PAGE>
DETERMINATION OF PUBLIC OFFERING PRICE
Prior to this Offering, there has been no public market for the Units,
Common Stock and the Class A Warrants. The initial public offering price for the
Units and the exercise price of the Class A Warrants have been determined by
negotiations between the Company, the Selling Securityholder 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 Units and the exercise price of the Class A
Warrants do not necessarily bear any relationship to assets, earnings, book
value or other criteria of value applicable to the Company.
The Company anticipates that the Units, Common Stock and the Class A
Warrants will be listed for quotation on the NASD OTC Bulletin Board under the
symbols SPSUU, SPSU and SPSUW, respectively, but there can be no assurance 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 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, N.W., Washington, D.C. 20549 at prescribed
rates.
44
<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 TO PAGE
------------
<S> <C>
Report of Independent Certified Public Accountants.............. F-1
Financial Statements:
Balance sheets as of June 30, 1996 and December 31, 1996
(unaudited)................................................ F-2
Statements of operations for the period April 24, 1996
(inception) to June 30, 1996,
six months ended December 31, 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 six months ended
December 31, 1996 (unaudited).............................. F-4
Statements of cash flows for the period April 24, 1996
(inception) to June 30, 1996,
and six months ended December 31, 1996 (unaudited), and
cumulative during development
stage (unaudited).......................................... F-5
Notes to financial statements................................. F-6--F-12
</TABLE>
i
<PAGE>
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 statements 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.
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
July 11, 1996
F-1
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................................................... $ 594,175 $ 13,278
Accounts receivable (Note 10)...................................................... 392,247 67,608
Inventory.......................................................................... 99,586 981,648
Prepaid expense and other current assets........................................... -- 21,201
Note receivable (Note 7)........................................................... -- 315,325
---------- -----------
Total current assets............................................................ 1,086,008 1,399,060
---------- -----------
Property and Equipment, net (Note 3)................................................. 341,328 981,605
Investment in Available-for-Sale Securities (Notes 7 and 14)......................... 1,067,000 115,000
Deferred Tax Asset (Note 8).......................................................... 33,700 --
Deferred Offering Costs.............................................................. -- 145,085
Other Assets, net.................................................................... 37,501 30,005
---------- -----------
$2,565,537 $2,670,755
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bridge notes payable (Notes 4 and 14).............................................. $ 300,000 $ 300,000
Accounts payable and accrued expenses.............................................. 761,448 1,462,102
Income taxes payable (Note 8)...................................................... 24,000 --
---------- -----------
Total current liabilities....................................................... 1,085,448 1,762,102
---------- -----------
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) (57,500)
(Deficit) retained earnings accumulated during the development stage............... 35,189 (538,847)
---------- -----------
1,280,089 708,653
---------- -----------
$2,565,537 $2,670,755
---------- -----------
---------- -----------
</TABLE>
See notes to financial statements
F-2
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
APRIL 24, SIX MONTHS CUMULATIVE
1996 ENDED DURING
(INCEPTION) DECEMBER 31, DEVELOPMENT
JUNE 30, 1996 1996 STAGE
------------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue (Note 10)...................................................... $ 857,398 $1,406,493 $ 2,263,891
------------ ----------- -----------
Costs and Expenses:
Cost of sales........................................................ 738,040 1,291,862 2,029,902
General and administrative (Note 9).................................. 70,969 284,462 355,431
------------ ----------- -----------
809,009 1,576,324 2,385,333
------------ ----------- -----------
Earnings (Loss) From Operations
Before Income Tax.................................................... 48,389 (169,831) (121,442)
------------- ----------- -----------
Other Expense:
Interest, net........................................................ -- 21,705 21,705
Loss on sale of investment........................................... -- 382,500 382,500
