<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 333-14477
SPORTSNUTS.COM INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 87-0561426
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
The Towers at South Towne II, Suite 550,
10421 South 400 West,
Salt Lake City, Utah Zip Code
-------------------- --------
(Address of principal executive offices) 84095
(801) 816-2500
-------------------------
Issuer's telephone number
- --------------------------------------------------------------------------------
(Former name or former address and former fiscal year, if changed since last
report.)
<PAGE> 2
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports required to be
filed by Sections 12, 13, or 15(d) of the Exchange Act of 1934 after the
distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of March 31, 2000, the Company had
outstanding 18,398,360 shares of common stock, par value $0.0001 per share.
Transitional Small Business Disclosure Format (check one) [ ] Yes [x ] No
<PAGE> 3
PART I
FINANCIAL INFORMATION
The Financial Statements of the Company are prepared as of March 31, 2000.
ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-QSB
CONTENTS
<TABLE>
<S> <C>
Independent Accountants' Review Report.......................................................... 2
Consolidated Balance Sheets..................................................................... 3
Consolidated Statements of Operations........................................................... 5
Consolidated Statements of Stockholders' Equity (Deficit)....................................... 6
Consolidated Statements of Cash Flows........................................................... 7
Notes to the Consolidated Financial Statements.................................................. 9
</TABLE>
1
<PAGE> 4
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
SportsNuts.com International, Inc.
(A Development Stage Company)
Salt Lake City, Utah
We have reviewed the accompanying consolidated balance sheet of SportsNuts.com
International, Inc. (a development stage company) as of March 31, 2000 and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the periods ended March 31, 2000 and 1999. These consolidated financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
consolidated financial information consists principally of applying analytical
procedures to financial data, and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, which
will be performed for the full year with the objective of expressing an opinion
regarding the consolidated financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements referred
to above for them to be in conformity with accounting principles generally
accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of SportsNuts.com
International, Inc. (a development stage company) as of December 31, 1999, and
the related statements of operations, stockholders' equity (deficit), and cash
flows for the year then ended (not presented herein) and in our report dated
March 23, 2000, we expressed an unqualified opinion on those consolidated
financial statements.
HJ & Associates, LLC
Salt Lake City, Utah
May 10, 2000
2
<PAGE> 5
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 49,592 $ 148,647
Accounts receivable, net (Note 1) 22,613 15,523
Inventory, net (Notes 1 and 2) 21,456 23,936
Prepaid expenses 161,135 53,067
----------- -----------
Total Current Assets 254,796 241,173
----------- -----------
PROPERTY AND EQUIPMENT (Note 1)
Computer hardware 565,379 564,018
Computer software 806,310 667,854
Furniture and office equipment 236,844 236,844
Less - accumulated depreciation (363,409) (244,907)
----------- -----------
Total Property and Equipment 1,245,124 1,223,809
----------- -----------
OTHER ASSETS
Restricted cash (Note 1) 35,000 110,000
----------- -----------
Total Other Assets 35,000 110,000
----------- -----------
TOTAL ASSETS $ 1,534,920 $ 1,574,982
=========== ===========
</TABLE>
See Accountants' Review Report and the accompanying notes to the
reviewed consolidated financial statements.
3
<PAGE> 6
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,148,380 $ 766,214
Accrued expenses 145,871 228,865
Notes payable, current portion (Note 4) 25,000 --
Notes payable, related parties (Note 3) 542,000 25,000
------------ ------------
Total Current Liabilities 1,861,251 1,020,079
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.0001 par value; 50,000,000 shares
authorized, 18,398,360 and 17,898,360 shares issued
and outstanding, respectively 1,840 1,790
Additional paid-in capital 13,461,106 12,494,031
Accumulated deficit prior to the development stage (13,136,035) (11,940,918)
Accumulated deficit since the inception of the
development stage (653,242) --
------------ ------------
Total Stockholders' Equity (Deficit) (326,331) 554,903
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 1,534,920 $ 1,574,982
============ ============
</TABLE>
See Accountants' Review Report and the accompanying notes to the
reviewed consolidated financial statements.
4
<PAGE> 7
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
From
Inception of the
Development
Stage on
For the Three Months Ended March 1, 2000
March 31, Through
----------------------------------- March 31,
2000 1999 2000
------------- ------------- ----------------
<S> <C> <C> <C>
NET SALES $ -- $ -- $ --
------------- ------------- ------------
EXPENSES
General and administrative 1,041,172 -- 550,898
Selling and marketing 187,435 -- 67,992
Research and development 63,995 -- 24,458
------------- ------------- ------------
Total Expenses 1,292,602 -- 643,348
------------- ------------- ------------
LOSS FROM OPERATIONS (1,292,602) -- (643,348)
------------- ------------- ------------
OTHER INCOME (EXPENSES)
Interest expense (10,451) -- (10,194)
Interest income 1,271 -- 300
------------- ------------- ------------
Total Other Income (Expenses) (9,180) -- (9,894)
------------- ------------- ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (1,301,782) -- (653,242)
INCOME TAX EXPENSE -- -- --
------------- ------------- ------------
LOSS FROM CONTINUING OPERATIONS (1,301,782) -- (653,242)
LOSS FROM DISCONTINUED
OPERATIONS (Note 9) (546,577) (837,381) --
------------- ------------- ------------
NET LOSS $ (1,848,359) $ (837,381) $ (653,242)
============= ============= ============
BASIC LOSS PER COMMON SHARE -
BASIC AND DILUTED (Note 1)
Loss from continuing operations $ (0.07) $ 0.00
Loss from discontinued operations (0.03) (0.09)
------------- -------------
Basic Loss Per Share $ (0.10) $ (0.09)
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 18,398,360 9,715,657
============= =============
</TABLE>
See Accountants' Review Report and the accompanying notes to the
reviewed consolidated financial statements.
5
<PAGE> 8
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Common Stock Additional Total
--------------------- Paid-In Accumulated Subscription Minority Stockholders'
Shares Amount Capital Deficit Receivable Interest Equity (Deficit)
---------- ------- ----------- ------------- ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 7,651,252 $ 765 $ 1,651,646 $ (2,015,236) $(85,000) $ -- $ (447,825)
Recapitalization (Note 1) 2,441,713 245 1,549,253 -- -- -- 1,549,498
Issuance of common stock for
cash (net of issuance
costs of $501,274) 4,978,245 498 5,610,218 -- -- -- 5,610,716
Issuance of common stock for
fund raising services
(Note 5) 531,000 53 621,697 -- -- -- 621,750
Stock offering costs -- -- (621,750) -- -- -- (621,750)
Issuance of common stock for
purchase of Sportzz.com 944,882 94 3,749,906 -- -- -- 3,750,000
Issuance of common stock
for exercise of warrants
issued for fundraising
services (Note 5) 1,351,268 135 1,026,829 -- -- -- 1,026,964
Stock offering costs -- -- (1,026,964) -- -- -- (1,026,964)
Receipt of cash for
subscription receivable -- -- -- -- 85,000 -- 85,000
Minority interest in
Subsidiary (Note 1) -- -- (66,804) -- -- 66,804 --
Net loss for the year
ended December 31, 1999 -- -- -- (9,925,682) -- (66,804) (9,992,486)
---------- ------- ----------- ------------ -------- ------------ ------------
Balance, December 31, 1999 17,898,360 1,790 12,494,031 (11,940,918) -- -- 554,903
Issuance of common stock
for cash (net of issuance
costs of $15,000) 500,000 50 234,950 -- -- -- 235,000
Warrants issued below
market value -- -- 732,125 -- -- -- 732,125
Net loss for the
three months
ended March 31, 2000 -- -- -- (1,848,359) -- -- (1,848,359)
---------- ------- ----------- ------------- --------- ------------ -------------
Balance, March 31, 2000 18,398,360 $ 1,840 $13,461,106 $(13,789,277) $ -- $ -- $ (326,331)
========== ======= =========== ============= ========= ============ =============
</TABLE>
See Accountants' Review Report and the accompanying notes to the
reviewed consolidated financial statements.
6
<PAGE> 9
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
From
Inception of the
Development
Stage on
For the Three Months Ended March 1, 2000
March 31, Through
------------------------------ March 31,
2000 1999 2000
----------- ----------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,848,359) $ (837,381) $ (653,242)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation 118,502 56,100 40,745
Common stock issued for services and
marketing expenses -- 114,000 --
Warrants issued below market value 732,125 -- 450,000
Deferred income taxes -- (1,258) --
Changes in operating assets and liabilities:
Accounts receivable (7,090) -- (1,020)
Inventory 2,480 (4,403) --
Restricted cash 75,000 -- 75,000
Other current assets (108,068) (22,375) (22,729)
Accounts payable 382,166 22,531 (2,575)
Accrued expenses (82,994) 1,258 (65,255)
----------- ----------- -----------
Net Cash Used in Operating Activities (736,238) (671,528) (179,076)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (139,817) (336,412) (36,014)
----------- ----------- -----------
Net Cash Used in Investing Activities (139,817) (336,412) (36,014)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in cash overdraft -- (47,683) --
Proceeds from issuance of notes payable 575,000 -- 155,000
Proceeds from issuance of common stock 250,000 1,535,500 --
Stock offering costs (15,000) (100,000) --
Payments on stock subscription receivable -- 85,000 --
Principal payments of notes payable (33,000) (301,618) (8,000)
----------- ----------- -----------
Net Cash Provided by Financing Activities $ 777,000 $ 1,171,199 $ 147,000
----------- ----------- -----------
</TABLE>
See Accountants' Review Report and the accompanying notes to the
reviewed consolidated financial statements.
7
<PAGE> 10
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
From
Inception of the
Development
For the Three Months Ended Stage on
-------------------------- March 1, 2000
March 31, March 31, Through
2000 1999 2000
--------- --------- ----------------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ (99,055) $ 163,259 $ (68,090)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 148,647 -- 117,682
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 49,592 $ 163,259 $ 49,592
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest $ 494 $ 4,241 $ --
Income taxes $ -- $ -- $ --
</TABLE>
See Accountants' Review Report and the accompanying notes to the
reviewed consolidated financial statements.
8
<PAGE> 11
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
a. Organization and Description of Business
SportsNuts.com International, Inc. (formerly Durwood, Inc.) (the
"Company") was incorporated under the laws of the State of Delaware
on July 12, 1996. Prior to the reorganization with SportsNuts.com,
Inc. ("SportsNuts"), a privately held Delaware corporation, on April
6, 1999, the Company had not commenced active business operations and
was considered a development stage company. On March 1, 2000, the
Company reentered the development stage when it discontinued the
operations of one of its segments (see Note 10).
On April 6, 1999, the Company acquired (the "Reorganization")
approximately eighty-one percent (81%) of the outstanding capital
stock of SportsNuts, a privately held company. As a result of the
Reorganization, the Company recorded a minority interest of $66,804
in SportsNuts. The Reorganization was accounted for as a reverse
merger into a non-operating public company, wherein SportsNuts was
treated as the accounting acquirer. In conjunction with the
Reorganization, the Company changed its name from Durwood, Inc. to
SportsNuts.com International, Inc.