------------ ----------- -----------
-- 404,205 404,205
------------ ----------- -----------
Earnings (Loss) Before Income Taxes.................................... 48,389 (574,036) (525,647)
------------ ----------- -----------
Provision For Income Tax (Note 8)...................................... 13,200 -- 13,200
------------ ----------- -----------
Net (Loss) Income...................................................... $ 35,189 $ (574,036) $ (538,847)
------------ ----------- -----------
------------ ----------- -----------
Net (Loss) Income Per Share (Note 2)................................... $ .01 $ (.16) $ (.15)
------------ ----------- -----------
------------ ----------- -----------
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>
(DEFICIT)
COMMON STOCK PREFERRED STOCK RETAINED
25,000,000 SHARES 10,000,000 SHARES UNREALIZED EARNINGS
$.0001 PAR VALUE $.0001 PAR VALUE LOSS ON ACCUMULATED
----------------- ----------------- ADDITIONAL INVESTMENT DURING THE
PAR PAR PAID-IN AVAILABLE- DEVELOPMENT
SHARES VALUE SHARES VALUE CAPITAL FOR-SALE STAGE TOTAL
--------- ----- --------- ----- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of stock for
cash at
inception.......... 3,000,000 $ 300 5,000,000 $ 500 $ 54,200 $ -- $ -- $ 55,000
Issuance of stock for
cash and stock of
Compare Generik,
Inc................ 500,000 50 -- -- 1,249,950 -- -- 1,250,000
Unrealized loss on
investment
available-for-sale.. -- -- -- -- -- (60,100) -- (60,100)
Net income -- -- -- -- -- -- 35,189 35,189
--------- ----- --------- ----- ---------- --------- ----------- ---------
Balance, June 30,
1996............... 3,500,000 350 5,000,000 500 1,304,150 (60,100) 35,189 1,280,089
Unrealized loss on
investment
available-for-sale
(unaudited)........ -- -- -- -- -- 2,600 -- 2,600
Net loss
(unaudited)........ -- -- -- -- -- -- (574,036) (574,036)
--------- ----- --------- ----- ---------- --------- ----------- ---------
Balance, December 31,
1996 (unaudited)... 3,500,000 $ 350 5,000,000 $ 500 $1,304,150 $(57,500) $ (538,847) $ 708,653
--------- ----- --------- ----- ---------- --------- ----------- ---------
--------- ----- --------- ----- ---------- --------- ----------- ---------
</TABLE>
See notes to financial statements
F-4
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD SIX MONTHS CUMULATIVE
APRIL 24, 1996 ENDED DURING
(INCEPTION) DECEMBER 31, DEVELOPMENT
JUNE 30, 1996 1996 STAGE
-------------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net (loss) income......................................... $ 35,189 $ (574,036) $ (538,847)
------------ ----------- -----------
Adjustments to reconcile net (loss) income to net cash
provided by operations:
Deferred income taxes.................................. (10,800) 10,800 --
Depreciation........................................... -- 64,706 64,706
Amortization........................................... 1,666 9,998 11,664
Loss on sale of investment............................. -- 382,500 382,500
Increase in assets:
Accounts receivable....................................... (392,247) 324,639 (67,608)
Inventory................................................. (99,586) (882,062) (981,648)
Prepaid expense........................................... -- (21,201) (21,201)
Notes receivable.......................................... -- (315,325) (315,325)
Other assets and deferred offering costs.................. (39,167) (147,587) (186,754)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses..................... 761,448 700,654 1,462,102
Taxes payable............................................. 24,000 (24,000) --
------------ ----------- -----------
Total adjustments......................................... 245,314 103,122 348,436
------------ ----------- -----------
Net cash provided by (used in) operating activities....... 280,503 (470,914) (190,411)
------------ ----------- -----------
Cash Flows from Investing Activities:
Acquisition of property and equipment..................... (341,328) (704,983) (1,046,311)
Proceeds from sale of investment.......................... -- 595,000 595,000
------------ ----------- -----------
Net cash used in investing activities.................. (341,328) (109,983) (451,311)
------------ ----------- -----------
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 (580,897) 13,278
Cash and Cash Equivalents, beginning of period.............. -- 594,175 --
------------ ----------- -----------
Cash and Cash Equivalents,
end of period............................................. $ 594,175 $ 13,278 $ 13,278
------------ ----------- -----------
------------ ----------- -----------
</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 SIX MONTHS ENDED DECEMBER 31, 1996
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 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 $539,000. 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 at June 30, 1996, consisting of finished goods, are valued
at lower of cost (first-in, first-out method) or market. Inventory at
December 31, 1996 has been estimated using the gross profit method.
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.
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
F-6
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIOD APRIL 24, 1996 (INCEPTION) TO JUNE 30, 1996
AND SIX MONTHS ENDED DECEMBER 31, 1996
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 IS
UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:--(CONTINUED)
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 Standards Board
Statement No. 105 ('FASB 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 123') had been applied in
measuring compensation expense.
3. PROPERTY AND EQUIPMENT:
Property and equipment is recorded at cost and is summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
-------- ------------
(UNAUDITED)
<S> <C> <C>
Equipment.................................................................... $277,832 $ 584,182
Leasehold improvements....................................................... 63,496 391,397
Furniture and fixtures....................................................... -- 33,252
Computer equipment........................................................... -- 37,480
-------- -----------
341,328 1,046,311
Less accumulated depreciation................................................ -- 64,706
-------- -----------
$341,328 $ 981,605
-------- -----------
-------- -----------
</TABLE>
No depreciation has been recorded as of June 30, 1996 as none of the
productive equipment has been put into operation. Depreciation expense was
$64,706 for the six months ended December 31, 1996.
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
F-7
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIOD APRIL 24, 1996 (INCEPTION) TO JUNE 30, 1996
AND SIX MONTHS ENDED DECEMBER 31, 1996
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 IS
UNAUDITED)
4. BRIDGE NOTES PAYABLE:--(CONTINUED)
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 equals $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. See subsequent
event footnote 14(b).
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 December
31, 1996, the Company had no outstanding balance under the facility.
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.
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 December 31, 1996 and June 30, 1996,
available-for-sale investments were composed of the aforementioned Compare
shares with a historical cost basis of $172,500
F-8
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIOD APRIL 24, 1996 (INCEPTION) TO JUNE 30, 1996
AND SIX MONTHS ENDED DECEMBER 31, 1996
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 IS
UNAUDITED)
7. STOCKHOLDERS' EQUITY:--(CONTINUED)
and $1,150,000 and an approximate market value of $115,000 and $1,067,000,
respectively. Unrealized loss, which is reported as a part of stockholders'
equity, was approximately $57,500 as of December 31, 1996 and $60,100 as of
June 30, 1996, net of deferred income taxes of $22,900 in June 30, 1996.
In December 1996, in two separate transactions, the Company sold
170,000 shares of common stock of Compare Generiks, Inc. In connection with
the sale of such shares, the Company received an aggregate of $595,000, of
which $315,325 was included in notes receivable at December 31, 1996, which
amount was subsequently collected in January 1997. These transactions
resulted in a realized loss of $382,500.
d. Reserved shares
At December 31, 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 two Class A Warrants. 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.
8. INCOME TAXES:
Income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
PERIOD SIX MONTHS
APRIL 24, 1996 ENDED
(INCEPTION) DECEMBER 31,
JUNE 30, 1996 1996
-------------- ------------
(UNAUDITED)
<S> <C> <C>
Federal:
Current........................................................................... $ 14,000 $--
Deferred.......................................................................... (6,350) --
----------- ---
7,650 --
----------- ---
State:
Current........................................................................... 10,000 --
Deferred.......................................................................... (4,450) --
----------- ---
5,550 --
----------- ---
$ 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.
A 100% valuation allowance has been provided for the deferred tax asset
resulting from the net operating loss and capital loss carryforwards.