In connection with the reorganization, the Company effected a 2.213
for 1 forward stock split (the "forward Split") of all then currently
outstanding shares of its common stock, $0.0001 par value (the
"Common Stock"). All references to common stock have been
retroactively restated. The Forward Split resulted in an increase in
the outstanding shares of the Company's Common Stock from 1,103,500
to 2,441,713 shares. As part of the Reorganization, the Company
issued 7,651,252 shares of Common Stock to the Participating
Shareholders of SportsNuts in exchange for their collective
11,683,000 shares of SportsNuts common stock. Each participating
Shareholder of SportsNuts received 0.654904748 shares of the
Company's Common Stock in exchange for each share of common stock of
SportsNuts. Additionally, the Company issued to holders of warrants
in SportsNuts, warrants for the purchase of 3,353,113 shares of the
Company's Common Stock. Each Participating Warrant Holder received
the right to purchase 0.654904748 shares of the Company's Common
Stock in exchange for each share of SportsNuts common stock they were
entitled to purchase pursuant to their SportsNuts warrants. In the
future, the Company may issue up to an additional 1,808,192 shares of
Common Stock to acquire the remaining 2,761,000 shares of Common
Stock of SportsNuts that were held by the remaining shareholders
(other than the Company) as of the closing date of the
Reorganization.
SportsNuts was incorporated in the state of Utah on November 13, 1996
and began operations on January 1, 1997. Its primary business
involved the sales and distribution of sporting goods and
health/nutritional products, using the Internet, through a network
marketing distribution strategy. The strategy also included creating
a personalized sports community offering a comprehensive bundle of
sports, outdoors and fitness-related products, services and
information in a club environment on its web site. The network
marketing distributor force sold club memberships with access to
these products and services on the Web Site. This business strategy
had continued since its inception and subsequent to the
Reorganization until March 1, 2000, when the Company determined to
discontinue its network marketing operations (see Note 10).
9
<PAGE> 12
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
a. Organization and Description of Business (Continued)
On July 28, 1999, the Company issued 944,882 shares of its common
stock valued at $3.97 per share to Sportzz.com, Inc. (Sportzz) in
exchange for all of the issued and outstanding shares of Sportzz
common stock. In addition, cash consideration of $100,000 was paid as
part of the acquisition. The acquisition was accounted for as a
purchase per APB No. 16. The Company recorded an impairment of
goodwill of $3,474,035 because the estimated future cash flows from
the acquisition cannot be readily determined.
Sportzz was incorporated in the State of Utah on April 7, 1999.
Immediately prior to the merger, Sportzz was engaged in the
development of Internet based database management and application
development software, and it maintained an Internet web site
employing its products for purposes of inputting, searching, and
retrieving amateur sports information from leagues, schools, teams,
and their player rosters, game schedules, game results, photographs,
articles, and statistics.
b. Accounting Method
The Company's consolidated financial statements are prepared using
the accrual method of accounting. The Company has elected a December
31 year end.
c. Cash and Cash Equivalents
Cash Equivalents include short-term, highly liquid investments with
maturities of three months or less at the time of acquisition.
d. Inventory
Inventory is stated at the lower of cost (computed on a first-in,
first-out basis) or market. The inventory cost includes all expenses
necessary to place the inventory in a saleable condition.
e. Property and Equipment
Property and equipment are stated at cost. Expenditures for ordinary
maintenance and repairs are charged to operations as incurred. Major
additions and improvements are capitalized. Depreciation is computed
using the straight-line and accelerated methods over estimated useful
lives as follows:
<TABLE>
<S> <C>
Computer hardware 3 years
Computer software 3 years
Office equipment 7 years
</TABLE>
Depreciation expense for the three months ended March 31, 2000 and
1999 was $118,502 and $56,100, respectively.
10
<PAGE> 13
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Accounts Receivable
Accounts receivable are recorded net of the allowance for doubtful
accounts of $32,327 for March 31, 2000 and December 31, 1999.
g. Sales Policy
Substantially all of the Company's sales are on a cash-for-service
basis. Occasionally, sales are made on account for the sale of
promotional merchandise.
h. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
i. Advertising
The Company follows the policy of charging the costs of advertising
to expense as incurred.
j. Basic Loss Per Share
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------------
2000 1999
------------- ------------
<S> <C> <C>
Basic loss per share from continuing operations:
Loss (numerator) $ 1,301,782 $ --
Shares (denominator) 18,398,360 9,715,657
Per share amount $ (0.07) $ 0.00
Basic loss per share from discontinued operations:
Loss (numerator) $ 546,577 $ 837,381
Shares (denominator) 18,398,360 9,715,657
Per share amount $ (0.03) $ (0.09)
</TABLE>
The basic loss per share of common stock is based on the weighted
average number of shares issued and outstanding during the period of
the financial statements. Shares to be issued from warrants and
options are not included in the computation because they would have
an antidilutive effect on the net loss per common share.
11
<PAGE> 14
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued))
k. Provision for Taxes
At March 31, 2000, the Company has net operating loss carryforwards
of approximately $13,800,000 which will expire in 2012 through 2019.
No tax benefit has been reported in the financial statements because
future earnings against which to offset the loss carryforwards are
not assured.
l. Research and Development
The Company follows the policy of charging research and development
costs to expense as incurred.
m. New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" which requires
companies to record derivatives as assets or liabilities, measured at
fair market value. Gains or losses resulting from changes in the
values of those derivatives would be accounted for depending on the
use of the derivative and whether it qualifies for hedge accounting.
The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes
in fair value or cash flows. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Management
believes the adoption of this statement will have no material impact
on the Company's financial statements.
n. Restricted Cash
At March 31, 2000, the Company had $35,000 cash in a certificate of
deposit pledged as collateral for certain credit cards of the
Company.
NOTE 2 - INVENTORY
Inventory consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Finished goods $ 93,262 $ 95,742
Reserve for obsolete inventory (71,806) (71,806)
-------- --------
Total $ 21,456 $ 23,936
======== ========
</TABLE>
12
<PAGE> 15
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 3 - NOTES PAYABLE - RELATED PARTIES
Notes payable - related parties consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Note payable to an individual, unsecured,
interest at 10%, principal and interest due
January 2000 -- $ 25,000
Note payable to a shareholder, secured by tangible and
intangible assets of the Company, interest at 16%, principal
and interest due April 1, 2000. Note is convertible into
common stock of the Company as follows: 9,000,000 shares
through April 1, 2000 (maturity date), 18,000,000 shares
after the maturity date, 45,000,000 shares after 60 days from
the maturity date or 90,000,000 shares after 90 days from the
maturity date 450,000 --
Note payable to a related individual, secured by tangible
assets of the Company, interest at 16%, principal and
interest due May 1, 2000. Note is convertible into common
stock of the Company at $0.05 per share 20,000 --
Note payable to a related individual, secured by tangible
assets of the Company, interest at 16%, principal and
interest due May 4, 2000. Note is convertible into common
stock of the Company at $0.05 per share 20,000 --
Notes payable to related individuals, unsecured,
non-interest bearing, due on demand 27,000 --
Note payable to a related individual, unsecured,
interest at 16%, due on demand 25,000 --
--------- ---------
Total notes payable - related parties 542,000 25,000
Less: current portion (542,000) (25,000)
--------- ---------
Long-term notes payable $ -- $ --
========= =========
</TABLE>
13
<PAGE> 16
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 3 - NOTES PAYABLE - RELATED PARTIES (Continued)
Maturities of notes payable - related parties are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Amount
------------------ --------
<S> <C>
2001 $542,000
--------
Total $542,000
========
</TABLE>
NOTE 4 - NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Note payable to an individual, unsecured, interest at 10%,
principal and interest due June 26, 2000. Note is convertible
into common stock of the Company at $0.05 per share $ 25,000 $ --
Total notes payable 25,000 --
Less: current portion (25,000) --
-------- -------
Long-term notes payable $ -- $ --
======== =======
</TABLE>
Maturities of notes payable are as follows:
<TABLE>
<CAPTION>
Year Ending
March 31, Amount
----------- -------
<S> <C>
2001 $25,000
-------
Total $ 25,000
=======
</TABLE>
NOTE 5 - COMMON STOCK TRANSACTIONS
Effective April 6, 1999, the Company issued 1,000,000 shares of
common stock at a price of $1.00 per share. In connection with this
stock issuance the Company incurred $50,000 in fundraising expenses.
14
<PAGE> 17
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 5 - COMMON STOCK TRANSACTIONS (Continued)
Effective April 8, 1999, the Company issued 1,351,268 shares of
common stock in connection with the exercise of warrants with an
exercise price of $0.76. The warrant holder surrendered 119,799
warrants to pay for the 1,351,268 warrants that were exercised. The
common stock had a market value of $9.375 on the date of exercise.
The warrants were originally issued for commissions related to
raising money for the Company.
Effective April 8, 1999, the Company issued 2,807,000 shares of
common stock at a price of $1.00 per share. The Company paid
commissions of $269,100, together with warrants to purchase 237,151
shares of common stock at $1.00 per share and 440,250 shares of
common stock.
Effective June 15, 1999, the Company issued 750,000 shares of common
stock at a price of $1.95 per share. The Company paid commissions of
$131,625, together with warrants to purchase 67,500 shares of common
stock at an exercise price of $1.95 per share.
Effective July 1, 1999, the Company issued 421,245 shares of common
stock at a price of $2.00 per share. The Company paid commissions of
$50,549, together with warrants to purchase 24,051 shares of common
stock at an exercise price of $2.00 per share and 90,750 shares of
common stock.
Effective July 28, 1999, the Company issued 944,882 shares, valued at
$3,750,000, to acquire all of the issued and outstanding shares of
Sportzz. The shares were valued at the current market price on the
date of acquisition. In addition, cash consideration of $100,000 was
paid to the shareholder of Sportzz (See Note 1).
Effective January 1, 2000, the Company issued 500,000 shares of
common stock at a price of $0.50 per share. The Company paid
commissions of $15,000 in connection with the stock issuance.
NOTE 6 - OUTSTANDING STOCK OPTIONS AND WARRANTS
The Company did not issue any stock options during the three months
ended March 31, 2000. At March 31, 2000, the total number of options
outstanding was 5,818,750 at a weighted average exercise price of
$2.72 per share. The total number of fully-vested options as of March
31, 2000 was 2,772,500. All other options vest ratably over a two or
three-year period from the date of grant. All options expire five (5)
years from the date of grant.
15
<PAGE> 18
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 6 - OUTSTANDING STOCK OPTIONS AND WARRANTS (Continued)
During the three months ended March 31, 2000, the Company issued
warrants to acquire 3,370,000 shares of common stock. Of this total,
3,000,000 warrants were issued at an exercise price of $0.10 per
share, and 370,000 warrants were issued at an exercise price of $0.05
per share. The difference between the market value of the stock and
the exercise price of these warrants at the date of grant was booked
as an expense during the quarter. At March 31, 2000, the Company had
5,695,745 outstanding warrants to purchase common stock at the
weighted average price of $0.37 per share. Warrants issued through
the year ending December 31, 1999 have been issued as commissions for
fundraising and as incentives to purchase stock. As a result, any
difference between the market value and the exercise price on the
grant date has been classified as stock issuance costs. All warrants
expire between 2-3 years from the date of grant.
NOTE 7 - OPERATING LEASES
The Company leases three (3) different office and warehouse
facilities under non-cancelable operating leases expiring in 2000 and
2004. Rental expense for the three months ended March 31, 2000 and
1999 was $30,324 and $8,500, respectively.
The Company also has operating leases on certain office equipment.
Office equipment leases are generally for a term of 48 to 60 months.
Lease expense was $2,056 and $5,306 for the three months ended March
31, 2000 and 1999, respectively.