F-9
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIOD APRIL 24, 1996 (INCEPTION) TO JUNE 30, 1996
AND SIX MONTHS ENDED DECEMBER 31, 1996
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 IS
UNAUDITED)
8. INCOME TAXES:--(CONTINUED)
The difference between the Corporation's effective income tax rate and the
United States Statutory rate is reconciled below:
<TABLE>
<CAPTION>
PERIOD
APRIL 24, 1996
(INCEPTION)
JUNE 30, 1996
--------------
<S> <C>
United States statutory rate....................................................................... 34.0%
State income taxes, net of Federal income tax benefit.............................................. 7.0
Effect of graduated rates.......................................................................... (13.7)
Other.............................................................................................. --
------
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 December 31,
1996. Had compensation cost been determined on the basis of FASB 123, net
(loss) income and (loss) earnings per share would have been as follows:
<TABLE>
<CAPTION>
PERIOD SIX MONTHS CUMULATIVE
APRIL 24, 1996 ENDED DURING
(INCEPTION) DECEMBER 31, DEVELOPMENT
JUNE 30, 1996 1996 STAGE
-------------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net (loss) income:
As reported............................................... $ 35,189 $ (574,036) $(538,847)
----------- ----------- ----------
----------- ----------- ----------
Pro forma................................................. $ 32,604 $ (589,546) $(556,942)
----------- ----------- ----------
----------- ----------- ----------
(Loss) earnings per share:
As reported............................................... $ .01 $ (.16) $ (.15)
----------- ----------- ----------
----------- ----------- ----------
Pro forma................................................. $ .01 $ (.17) $ (.16)
----------- ----------- ----------
----------- ----------- ----------
</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 June 1997 to October 14, 1997 and $20,833 per
month from October 15, 1997 to October 14, 1998. Accordingly, the Company
has given effect to such rent concessions and has accrued rent expense
aggregating $38,500 and $34,830 as of June 30, 1996 and December 31, 1996,
respectively, using the straight-line basis over the term of the lease.
F-10
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIOD APRIL 24, 1996 (INCEPTION) TO JUNE 30, 1996
AND SIX MONTHS ENDED DECEMBER 31, 1996
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 IS
UNAUDITED)
9. COMMITMENTS:--(CONTINUED)
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 99% and 96% of revenue for the
periods ended December 31, 1996 and June 30, 1996, respectively. Amounts due
from this customer included in accounts receivable approximated $37,000 at
December 31, 1996 and $357,000 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.
The carrying amount and fair value of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1996
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents................................ $ 594,175 $ 594,175 $ 13,278 $ 13,278
Accounts receivable...................................... 392,247 392,247 67,608 67,608
Note receivable.......................................... -- -- 315,325 315,325
Investment available-for-sale............................ 1,067,000 1,067,000 115,000 115,000
Notes payable............................................ 500,000 500,000 500,000 500,000
Other current liabilities................................ 785,448 785,448 1,462,102 1,462,102
</TABLE>
12. SUPPLEMENTARY INFORMATION--STATEMENT OF CASH FLOWS:
Cash paid for interest was $0 for the six months ended December 31, 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).
F-11
<PAGE>
SUPERIOR SUPPLEMENTS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIOD APRIL 24, 1996 (INCEPTION) TO JUNE 30, 1996
AND SIX MONTHS ENDED DECEMBER 31, 1996
(INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED DECEMBER 31, 1996 IS
UNAUDITED)
13. UNAUDITED FINANCIAL STATEMENTS:
The financial statements at December 31, 1996 and for the six months ended
December 31, 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 EVENTS:
a. In January 1997, the Company sold the remaining 30,000 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 $105,000. This transaction
resulted in a realized loss of $67,500.
b. In February 1997, the Company repaid its obligations under the Principal
Bridge Notes and the Convertible Bridge Notes. As a result, the holders of the
Convertible Bridge Notes have forfeited their right to convert such Notes into
Class A Warrants.
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information............................................ 2
Prospectus Summary............................................... 3
The Company...................................................... 3
The Offering..................................................... 4
Summary Financial Information.................................... 7
Risk Factors..................................................... 8
Use of Proceeds.................................................. 17
Dilution......................................................... 18
Capitalization................................................... 19
Dividend Policy.................................................. 19
Bridge Financing................................................. 20
Selected Financial Information................................... 21
Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 22
Business......................................................... 24
Management....................................................... 30
Principal Stockholders........................................... 35
Certain Transactions............................................. 36
Description of Securities........................................ 38
Selling Securityholder........................................... 41
Underwriting..................................................... 42
Legal Matters.................................................... 44
Experts.......................................................... 44
Additional Information........................................... 44
Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL MAY 27, 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 UNITS
EACH UNIT CONSISTS OF TWO (2) SHARES OF
COMMON STOCK, PAR VALUE $.0001 PER
SHARE AND TWO (2) CLASS A REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
SUPERIOR SUPPLEMENTS, INC.
------------------------
PROSPECTUS
------------------------
VTR CAPITAL, INC.
FEBRUARY 26, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