Future minimum lease payments, by year and in the aggregate, under
the non-cancelable operating leases with initial or remaining terms
of one year or more are due as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------- --------
<S> <C>
2000 $182,371
2001 179,069
2002 179,802
2003 176,783
2004 59,771
2005 and thereafter --
--------
Total minimum lease payments $777,796
========
</TABLE>
16
<PAGE> 19
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 8 - GOING CONCERN
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates
the realization of assets and satisfaction of liabilities in the
normal course of business. The Company has sustained significant net
losses which have resulted in an accumulated deficit at December 31,
1999 of approximately $13,800,000 and has experienced periodic cash
flow difficulties, all of which raise substantial doubt regarding the
Company's ability to continue as a going concern.
The net loss for the years ended December 31, 1999 and 1998 was
$9,925,682 and $1,598,540, respectively. The net loss for the three
months ended March 31, 2000 was $1,848,359. To date the Company has
funded its operations through a combination of short and long-term
loans and the private placement of its common stock. The Company
anticipates another net loss for the year ended December 31, 2000 and
with the expected cash requirements for the coming year, there is
substantial doubt as to the Company's ability to continue operations.
The Company believes these conditions have resulted from the inherent
risks associated with small startup technology-oriented companies.
Such risks include, but are not limited to, the ability to (i)
generate revenues and sales of its products and services at levels
sufficient to cover its costs and provide a return for investors,
(ii) attract additional capital in order to finance growth, (iii)
further develop and successfully market commercial products and
services, and (iv) successfully compete with other comparable
companies having financial, production and marketing resources
significantly greater than those of the Company.
The Company is attempting to improve these conditions by way of
financial assistance through issuances of additional equity and by
generating revenues through sales of products and services.
NOTE 9 - RELATED PARTY TRANSACTIONS
Effective January 10, 1999, the Company entered into a one-year
consulting agreement with RKD Consulting, L.C. to assist the Company
in designing and implementing its accounting system and integrating
the system with transactions occurring through its Web site. The
Company agreed to compensate RKD Consulting, L.C. with an option to
acquire 45,843 shares of common stock at an exercise price of $0.76
per share. The option vested on a pro-rata quarterly basis from the
date of the agreement. A principal member of RKD Consulting, L.C. is
the brother of an Executive Officer and Director of the Company.
17
<PAGE> 20
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 9 - RELATED PARTY TRANSACTIONS (Continued)
Effective May 15, 1999, the Company entered into a consulting
agreement with Moore, Clayton & Co., a private investment and
advisory firm, to receive strategic financial and marketing
consulting services. The agreement provides for a retainer of $5,000
per month, with consulting services to be drawn against the retainer
at the rate of $200 per hour. The agreement also provides for the
issuance of an option on a monthly basis to purchase 5,000 shares of
common stock of the Company, at an exercise price of $1.00 per share.
An Executive Co-Chairman of the Company is a principal of Moore,
Clayton & Co.
Effective July 1, 1999, the Company entered into a second consulting
agreement with Moore, Clayton & Co., to run concurrently with the
first agreement described in the paragraph above. The second
agreement provides for a cash payment of $10,000 per month, with an
option to purchase 986,250 shares of common stock, vesting ratably
over a two-year period, at an exercise price of $2.63 per share. The
second agreement also provides for reimbursement of expenses as they
are incurred, together with a cash bonus equal to five percent (5%)
of the gross value of certain transactions involving the Company
(defined as an underwritten secondary public offering of at least $10
million or a merger or acquisition with a company for cash or
securities traded on a national securities exchange). An Executive
Co-Chairman of the Company is a principal of Moore, Clayton & Co.
Effective June 1, 1999, the Company entered into an agreement with an
Executive Co-Chairman of the Company. The agreement provides for a
cash bonus equal to five percent (5%) of the gross value of certain
transactions involving the Company (defined as an underwritten
secondary public offering of at least $10 million or a merger or
acquisition with a company for cash or securities traded on a
national securities exchange).
Effective September 17, 1999, the Company granted an option to Moore,
Clayton & Co. to purchase 200,000 shares of common stock at a
purchase price of $2.13 per share. The option vests ratably over a
three-year period from the date of grant. An Executive Co-Chairman of
the Company is a principal of Moore, Clayton & Co.
The Company is currently leasing certain of its equipment and is
providing fee-based computer network and web hosting services to a
third-party network marketing firm. The Company is also contemplating
entering into an agreement with such firm to promote the
SportsNuts.com site and its services. Two individuals who are
directors and principal shareholders of the Company are directors and
shareholders of this network marketing firm.
During 1999, a director and officer of the Company advanced the
Company $43,942 on a short-term basis. The entire balance, along with
the balance of $27,582 due at December 31, 1998, was paid off along
with interest of $156 during 1999. The balance due this individual at
December 31, 1999 was $-0-.
18
<PAGE> 21
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 10 - DISCONTINUED OPERATIONS
Effective March 1, 2000, the Company has elected to discontinue its
network marketing operations and concentrate solely on building an
Internet portal to the amateur sports market. The following is a
summary of the loss from discontinued operations resulting from the
elimination of the network marketing segment of the Company. The
financial statements have been retroactively restated to reflect this
event.
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
-------------------------------
2000 1999
--------- ---------
<S> <C> <C>
NET SALES $ 41,188 $ 141,304
--------- ---------
OPERATING EXPENSES
Cost of sales 34,136 123,613
General and administrative 277,990 255,997
Selling and marketing 225,932 501,349
Research and development 50,421 94,629
--------- ---------
Total Operating Expenses 588,479 975,588
--------- ---------
LOSS FROM OPERATIONS (547,291) (834,284)
--------- ---------
OTHER INCOME (EXPENSES)
Interest expense (257) (3,097)
Interest income 971 --
--------- ---------
Total Other Income (Expense) 714 (3,097)
--------- ---------
LOSS BEFORE INCOME TAX (EXPENSE) (546,577) (837,381)
INCOME TAX (EXPENSE) -- --
--------- ---------
LOSS FROM DISCONTINUED OPERATIONS (546,577) $(837,381)
========= =========
</TABLE>
19
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of
operations of SportsNuts.com International, Inc. (hereafter, "SportsNuts.com" or
the "Company") should be read in conjunction with the Unaudited Financial
Statements and related Notes thereto included herein. This discussion may
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including, without limitation, statements regarding the Company's expectations,
beliefs, intentions, or future strategies that are signified by the words
"expects," "anticipates," "intends," "believes," or similar language. Actual
results could differ materially from those projected in the forward looking
statements. Prospective investors should carefully consider the information set
forth below under the caption "Risk Factors" in addition to the other
information set forth herein. The Company cautions investors that its business
and financial performance is subject to substantial risks and uncertainties.
OVERVIEW
Historically, SportsNuts.com had been an online, personalized sports
community offering a comprehensive bundle of sports, outdoors, and
fitness-related products, services, and information in a club environment. The
Company had attempted to combine the three forces of sports, the Internet, and
network marketing in an effort to build a targeted online customer base of
sports enthusiasts. Through March 1, 2000, the Company derived revenues
principally from four sources: (i) proceeds from enrollments of distributors and
their customers, (ii) recurring monthly purchases of promotional products
offered by the Company, (iii) purchases of sales aids by independent
distributors, and (iv) purchases of sports, outdoors, and fitness-related
products and services. Virtually all of the revenues generated through February
29, 2000 have been through the Company's network marketing operations. Effective
March 1, 2000, with the discontinuation of its network marketing operations, the
Company is focusing solely on building an Internet portal to the amateur sports
market. In connection with this change in focus, the Company anticipates
generating future revenues primarily from the following four sources (i) online
registration/administration service fees, (ii) amateur sports organization
fundraising and sponsorships, (iii) website advertising, and (iv) e-commerce
commissions. Therefore, future sources of revenue are expected to be
substantially different from those realized through February of the year 2000.
The ability to generate revenues during the year 2000 and beyond depends
substantially upon the Company's ability to attract users and traffic to its web
site which, in turn, may encourage the use of online registration, fundraising,
sponsorships, advertising and e-commerce. The Company's ability to attract such
traffic requires significant systems development, marketing and personnel costs,
which requires substantial funding. If the Company is unable to obtain such
funding, its ability to generate revenues will be significantly impaired.
Cost of sales have historically been comprised of commission payments to
the network marketing distribution force, as well as the cost of the distributor
kits, sales aids, and products sold through the distribution force and through
e-commerce transactions. The Company anticipates that the expenses which
comprise cost of goods sold in the future will change dramatically, and will no
longer include distributor commissions, distributor kits, sales aids and other
such products sold through the network marketing business. Future expenses which
comprise cost of goods sold are expected to be principally comprised of systems
costs to administer the revenue generating features on the amateur sports
Internet site, as well as potential fee sharing expenses to organizations
involved in fundraising and online registration/administration.
20
<PAGE> 23
General and administrative expenses have been comprised of
administrative wages and benefits; occupancy and office expenses; outside legal,
accounting and other professional fees; travel and other miscellaneous office
and administrative expenses. Selling and marketing expenses include
selling/marketing wages and benefits; advertising and promotional expenses;
network marketing sales team incentives; travel and other miscellaneous related
expenses. R&D expenses consist mainly of development expenses related to
creating new applications for the web site. In the coming year, the operating
expense structure is expected to change with the discontinuation of network
marketing operations. Wages and benefits, promotional, marketing, sales, travel
and other miscellaneous office expenses related to network marketing will no
longer continue after March 1, 2000. However, the Company anticipates that the
decrease in such expenses will be offset by increases in technology personnel
and development costs related to improving the amateur sports Internet site. In
addition, in order to execute the amateur sports Internet business, the Company
anticipates significant expenditures in business development to create strategic
alliances with third parties, and in developing a sales channel to the various
amateur sports organizations throughout the United States.
Because the Company has incurred losses, income tax expenses are
immaterial. No tax benefits have been booked related to operating loss
carryforwards, given the uncertainty of the Company being able to utilize such
loss carryforwards in future years. The Company anticipates incurring additional
losses during the coming year.
RESULTS OF OPERATIONS
Following is management's discussion of the relevant items affecting
results of operations for the periods ended March 31, 2000 and 1999. The
balances discussed below for the first quarter ending March 31, 2000 include
both results from continuing operations and from operations that were
discontinued during the quarter, as indicated in Note 10 of the footnotes to the
consolidated financial statements.
REVENUES. The Company generated net revenues of $41,188 during the three
month period ended March 31, 2000, a 71% decrease from $141,304 during the first
quarter of 1999. This decrease was due to the fact that the Company discontinued
its network marketing operations effective March 1, 2000. Historically, all
revenues generated by the Company have been through its network marketing
operations. Therefore, no such revenues were recognized subsequent to March 1
during the first quarter of 2000. Future revenues are expected to be generated
from the Company's amateur sports internet business, although the Company
anticipates that such revenues will be minimal during the remainder of the year
2000.
COST OF SALES. Cost of Sales for the three month period ended March 31,
2000 were $34,136 a 72% decrease from $123,613 during the first quarter of 1999.
Such costs consist primarily of commission payments to the network marketing
distribution force, as well as the cost of the distributor kits, sales aids, and
products sold through the distributor force. The decrease from the prior year is
directly related to the corresponding 71% decrease in revenues, due to the
discontinuation of the Company's network marketing business as of March 1, 2000.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the three-months ended March 31, 2000 were $1,319,162, a 415% increase from
$255,997 during the first quarter of 1999. This increase was principally due to
the recognition of $732,125 in expenses relating to issuances of warrants during
the first quarter of the year 2000. The company also realized significant
increases in personnel salaries and benefits, professional fees, contract labor,
and rent and occupancy-related expense. The number of employees at the Company
increased substantially throughout the past year, as the Company began to
assemble a management team and added other personnel to support the
21
<PAGE> 24
Company's growth in its network marketing operations. In addition, the Company
acquired an amateur sports Internet subsidiary during 1999 which resulted in the
hiring of four employees in connection with this acquisition, as well as the
hiring of additional personnel to support the development and growth of this
Internet business. Payroll expense and professional fees accounted for
approximately $319,803 and $73,772, respectively, of general and administrative
expenses during the first quarter, as compared to $206,603 and $39,411 during
the first quarter of 1999.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses for the
three month period ended March 31, 2000 were $413,367, an 18 % decrease from
$501,349 during the first quarter of 1999. This decrease was primarily
attributable to the following: (1) The Company discontinued its network
marketing operations as of March 1, 2000, which eliminated selling and marketing
personnel and expenses related to this part of the business, (2) During the
first quarter of 1999 the Company incurred a one time selling & marketing charge
of $114,000 to buy out certain royalty obligations related to the network
marketing business, (3) the Company has attempted to curtail spending in this
area given its current financial position. Much of the marketing expense during
the first quarter of 2000 is the amortization of non-cancelable marketing
contracts that were entered into during 1999 for benefits provided through the
first quarter of the year 2000.
PRODUCT DEVELOPMENT. Product research and development expenditures were
$114,416 during the three months ended March 31, 2000, as compared to $94,629
for the three months ended March 31, 1999, an increase of 21%. Product
development expenses related to the Company's web site consist primarily of
payroll, software and systems, and related costs for programmers and software
developers. Where appropriate, the Company capitalizes certain systems
development costs in accordance with generally accepted accounting principles.
The Company believes that significant investments in product development are
required to remain competitive. Accordingly, the Company expects to incur
increased expenditures with respect to product development in future periods.
OTHER INCOME (EXPENSE). Net other expense totaled $8,466 for the three
months ended March 31, 2000, compared to net expense of $3,097 for the three
months ended March 31, 1999. This expense is comprised primarily of interest
expenses related to balances on Company credit cards and short term loans. The
increase in interest expense in the first quarter of 2000 is due to interest
accrued on various short term loans made to the Company during the quarter. Such
loans did not exist during the first quarter of the prior year.
EXPENSES RELATING TO PRIVATE OFFERINGS. During the first quarter of the
year 2000, the Company issued 500,000 shares of common stock at a price of $.50
per share in a private placement to an accredited investor. In connection with
this stock issuance the Company incurred $15,000 in fundraising expenses.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company's primary source of liquidity
consisted of $84,592 in cash and cash equivalents, $35,000 of which has been
pledged as collateral for certain credit cards issued in the name of the Company
for business use. The Company holds most of its cash reserves in local sweep
accounts with various local financial institutions. Since inception,
SportsNuts.com has financed its operations through a combination of short and
long-term loans, and through the private placement of its Common Stock.
The Company has sustained significant net losses which have resulted in
an accumulated deficit at March 31, 2000 of $13,789,277 and is currently
experiencing a substantial shortfall in operating capital which raises
considerable doubt about the Company's ability to continue as a going concern.
The net loss
22
<PAGE> 25
for the year ended December 31, 1999 and the three months ended March 31, 2000
was $9,925,682 and $1,848,359, respectively. The Company anticipates a
substantial net loss for the year ended December 31, 2000 and with the expected
cash requirements for the coming weeks, without additional cash inflows from
investors, there is substantial doubt as to the Company's ability to continue
operations.
The Company believes these conditions have resulted from the inherent
risks associated with the small startup technology-oriented companies. Such
risks include, but are not limited to, the ability to (i) generate membership
revenues and sales of its products and services at levels sufficient to cover
its costs and provide a return for investors, (ii) attract additional capital in
order to finance growth, (iii) further develop and successfully market
commercial products and services, and (iv) successfully compete with other
comparable companies having financial, production and marketing resources
significantly greater than those of the Company.
The Company believes that its capital requirements are insufficient for
ongoing operations, with current cash reserves exhausted. Although efforts are
presently underway to secure certain short term financing to enable the Company
to meet its ongoing obligations, the Company requires considerable amounts of
financing to make any significant advancements in its business strategy. There
is no agreement in place with any source of financing, and there can be no
assurance that the Company will be able to raise any additional funds, or that
such funds will be available on acceptable terms. Funds raised through future
equity financing will likely be dilutive to current shareholders. Lack of
additional funds will materially affect the Company and its business, and may
cause the Company to cease operations. Consequently, shareholders could incur a
loss of their entire investment in the Company.
FORWARD LOOKING STATEMENTS AND RISK FACTORS
FORWARD LOOKING STATEMENTS
When used in this report, the words, "believe," "plan," "expects," and
similar expressions are intended to identify forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Such statements are subject to certain risks and
uncertainties, including those discussed below, that could cause actual results
to differ materially from those projected. These forward-looking statements
speak only as of the date hereof. All of these forward-looking statements are
based on estimates and assumptions made by management of the Company, which
although believed to be reasonable, are inherently uncertain and difficult to
predict. There can be no assurance that the benefits anticipated in these
forward-looking statements will be achieved.
The Company undertakes no obligation to update any forward-looking
statements, but investors are advised to consult any further disclosures by the
Company on this subject in its subsequent filings pursuant to the Securities
Exchange Act of 1934. Furthermore, as permitted by the Private Securities
Litigation Reform Act of 1995, the Company provides these cautionary statements
identifying risk factors, listed below, that could cause the Company's actual
results to differ materially from expected and historical results. It is not
possible to foresee or identify all such factors. Consequently, this list should
not be considered an exhaustive statement of all potential risks, uncertainties
and inaccurate assumptions.
23
<PAGE> 26
RISK FACTORS
OPERATING RISKS
POSSIBLE LIABILITY TO DISTRIBUTORS. In connection with the
discontinuation of its network marketing operations, the Company may be subject
to liability for sales of products and memberships to its independent
distributors during the previous twelve months. State and/or federal laws
governing network marketing may require the Company to refund all or part of the
funds received from distributors for product and membership sales in the event
of a termination of the distributor's independent sales agreement. If the
Company were forced to refund monies to its distributors and repurchase product
inventory or memberships, the Company's business, operating results, and
financial condition would be materially adversely affected.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends, in large
part, upon the talents and skills of its management and key personnel. To the
extent that any of its key personnel are unable or refuse to continue their
association with the Company, a suitable replacement would have to be found. The
competition for qualified personnel in the computer software and Internet
markets is intense, and there are limited numbers of such qualified personnel in
the metropolitan Salt Lake City area. There is no assurance that the Company
would be able to find suitable replacements for its existing management
personnel or technical personnel or that such replacements could be obtained for
an amount affordable to the Company.
DEPENDENCE ON MARKET AWARENESS OF BRAND. If the Company fails to
successfully promote the "SportsNuts.com" brand name or if the Company incurs
significant expenses promoting and maintaining this brand name, there could be a
material adverse effect on the Company's business, results of operations, and
financial condition. Due in part to the emerging nature of the market for
Internet management solutions and the substantial resources available to many of
the Company's competitors, there may be a time-limited opportunity to achieve
and maintain a significant market share. Developing and maintaining awareness of
the Company's brand name is critical to achieving widespread acceptance of the
Company's management and reporting systems. Furthermore, the importance of brand
recognition will increase as competition in the market for the Company's
products and services increases. Successfully promoting and positioning the
Company's brand will depend largely on the effectiveness of the Company's
marketing efforts and ability to attract a large number of amateur sports
enthusiasts to its Web site on a consistent basis. Consequently, the Company may
need to increase its financial commitment to creating and maintaining brand
awareness among consumers.
ADDITIONAL FINANCING REQUIREMENTS. The Company will likely require
substantial additional capital in the future for expansion, business
development, marketing, computer software and systems, overhead, administrative,
and other expenses. There is no assurance that the Company will be able to raise
additional funds or that financing will be available on acceptable terms. Lack
of additional funds could significantly affect the Company and its business.
Further, funds raised through future equity financing could be substantially
dilutive to existing shareholders.
DEVELOPMENT STAGE COMPANY. The Company was organized on July 12, 1996.
Since the date of its inception, the Company has incurred substantial losses and
has not yet generated a profit. To achieve any significant measure of
profitability, the Company must create substantial activity through its Web Site
to generate revenues, and there is no assurance that the Company will do so in
the future or that such revenue generation will ultimately lead to the Company
becoming profitable.
SEASONALITY. While neither seasonal nor cyclical variations have
materially affected the
24
<PAGE> 27
Company's results of operations in the past, the Company's short operating
history may have suppressed these factors. For example, increases in site
traffic will likely correspond with the three primary sports seasons (football,
basketball, and baseball) and therefore revenues can fluctuate greatly depending
upon the time of year. There can be no assurance that seasonal or cyclical
variations will not materially adversely affect the Company's results of
operations in the future.
RELIANCE UPON MANUFACTURER-SUPPLIERS. The Company does not manufacture
any of the products sold from its Internet Web Site, and therefore relies upon
the Internet retail affiliates ("Affiliates") who sell these products through
the Web Site to manufacture and/or supply all of the products to its customers.
These Affiliates are primarily manufacturer's representatives. The Company's
profit margins and the ability for consumers to receive existing products on a
timely basis are substantially dependent upon these Affiliates. The development
of additional new products in the future will likewise be dependent in part on
the services of suitable Affiliates. The failure of any one of the Company's
Affiliates to produce and deliver quality products and services in a timely
manner on a consistent basis could negatively affect the sale of products from
the Company's Web Site and could have a material adverse affect on the Company's
financial condition and results of operations.
GROWTH MANAGEMENT. The Company anticipates that it will experience rapid
growth in the next few years of operations. The management challenges imposed by
this growth include entry into new markets, growth in the number of persons
accessing the Web Site, management of Affiliates, employees and customers,
expansion of facilities and computer systems necessary to accommodate such
growth, and additions and modifications to the products and services offered
through the Company's Web Site. To manage these changes effectively, the Company
may be required to hire additional management and operations personnel and to
improve its operational, financial, computer, and management systems. If the
Company is unable to manage growth effectively or hire or retain qualified
personnel, the Company's business and results of operations could be materially
adversely affected.
REGULATION OF FUNDRAISING ACTIVITIES. Most states regulate fundraising
activities through "Charitable Solicitation" statutes. To the extent that the
Company is subject to such statutes, the Company may be required to file as a
paid solicitor or professional fundraiser and pay a filing fee in each state in
which it attempts to engage amateur sports teams and participants to sell
Internet advertising to local merchants and organizations. Moreover, inasmuch as
such statutes apply to any person engaged in such activities, every person who
engages in fundraising activities may be required to register as a paid
solicitor or professional fundraiser and pay a registration fee in each state in
which they attempt to sell banner advertising on behalf of the Company. Any
determination that would require state registration for amateur sports teams or
participants may have a material adverse effect on the Company's business,
financial condition, and results of operations.
GOVERNMENT REGULATION OF THE INTERNET. There are currently few laws or
regulations directly applicable to electronic commerce. Due to the increasing
popularity and use of the Internet, it is possible that a number of laws and
regulations may be adopted with respect to the Internet which could materially
increase the cost of transacting business on the Internet. Although
transmissions from the Company's Web Site will likely originate from the States
of Utah and California, the government of the United States and the governments
of other states and foreign countries might attempt to regulate such
transmissions or assess taxes, fees, tariffs, duties, or other payments against
the Company, the Company's Affiliates, or customers purchasing products or
services through the Web Site.
DEPENDENCE ON CONTINUED GROWTH IN USE OF THE INTERNET. The Company's
future success is substantially dependent upon continued growth in the use of
the Internet in order to support the volume of
25
<PAGE> 28
activity necessary to generate advertising revenue and the sale of its products
and services. Rapid growth in the use of the Internet is a relatively recent
phenomenon, and the Company relies on consumers who have historically used
traditional means of media and commerce for entertainment and the purchase of
goods and services. For the Company to be successful, these consumers must
accept and utilize novel ways of conducting business and exchanging information.
There can be no assurance that communication or commerce over the Internet will
become more widespread or that the Internet will otherwise become a viable
commercial marketplace. Moreover, to the extent that the Internet continues to
experience significant growth in the number of users and frequency of use, there
can be no assurance that the Internet infrastructure will continue to be able to
support the demands placed upon it by such growth, or that the performance or
reliability of the Internet will not be adversely affected thereby. In addition,
certain factors such as Internet commerce security and the speed of Internet
transmissions may deter existing as well as potential customers from engaging in
transactions on the Internet. The occurrence of any of these risks could
adversely affect the Company's business, operating results, and financial
condition.
RISK OF COMPUTER SYSTEM FAILURE. The success of the Company is
substantially dependent upon its ability to deliver high quality, uninterrupted
access to its Web Site, which requires that the Company protect its computer
hardware and software systems and the data and information stored in connection
therewith. The Company's systems are vulnerable to damage by fire, natural
disaster, power loss, telecommunications failures, unauthorized intrusion, and
other catastrophic events. Any substantial interruption in the Company's systems
would have a material adverse effect on the Company's business, operating
results, and financial condition. Although the Company carries general
commercial insurance coverage, such coverage may not be adequate to compensate
for the losses that may occur. In addition, the Company's systems may be
vulnerable to computer viruses, physical or electronic break-ins, sabotage, or
other problems caused by third parties which could lead to interruptions,
delays, loss of data, or cessation in service to persons desiring to access the
Company's Web Site. The occurrence of any of these risks could have a material
adverse effect upon the Company's business, results of operations, and financial
condition.
ELECTRONIC DATA TRANSMISSION SECURITY RISKS. A significant barrier to
the electronic transmission of confidential data over the Internet is the
perception that such data may not be secure. The Company relies upon encryption
and authentication technology to provide the security necessary to effect secure
transmissions of confidential information. There can be no assurance that
advances in decryption technology, computer espionage, and other developments
will not result in a breach or compromise of the algorithms used by the Company
to protect transaction data of persons accessing the Web Site, and therefore
lead to the misappropriation of such data by third parties. Any such breach,
compromise, or misappropriation could damage the Company's reputation and expose
the Company to a risk of loss or litigation and possible liability, and could
have a material adverse effect upon the Company's business, results of
operations, or financial condition.
RAPID TECHNOLOGICAL CHANGE. The Internet and on-line industries are
characterized by rapid technological change, changing market conditions and
customer demands, and the emergence of new industry standards and practices that
could render the Company's existing Web Site and the services provided pursuant
thereto obsolete. The Company's future success will substantially depend on its
ability to enhance its existing services, develop new services, and otherwise
respond to technological advances in a timely and cost-effective manner. If the
Company is unable, for technical, legal, financial, or other reasons, to adapt
in a timely manner in response to changing market conditions or customer
requirements, or if the Company's Web Site does not achieve market acceptance,
the Company's business, operating results, and financial condition would be
adversely affected.
NO PROPRIETARY PROTECTION FOR TECHNOLOGY. The Company's statistical
information system and
26
<PAGE> 29
the league management system (now in development) are not protected by any
copyright or patent, and the Company does not anticipate filing an application
with the United States Patent and Trademark Office ("USPTO") or the United
States Copyright Office for protection of these systems. Although the Company
believes that copyright and patent protection for these systems is either cost
prohibitive or unnecessary, it may be wrong. If the Company is wrong, it could
face unexpected expenses pursuing, defending, or otherwise becoming involved in
a copyright or patent dispute, any of which could have a material adverse effect
upon the Company's business, results of operations, and financial condition.
UNCERTAIN PROTECTION OF TRADE NAMES AND RELATED INTANGIBLE ASSETS. The
Company has submitted applications to the USPTO for trademark protection for the
name "SportsNuts.com" with respect to the following classes of products and
services: (i) vitamins, minerals, and herbal supplements; (ii) sporting goods
and apparel; (iii) Internet communication, education, and entertainment; (iv)
miscellaneous goods and services. Currently the mark "E-Sports Mall" is pending
registration. The Company has also registered the Internet domain names,
"www.sportsnuts.com," and "www.sportsnuts.net." If the Company is unsuccessful
in obtaining the right of full usage of its name from the USPTO, other companies
with names, marks, or slogans similar to SportsNuts.com could seek to require
that the Company obtain a license from them or require the Company to change its
name, either of which could entail substantial costs. Additionally, if the
Company were required to change its name, it could lose all goodwill associated
with the "SportsNuts.com" mark. In addition, future products and services
offered by the Company may need to be marketed under different names if the mark
"SportsNuts.com" causes confusion with another trade name being used by another
company. The Company could also incur substantial costs to defend any legal
action taken against the Company pursuant to a trademark or service mark
dispute. If, any legal action against the Company, its asserted trademarks, or
service marks should be found to infringe upon intellectual property rights of a
third party, the Company could be enjoined from further infringement and could
be required to pay damages. In the event a third party were to sustain a valid
claim against the Company, and in the event a required license were not
available on commercially reasonable terms, the Company's financial operations
and results of operations could be materially adversely affected. Litigation,
which could result in substantial cost to and diversion of resources of the
Company, may also be necessary to enforce intellectual property rights of the
Company or to defend the Company against claimed infringements of the rights of
others.
COMPETITION AND TECHNOLOGICAL CHANGE. The market for Internet products,
services, and advertising within the amateur sports market is new, rapidly
evolving, and intensely competitive and will continue to undergo rapid
technological change. The Company must continue to enhance and improve the
functionality and features of its online services and sports information
management software. If new industry needs, standards, or practices emerge, the
Company's existing services, technology, and systems may become obsolete.
Developing and enhancing the Company's proprietary technology entails
significant technical and business risks, in addition to substantial costs. If
the Company faces delays in introducing new services, products and enhancements,
its users may forego the use of the Company's services and use those of its
competitors. The Company currently competes with many other amateur sports
information and product web sites and the Company anticipates competition to
intensify in the future. Barriers to entry may not be significant, and current
and new competitors may be able to launch new web sites quickly at a relatively
low cost. Accordingly, the Company believes that its success will depend heavily
upon achieving significant market acceptance before its competitors and
potential competitors introduce competing services. Many of the Company's
competitors, as well as potential entrants into the Internet amateur sports
market, have longer operating histories, larger customer or user bases, greater
brand recognition and significantly greater financial, marketing, and other
resources than the Company. Furthermore, several of the Company's competitors
have acquired certain key sponsorships and relationships with a few well-known
amateur sports organizations which may impede the Company's growth and thereby
have a material adverse effect upon the Company's business, results of
operations, and financial condition.
27
<PAGE> 30
PRODUCT LIABILITY. Although the Company does not manufacture any of the
products purchased or sold through its Web Site, it may be subject to liability
for losses caused by such products. While the Company maintains a general
commercial liability insurance policy, there is no guarantee that this policy
will provide coverage for or that any such coverage will be sufficient to
satisfy the claims of a successful product liability claim. Accordingly, a
successful products liability claim against the Company could have a material
adverse effect on the Company's business, results of operations, and financial
condition.
INVESTMENT RISKS
SPECULATIVE INVESTMENT. The shares of the Company's common stock are a
speculative investment. To date, the Company has generated substantial losses
and has yet to achieve a profit. If the Company fails to generate profits, it is
unlikely that the Company will be able to meet its financial obligations and
investors could lose their entire investments.
SECURITIES CLASS ACTION CLAIMS BASED UPON PRICE FLUCTUATION. Securities
class action claims have been brought against issuing companies in the past
after volatility in the market price of a company's securities. With respect to
the Company, such litigation could be very costly and divert the Company's
management's attention and resources, and any adverse determination in such
litigation could also subject the Company to significant liabilities, any or all
of which could have a material adverse effect on the Company's business, results
of operations, and financial condition.
NO ACTIVE MARKET. Although the Company's shares are traded on the NASD
Electronic Bulletin Board, the Company believes that the public trading price
may be an inaccurate representation of the value of the Company because there is
no active public market for the shares and no analysts or NASD market makers
actively follow the Company. Consequently, to the extent that the shares became
available for public sale, the public share price could fluctuate substantially
based upon a small volume of public transactions in the Company's Common Stock.
NO DIVIDENDS. The Company does not anticipate paying dividends on its
Common Stock in the foreseeable future, and may be restricted from paying
dividends in the future pursuant to subsequent financing arrangements.
CONCENTRATION OF VOTING POWER. Certain shareholders of the Company
acting as a group may be able to control the election of the Company's Board of
Directors. In addition, pursuant to the Company's Certificate of Incorporation,
the Board of Directors has been divided into three classes, with only one class
subject to reelection in a given year. The Certificate of Incorporation requires
a vote of 66 2/3% of the shares of the Company to amend the provision governing
the election of directors. Consequently, even if a shareholder or group of
shareholders were to acquire a majority of the outstanding shares of the
Company, such acquisition would not necessarily lead to a change in control of
the Company. However, the Company cannot guarantee that certain persons, either
collectively or individually, will not be able to control the election of the
Board of Directors and that minority shareholders will not be adversely affected
as a result.
ANTI-TAKEOVER PROVISIONS. The proposed restatement of the Certificate of
Incorporation of the Company contains certain provisions which could be an
impediment to a non-negotiated change in control of the Company, namely an
ability, without stockholder approval, to issue up to 15,000,000 additional
shares of preferred stock with rights and preferences determined by the board of
directors, staggered terms for directors, and super-voting requirements. These
provisions could impede a non-negotiated change in
28
<PAGE> 31
control and thereby prevent stockholders from obtaining a premium for their
Common Stock.
SECURITIES ELIGIBLE FOR PUBLIC TRADING. Of the 18,398,360 shares of the
Company's Common Stock outstanding on March 31, 2000, as of the filing date of
this report on Form 10-QSB, 13,061,106 are freely tradeable or immediately
eligible for resale under Rule 144 promulgated pursuant to the Securities Act of
1933, as amended. Sales of substantial amounts of the freely tradeable stock in
the public market could adversely affect the market price of the Common Stock.
Moreover, the Company is currently exploring a possible repricing of stock
options issued under its 1998 and 1999 stock option plans (collectively, the
"Plans"), and the possible filing of an S-8 registration statement with respect
to these Plans, the result of which could be the sale of a substantial number of
shares in the public market, and consequently, an adverse effect upon the public
trading price of the Company's Common Stock.
PRIVATE LIABILITY OF MANAGEMENT. The Company has adopted provisions in
its Certificate of Incorporation which limit the liability of its officers and
directors and provisions in its bylaws which provide for indemnification by the
Company of its officers and directors to the fullest extent permitted by
Delaware corporate law. The Company's Certificate of Incorporation generally
provides that its directors shall have no personal liability to the Company or
its stockholders for monetary damages for breaches of their fiduciary duties as
directors, except for breaches of their duties of loyalty, acts or omissions not
in good faith or which involve intentional misconduct or knowing violation of
law, acts involving unlawful payment of dividends or unlawful stock purchases or
redemptions, or any transaction from which a director derives an improper
personal benefit. Such provisions substantially limit the shareholders' ability
to hold directors liable for breaches of fiduciary duty.
POTENTIAL ISSUANCE OF ADDITIONAL COMMON AND PREFERRED STOCK. Pursuant to
the Company's proposed Restated Certificate of Incorporation, the Company will
be authorized to issue up to 200,000 shares of Common Stock. To the extent of
such authorization, the Board of Directors of the Company will have the ability,
without seeking shareholder approval, to issue additional shares of Common Stock
in the future for such consideration as the Board of Directors may consider
sufficient. The issuance of additional Common Stock in the future may reduce the
proportionate ownership and voting power of the Common Stock offered hereby. The
Company will also be authorized to issue up to 20,000,000 shares of Preferred
Stock, the rights and preferences of which may be designated in series by the
Board of Directors. To the extent of such authorization, such designations may
be made without shareholder approval. The designation and issuance of series of
Preferred Stock in the future would create additional securities which would
have dividend and liquidation preferences over Common Stock.
VOLATILITY OF STOCK PRICES. In the event that there is an established
public market for the Company's Common Stock, market prices will be influenced
by many factors and will be more subject to significant fluctuations in response
to variations in operating results of the Company and other factors such as
investor perceptions of the Company, supply and demand, interest rates, general
economic conditions and those specific to the industry, developments with regard
to the Company's activities, future financial condition and management.
APPLICABILITY OF LOW PRICED STOCK RISK DISCLOSURE REQUIREMENTS. The
Common Stock of the Company may be considered a low priced security under rules
promulgated under the Securities Exchange Act of 1934. Under these rules,
broker-dealers participating in transactions in low priced securities must first
deliver a risk disclosure document which describes the risks associated with
such stocks, the broker-dealers's duties, the customer's rights and remedies,
and certain market and other information, and make a suitability determination
approving the customer for low priced stock transactions based on the customer's
financial situation, investment experience and objectives. Broker-dealers must
also disclose these restrictions in writing to the customer, obtain specific
written consent of the customer, and provide
29
<PAGE> 32
monthly account statements to the customer. With all these restrictions, the
likely effect of designation as a low priced stock will be to decrease the
willingness of broker-dealers to make a market for the stock, to decrease the
liquidity of the stock and to increase the transaction cost of sales and
purchases of such stock compared to other securities.
RISKS RELATED TO NETWORK MARKETING OPERATIONS AND DISCONTINUANCE THEREOF
POSSIBLE LIABILITY TO DISTRIBUTORS. In connection with the
discontinuation of its network marketing operations, the Company may be subject
to liability for sales of products and memberships to its independent
distributors during the previous twelve months. State and/or federal laws
governing network marketing may require the Company to refund all or part of the
funds received from distributors for product sales in the event of a termination
of the distributor's independent sales agreement. If the Company were forced to
refund monies to its distributors and repurchase product inventory, the
Company's business, operating results, and financial condition would be
materially adversely affected.
RELIANCE UPON INDEPENDENT DISTRIBUTORS. Prior to the discontinuation of
its network marketing operations, the Company's principal sales force consisted
of independent distributors ("Distributors") who were not employees of the
Company. Relationships with Distributors were voluntarily terminable by the
Distributors, or the Company at any time. The Company's revenue was
substantially dependent upon the efforts of these Distributors.
POTENTIAL NEGATIVE IMPACT OF DISTRIBUTOR ACTIONS. Although the Company
has discontinued its network marketing operations, actions by certain
Distributors may still negatively impact the Company and its products and
services. The publicity resulting from Distributor activities such as
inappropriate earnings claims and product representations by Distributors can
have a material adverse effect on the Company's future business or results of
operations.
GOVERNMENT REGULATION OF DIRECT SELLING ACTIVITIES. Direct selling
activities are regulated by various governmental agencies. These laws and
regulations are generally intended to prevent fraudulent or deceptive schemes,
often referred to as "pyramid" or "chain sales" schemes, that promise quick
rewards for little or no effort, require high entry costs, use high pressure
recruiting methods and/or do not involve legitimate products. As is the case
with most companies which are involved in network marketing, the Company may
receive inquiries from various government regulatory authorities regarding the
nature of its business and other issues such as compliance with local business
opportunity and securities laws. Although the Company has not received any such
inquiry to date, there can be no assurance that the Company will not face such
inquiries in the future which, either as a result of findings adverse to the
Company or as a result of adverse publicity resulting from the instigation of
such inquiries, could have a material adverse effect on the Company's business
and results of operations. While the regulations governing network marketing are
complex and vary from state to state, based on research conducted to date, the
Company believes that its method of distribution was in compliance in all
material respects with the laws and regulations relating to direct selling
activities of the states in which the Company operated.
GOVERNMENTAL REGULATION OF NETWORK MARKETING IN GENERAL. The Company's
network marketing system (now discontinued) was subject to or affected by
extensive government regulation of marketing practices and federal and state
regulation of the offer and sale of business franchises, business opportunities,
and securities. In addition, the Internal Revenue Service and state taxing
authorities in any of the states or U.S. territories where the Company has
Distributors could classify the Distributors as employees of the Company (as
opposed to independent contractors). Any assertion or determination that the
Company's network marketing operations were not in compliance with government
requirements could have a material adverse effect upon the Company's financial
condition and results of operations.
31
<PAGE> 33
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Effective February 1, 2000, the Company sold and issued a promissory
note secured by certain tangible and intangible assets of the Company
("Note") in exchange for $450,000 in cash proceeds. The principal amount
of the Note is convertible into 9,000,000 shares of common stock of the
Company through its date of maturity of April 1, 2000 ("Maturity Date").
After the Maturity Date, the principal amount of the Note is convertible
into 18,000,000 share of common stock. After sixty days from the
Maturity Date, the principal amount of the Note is convertible into
45,000,000 shares of common stock. After ninety days from the Maturity
Date, the principal amount of the Note is convertible into 90,000,000
shares of common stock. As of the date of the filing of this report,
this note has not been repaid, and is convertible into 18,000,000 shares
of Common Stock of the Company. The Convertible Promissory Note and
Security Agreement have been filed as an exhibit to the Company's 1999
annual report on form 10-KSB filed with the Securities and Exchange
Commission on March 30, 2000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
31
<PAGE> 34
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
The following documents are filed as exhibits to this Form 10-QSB:
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER EXHIBITS
------ --------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of
SportsNuts.com International, Inc., a Delaware
corporation.(1)
3.2 Amended and Restated Bylaws of SportsNuts.com
International, Inc., a Delaware corporation. (2)
10.1 Convertible Promissory Note and Security Agreement among
Gardner Management Profit Sharing Plan and Trust,
SportsNuts.com, Inc., Sportzz.com, Inc., and the Company,
including amendments, dated February 1, 2000. (3)
10.2 Convertible Promissory Note and Security Agreement among
Moore, Clayton & Co., SportsNuts.com, Inc., and the
Company, dated February 4, 2000. (4)
10.3 Convertible Promissory Note and Security Agreement among
George Napier, SportsNuts.com, Inc., and the Company,
dated March 10, 2000. (5)
10.4 Convertible Promissory Note and Warrant granted to John
Schmitz and Stanley Aber, dated March 27, 2000.
10.5 Financial Consulting Agreement, dated March 23, 2000,
among SportsNuts.com International, Inc., J.D. Holden
Associates, and The Sunvest Corporation.
10.6 Employment Agreement with Kenneth Denos dated November
16, 1998.(6)
10.7 Independent Contractor Agreement with Sharon Clayton
dated April 15, 1999 (7)
10.8 Consulting Agreement with Moore, Clayton & Co. dated July
1, 1999.(8)
10.9 Summary of Material Terms of Agreement between
SportsNuts.com International, Inc. and Pierre Boivin
dated July 1, 1999. (9)
10.10 Advertising Agreement between EURO RSCG/DSW Partners, LLC
and the Company, dated August 23, 1999.(10)
10.11 SportsNuts.com International, Inc. 1999 Stock Option Plan
(11)
21.1 Subsidiaries of the Registrant. (12)
27.1 Financial Data Schedule
</TABLE>
- ----------------------
(1) Filed as an Exhibit to the Company's report on Form 8-K, filed with
the Commission on April 20, 1999.
(2) Filed as an Exhibit to the Company's annual report on Form 10-KSB,
filed with the Commission on March 30, 2000.
(3) Filed as an Exhibit to the Company's annual report on Form 10-KSB,
filed with the Commission on March 30, 2000.
(4) Filed as an Exhibit to the Company's annual report on Form 10-KSB,
filed with the Commission on March 30, 2000.
(5) Filed as an Exhibit to the Company's annual report on Form 10-KSB,
filed with the Commission on March 30, 2000.
(6) Filed as an Exhibit to the Company's quarterly report on Form
10-QSB, filed with the Commission on May 19, 1999.
32
<PAGE> 35
(7) Filed as an Exhibit to the Company's annual report on Form 10-KSB,
filed with the Commission on March 30, 2000.
(8) Filed as an Exhibit to the Company's annual report on Form 10-KSB,
filed with the Commission on March 30, 2000.
(9) Filed as an Exhibit to the Company's annual report on Form 10-KSB,
filed with the Commission on March 30, 2000.
(10) Filed as an Exhibit to the Company's quarterly report on Form
10-QSB, filed with the Commission on November 15, 1999.
(11) Filed as an Exhibit to the Company's quarterly report on Form
10-QSB, filed with the Commission on November 15, 1999.
(12) Filed as an Exhibit to the Company's annual report on Form 10-QSB,
filed with the Commission on May 19, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPORTSNUTS.COM INTERNATIONAL, INC.
Date: May 15, 2000 By /s/ Kenneth I. Denos
-------------------------------------
Kenneth I. Denos
Chief Financial Officer
33
<PAGE> 36
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER EXHIBITS
------ --------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of
SportsNuts.com International, Inc., a Delaware
corporation.(1)
3.2 Amended and Restated Bylaws of SportsNuts.com
International, Inc., a Delaware corporation. (2)
10.1 Convertible Promissory Note and Security Agreement among
Gardner Management Profit Sharing Plan and Trust,
SportsNuts.com, Inc., Sportzz.com, Inc., and the Company,
including amendments, dated February 1, 2000. (3)
10.2 Convertible Promissory Note and Security Agreement among
Moore, Clayton & Co., SportsNuts.com, Inc., and the
Company, dated February 4, 2000. (4)
10.3 Convertible Promissory Note and Security Agreement among
George Napier, SportsNuts.com, Inc., and the Company,
dated March 10, 2000. (5)
10.4 Convertible Promissory Note and Warrant granted to John
Schmitz and Stanley Aber, dated March 27, 2000.
10.5 Financial Consulting Agreement, dated March 23, 2000,
among SportsNuts.com International, Inc., J.D. Holden
Associates, and The Sunvest Corporation.
10.6 Employment Agreement with Kenneth Denos dated November
16, 1998.(6)
10.7 Independent Contractor Agreement with Sharon Clayton
dated April 15, 1999 (7)
10.8 Consulting Agreement with Moore, Clayton & Co. dated July
1, 1999.(8)
10.9 Summary of Material Terms of Agreement between
SportsNuts.com International, Inc. and Pierre Boivin
dated July 1, 1999. (9)
10.10 Advertising Agreement between EURO RSCG/DSW Partners, LLC
and the Company, dated August 23, 1999.(10)
10.11 SportsNuts.com International, Inc. 1999 Stock Option Plan
(11)
21.1 Subsidiaries of the Registrant. (12)
27.1 Financial Data Schedule
</TABLE>
- ----------------------
(1) Filed as an Exhibit to the Company's report on Form 8-K, filed with
the Commission on April 20, 1999.
(2) Filed as an Exhibit to the Company's annual report on Form 10-KSB,
filed with the Commission on March 30, 2000.
(3) Filed as an Exhibit to the Company's annual report on Form 10-KSB,
filed with the Commission on March 30, 2000.
(4) Filed as an Exhibit to the Company's annual report on Form 10-KSB,
filed with the Commission on March 30, 2000.
(5) Filed as an Exhibit to the Company's annual report on Form 10-KSB,
filed with the Commission on March 30, 2000.
(6) Filed as an Exhibit to the Company's quarterly report on Form
10-QSB, filed with the Commission on May 19, 1999.
(7) Filed as an Exhibit to the Company's annual report on Form 10-KSB,
filed with the Commission on March 30, 2000.
(8) Filed as an Exhibit to the Company's annual report on Form 10-KSB,
filed with the Commission on March 30, 2000.
(9) Filed as an Exhibit to the Company's annual report on Form 10-KSB,
filed with the Commission on March 30, 2000.
(10) Filed as an Exhibit to the Company's quarterly report on Form
10-QSB, filed with the Commission on November 15, 1999.
(11) Filed as an Exhibit to the Company's quarterly report on Form
10-QSB, filed with the Commission on November 15, 1999.
(12) Filed as an Exhibit to the Company's annual report on Form 10-QSB,
filed with the Commission on May 19, 1999.
<PAGE> 1
EXHIBIT 10.4
NON-NEGOTIABLE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE LAW AND MAY NOT
BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED, OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR STATE LAW OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
THE SECURITIES, SUCH OFFER, SALE, OR TRANSFER, PLEDGE, OR HYPOTHECATION
IS IN COMPLIANCE THEREWITH.
CONVERTIBLE PROMISSORY NOTE
Principal Amount: $50,000.00 Date: March 26, 2000
Salt Lake City, Utah
FOR VALUE RECEIVED, SPORTSNUTS.COM INTERNATIONAL, INC., a
Delaware corporation (herein referred to as "Maker" or the "Company"), hereby
promises to pay to the order of John Schmitz and Stanley Aber, individuals
residing in the State of New York (collectively, "Holder"), in lawful money of
the United States of America, the principal sum of Fifty Thousand Dollars
($50,000.00) (the "Principal Amount"), together with interest thereon as
provided below.
1. Payment Terms. The entire Principal Amount together with all accrued
but unpaid interest shall be due and payable on June 26, 2000 (the "Maturity
Date"). Any payments made on this Note will be applied first to any costs and
expenses (including attorneys' fees as provided in paragraph 9) incurred by
Holder in connection with the collection of amounts owing pursuant to this Note,
then to accrued interest, and then to reduction of principal, or as otherwise
determined at Holder's discretion. The loan proceeds represented by this Note
shall be disbursed by the Holder, from time to time, pursuant to a schedule of
disbursements or draws approved by the Holder.
2. Interest. Interest will accrue on Principal Amount outstanding at the
rate per annum of ten percent (10%), with interest payable semiannually in
arrears, at the option of Maker in cash or in shares of Common Stock of the
Company.
3. Warrants. In connection with the issuance of this Note, Maker shall
execute and deliver to Holder a warrant ("Warrant") for the right to purchase an
aggregate of Two Million Five Hundred Thousand (2,500,000) shares of Common
Stock of the Company. The Warrant shall be exercisable at a purchase price of
$0.10 per share. The specific terms and conditions of the Warrant are more
specifically set forth in Exhibit "A" attached hereto. The Warrant shall expire
three (3) years from the date of this Note.
4. Right of Conversion.
4.1 Election Right for Conversion Into Common Stock. This Note,
together with
<PAGE> 2
NON-NEGOTIABLE
all accrued interest (the "Repayment Amount"), shall at any time prior to the
Maturity Date may be converted in its entirety upon the election of the Holder
into fully-paid and non-assessable shares of Common Stock equal to Twenty (20)
times the U.S. dollar value of the Repayment Amount.
4.2 Effect of Election to Convert. Election by the Holder to
convert the Repayment Amount into Common Stock shall be effective only as to the
conversion of all, but not less than all, of the total principal amount of the
Note plus all interest and other amounts then outstanding. Such election shall
be effected by the Holder delivering to the Company this Note together with a
written statement electing such conversion. Such conversion shall be effective
as of the date on which the Company receives such written statement.
4.3 Mechanics of Conversion. Within two (2) business days after
receiving the Holder's written election to convert and this Note, the Company
shall issue and deliver to the Holder a certificate or certificates, registered
in the name of Holder, for the number of full shares of Common Stock to which
Holder is entitled bearing such restrictive legends as may be required by
federal and state securities laws. To the extent permitted by law, such
conversion shall be deemed to have been effected as of the close of business on
the date on which the Holder shall have elected to such conversion. At the time
of the issuance of the certificate for the shares of Common Stock, the rights of
the Holder of the Note as such Holder shall cease, and the Holder shall be
deemed to have become the holder or holders of record of the shares of Common
Stock received upon conversion.
4.4 Taxes on Conversion. The issue of stock certificates on
conversion of this Note shall be made without charge to the Holder for any tax
in respect of the issue thereof. The Company shall not, however, be required to
pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of Common Stock in any name other than that of the Holder of
this Note, and the Company shall not be required to issue or deliver any
certificate in respect of such Common Stock unless and until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
4.5 No Rights as Stockholder. Prior to the conversion of the
Note, the Holder shall not be entitled to any right as a stockholder, including
without limitation the right to vote or to receive dividends or other
distribution, and shall not be entitled to receive any notice of any proceeding
of the Company, except as provided herein.
5. Adjustments. If at any time after this Note is executed, the Company
(i) declares a dividend or makes a distribution on the outstanding shares of its
Common Stock, (ii) subdivides its outstanding shares of Common Stock into a
greater number of shares, (iii) combines its outstanding shares of Common Stock
into a smaller number of shares, (iv) effects a capital reorganization,
reclassification, or change in the outstanding shares of Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value), or (v) otherwise changes into the same or different number
of shares of any class or classes of stock, the Common Stock
<PAGE> 3
NON-NEGOTIABLE
issuable upon the conversion of this Note, the conversion price per share in
effect at the time of the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification
reorganization, other similar changes in the capitalization of the Company shall
be proportionately adjusted so that the Holder of this Note after such time
shall be entitled to receive the aggregate number of shares of Common Stock
which the Holder would have owned or been entitled to receive had this Debenture
been converted immediately prior to such record date or effective date and the
resulting Common Stock had been subject to such dividend, distribution,
subdivision, combination or reclassification or reorganization. Such adjustment
shall be made successively whenever any event specified above shall occur. No
adjustments in respect of interest or dividends, other than a stock dividend,
will be made upon conversion, but a payment in cash will be made by the Company
in lieu of the issuance of any such fractional shares.
6. Registration Rights. If the Company shall file a registration
statement with the Securities and Exchange Commission to register shares of its
Common Stock, excluding an S-8 or S-4 registration statement, the Company agrees
to register the shares of Common Stock issuable from the conversion of this
Note, subject to any underwriter's cutback or limitation in connection
therewith.
7. Representations and Warranties. The Maker represents and
warrants to the Company that:
7.1 The Maker (i) is a corporation duly organized and validly
existing under the laws of Delaware; and (ii) has all requisite corporate power,
and has all material governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business as now being or
as proposed to be conducted;
7.2 There are no legal or arbitrary proceedings, or any proceedings
by or before any governmental or regulatory authority or agency now pending, or
(to the knowledge of the Maker) threatened against the Maker, which, if
adversely determined, could have a material advise effect on the financial
condition, operations or business of the Maker taken as a whole;
7.3 The execution and delivery of this Note, or the Security
Agreement, or the Warrant, the consummation of the transactions herein
contemplated, or the compliance with the terms and provisions hereof will
conflict with, or result in a breach of, or require any consent under the
Articles of Incorporation or By-Laws of the Maker, or any applicable law or
regulation, or any agreement or instrument to which the Maker is a party, or by
which it is bound, or to which it is subject, or constitute a default under any
such agreement or instrument, or result in the creation or imposition of any
lien upon any of the revenues or assets of the Maker, pursuant to the terms of
any such agreement or instrument.
7.4 The Maker has all necessary corporate power and authority to
execute, deliver and perform its obligations under this Note, has been duly
authorized by all necessary corporate action on its part; and this Note has been
duly and validly executed and delivered by the Maker and
<PAGE> 4
NON-NEGOTIABLE
constitutes its legal, valid and binding obligation, enforceable in accordance
with its terms.
8. Default.
8.1 Any one of the following occurrences shall constitute an
"Event of Default" under this Note:
(a) The failure of Maker to make any payment of principal
or accrued interest upon this Note when the same becomes due and
payable in accordance with the terms hereof without further
notice or passage of time; provided however, that Maker shall
have thirty (30) days to cure such default.
(b) The entry of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Maker in
any involuntary case or proceedings under the Federal bankruptcy
law, as now constituted or hereafter amended, or any other
applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of the Maker or for any substantial part of its
property, or ordering the winding-up or liquidation of its
affairs; or
(c) The commencement by the Maker of a voluntary case or
proceeding under the Federal bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal or state bankruptcy,
insolvency, reorganization or other similar law, or any other
case or proceeding to be adjudicated bankrupt or insolvent, or
the consent by it to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator
(or other similar official) of the Maker or of any substantial
part of its property, or the making by it of any assignment for
the benefit of creditors, or the taking of corporation action by
the Maker in furtherance of any of the foregoing.
8.2 Upon the happening of any Event of Default, (i) the entire
principal and any unpaid accrued interest shall become due immediately and
payable in full in cash with interest accruing thereon until paid in full, and
(ii) Holder shall have and may exercise any and all rights and remedies
available hereunder, at law and in equity.
8.3 The remedies of Holder, as provided herein, shall be
cumulative and concurrent, and may be pursued singularly, successively or
together, at the sole discretion of Holder, and may be exercised as often as
occasion therefor shall arise. Any act, omission or commission of Holder,
including, specifically, any failure to exercise any right, remedy or recourse,
shall be released and be effected only through a written document executed by
Holder and then only to the extent specifically recited therein. A waiver or
release with reference to any one event shall not be construed as continuing, as
a bar to, or as a waiver or release of, any subsequent right, remedy or recourse
as to a subsequent event.
<PAGE> 5
NON-NEGOTIABLE
9. Attorneys' Fees. If one or more Events of Default shall occur (or any
act which with notice or passage of time or both would constitute an Event of
Default) under this Note, Maker promises to pay all collection costs, including
but not limited to all reasonable attorneys' fees, court costs, and expenses of
every kind incurred by Holder in connection with such collection or the
protection or enforcement of any or all of the security for this Note, whether
or not any lawsuit is filed with respect thereto.
10. Notices. All payments and any notice required or permitted to be
served hereunder shall be in writing and shall be delivered personally, or by
express, overnight or courier service, by regular or certified mail, or by
facsimile transmission (with a confirming copy sent by U.S. Mail, registered or
certified, return receipt requested) addressed as follows, or to such other
address as any party hereto may for itself designate by written notice in
accordance herewith:
TO MAKER: SPORTSNUTS.COM
10421 South 400 West, Suite 550
South Jordan, Utah 84095
Attn: Kenneth Denos
Facsimile No.: 801-816-2599
TO HOLDER: ____________________________________
____________________________________
____________________________________
Facsimile No.: 631-851-8711
Notice shall be deemed properly given on the date received or postmarked,
whichever is earlier.
11. Transfer. Provided that Maker's written consent is not
provided (which consent shall not be unreasonably withheld), this Note may not
be sold, pledged, hypothecated, or transferred in any manner, and is a
non-negotiable instrument having no value whatsoever except to the Holder while
the Note bears a principal balance outstanding.
12. Waiver. Maker, for itself, its successors, transferees and
assigns and all guarantors, endorsers and signers, hereby waives all valuation
and appraisement privileges, presentment and demand for payment, protest, notice
of protest and nonpayment, dishonor and notice of dishonor, bringing of suit,
lack of diligence or delays in collection or enforcement of this Note and notice
of the intention to accelerate, the release of any liable party, the release of
any security for the debt, the taking of any additional security and any other
indulgence or forbearance, and is and shall be directly and primarily, liable
for the amount of all sums owing and to be owed hereon, and agrees that this
Note and any or all payments coming due hereunder may be extended or renewed
from time to time by mutual consent without in any way affecting or diminishing
Maker's liability hereunder.
<PAGE> 6
NON-NEGOTIABLE
13. Illegality and Severability. In no event shall the amount
paid or agreed to be paid hereunder (including all interest and the aggregate of
any other amounts taken, reserved or charged pursuant to this Note which under
applicable law is deemed to constitute interest on the indebtedness evidenced by
this Note) exceed the highest lawful rate permissible under applicable law; and
if under any circumstances whatsoever, fulfillment of any provision of this Note
at the time performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by applicable law, then ipso
facto, the obligation to be fulfilled shall be reduced to the limit of such
validity, and if from any circumstances Holder should receive as interest an
amount which would exceed the highest lawful rate allowable under law, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid principal balance due under this Note and not to the payment of
interest, or if such excess interest exceeds the unpaid balance of principal,
the excess shall be refunded to Maker. If any provision of this Note or any
payments pursuant to the terms hereof shall be invalid or unenforceable to any
extent, the remaining provisions of this Note and any other payments hereunder
shall not be affected thereby and shall be enforceable to the greatest extent
permitted by law.
14. Governing Law. This Note shall be governed by and
construed under the laws of the State of Utah without regard to the conflict
of laws provisions.
15. Venue and Jurisdiction. Any action or proceeding arising
out of or relating to this Note shall be brought in the federal or state courts
in the State of Utah, and Maker and Holder each consent to the jurisdiction of
said courts.
IN WITNESS WHEREOF, the parties have executed this Note as of the
date first above written.
"Maker"
SPORTSNUTS.COM INTERNATIONAL, INC.
By: /s/ Kenneth Denos
---------------------------------
Kenneth Denos
Executive Vice President
"Holder"
---------------------------------
John Schmitz
---------------------------------
Stanley Aber
<PAGE> 7
NON-NEGOTIABLE
EXHIBIT "A"
TO
CONVERTIBLE PROMISSORY NOTE
DATED MARCH 26, 2000
FOR $50,000
TO JOHN SCHMITZ ANED STANLEY ABER ("HOLDER")
<PAGE> 8
NON-NEGOTIABLE
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE LAW AND MAY NOT
BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED, OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR STATE LAW OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
THE SECURITIES, SUCH OFFER, SALE, OR TRANSFER, PLEDGE, OR HYPOTHECATION
IS IN COMPLIANCE THEREWITH.
Void after 5:00 p.m., Mountain Standard Time
on March 25, 2003
SPORTSNUTS.COM INTERNATIONAL, INC.
WARRANT
This certifies that, for value received,John Schmitz and Stanley Aber,
or registered assigns (the "Holder"), is entitled to purchase, at the Exercise
Price (as defined below) and subject to the provisions of this Warrant, from
SPORTSNUTS.COM INTERNATIONAL, INC., a Delaware corporation, (the "Company"), Two
Million Five Hundred Thousand (2,500,000) shares of the unregistered Common
Stock of the Company (the "Warrant Stock").
1. Exercise of Warrant. This Warrant may be exercised in whole or
in part at any time or from time to time on or after the date hereof, but not
later than 5:00 p.m., Mountain Standard Time, on March 25, 2003, or if such date
is a day on which federal or state chartered banking institutions are authorized
by law to close, then on the next succeeding day which shall not be such a day,
by presentation and surrender thereof to the Company at its principal office or
at the office of its stock transfer agent, if any, with the Purchase Form
annexed hereto duly executed and accompanied by payment, in cash or by certified
or official bank check, payable to the order of the Company, of the Exercise
Price (as defined below) for the number of shares of Warrant Stock specified in
such form, together with all taxes applicable upon such exercise. If this
Warrant should be exercised in part only, the Company shall upon surrender of
this Warrant for cancellation, execute and deliver a new Warrant of the same
tenor evidencing the right of the Holder to purchase the balance of the shares
of Warrant Stock purchasable hereunder upon the same terms and conditions as
herein set forth. Upon and as of receipt by the Company of this Warrant at the
office or stock transfer agent of the Company, in proper form for exercise, and
accompanied by payment as herein provided, the Holder shall be deemed to be the
holder of record of the shares of Warrant Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Warrant Stock shall not
then be actually delivered to the Holder.
2. Exercise Price. This Warrant shall be exercisable at a
purchase price of $0.10 per share.
3. Reservation of Shares. The Company hereby covenants and
agrees that at all times during the period this Warrant is exercisable it shall
reserve from its authorized and unissued shares of Common Stock for issuance and
delivery upon exercise of this Warrant such number of shares of its Warrant
Stock as shall be required for issuance and delivery upon exercise of this
Warrant. The Company
<PAGE> 9
NON-NEGOTIABLE
agrees that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the shares of Warrant Stock
upon the exercise of this Warrant.
4. Fractional Shares. No fractional shares or stock representing
fractional shares shall be issued upon the exercise of this Warrant. In lieu of
any fractional shares which would otherwise be issuable, the Company shall pay
cash equal to the product of such fraction multiplied by the fair market value
of one share of the Warrant Stock on the date of exercise, as determined in good
faith by the Company's Board of Directors.
5. Transfer, Exchange, Assignment or Loss of Warrant.
(a) This Warrant may not be assigned or transferred
except as provided herein and in accordance with and subject to the provisions
of the Securities Act of 1933 and the Rules and Regulations promulgated
thereunder (said Act and such Rules and Regulations being hereinafter
collectively referred to as the "Act"). Any purported transfer or assignment
made other than in accordance with this Section 5 and Section 9 hereof shall be
null and void and of no force and effect.
(b) This Warrant may be transferred or assigned only
with the written consent of the Company, which shall not be unreasonably
withheld. In addition, this Warrant shall be transferable only upon the opinion
of counsel satisfactory to the Company, which may be counsel to the Company,
that (i) the transferee is a person to whom the Warrant may be legally
transferred without registration under the Act; and (ii) such transfer will not
violate any applicable law or governmental rule or regulation including, without
limitation, any applicable federal or state securities law, as further
referenced in Section 9 below. Prior to the transfer or assignment, the assignor
or transferor shall reimburse the Company for its reasonable expenses, including
attorneys' fees, incurred in connection with the transfer or assignment.
(c) Any assignment permitted hereunder shall be made by
surrender of this Warrant to the Company at its principal office with the
Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax. In such event the Company shall, without charge, execute and
deliver a new Warrant in the name of the assignee named in such instrument of
assignment and this Warrant shall promptly be cancelled. This Warrant may be
divided or combined with other Warrants which carry the same rights upon
presentation thereof at the principal office of the Company together with a
written notice signed by the Holder thereof, specifying the names and
denominations in which new Warrants are to be issued. The terms "Warrant" and
"Warrants" as used herein includes any Warrants in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged.
(d) Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and deliver a new Warrant of like tenor and date and any such lost,
stolen, destroyed or mutilated Warrant shall thereupon become void. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not the Warrant so lost,
stolen, destroyed or mutilated shall be at any time enforceable by anyone.
(e) Each Holder of this Warrant, the shares of Warrant
Stock issued hereunder or any other security issued or issuable upon the
exercise of this Warrant shall indemnify and hold harmless
<PAGE> 10
NON-NEGOTIABLE
the Company, its directors and officers, and each person, if any, who controls
the Company, against any losses, claims, damages or liabilities, joint or
several, to which the Company or any such director, officer or any such person
may become subject under the Act or statute or common law, insofar as such
losses, claims, damages or liabilities, or actions in respect thereof, arise out
of or are based upon the disposition by such Holder of the Warrant, the shares
of Warrant Stock acquired under the Warrant, or other such securities in
violation of this Warrant.
(6) Rights of the Holder. The Holder shall not, by virtue hereof,
be entitled to any rights of a shareholder in the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
(7) Adjustment of Exercise Price and Number of Shares. The number
and kind of securities issuable upon the exercise of this Warrant and the
Exercise Price of such securities shall be subject to adjustment from time to
time upon the happening of certain events as follows:
(a) Adjustment for Dividends in Stock. In case at any
time or from time to time on or after the date hereof the holders of the Common
Stock of the Company (or any shares of stock or other securities at the time
receivable upon the exercise of this Warrant) shall have received, or, on or
after the record date fixed for the determination of eligible stockholders,
shall have become entitled to receive without payment therefor, other or
additional stock of the Company by way of dividend, then and in each case, the
Holder of this Warrant shall, upon the exercise hereof be entitled to receive,
in addition to the number of shares of Warrant Stock receivable thereupon, and
without payment of any additional consideration therefor, the amount of such
other or additional stock of Company which such Holder would hold on the date of
such exercise had it been the holder of record of such shares of Warrant Stock
on the date hereof and had thereafter, during the period from the date hereof to
and including the additional stock receivable by it as aforesaid during such
period, giving effect to all adjustments called for during such period by
paragraphs (a) and (b) of this Section 7.
(b) Adjustment for Reclassification, Reorganization or
Merger. In case of any reclassification or change of the outstanding securities
of the Company or of any reorganization of the Company (or any other corporation
the stock or securities of which are at the time receivable upon the exercise of
this Warrant) on or after the date hereof, or in case, after such date, the
Company (or any such other corporation) shall merge with or into another
corporation or convey all or substantially all of its assets to another
corporation, then and in each such case the Holder of this Warrant, upon the
exercise hereof at any time after the consummation of such reclassification,
change, reorganization, merger or conveyance, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise
hereof prior to such consummation, the stock or other securities or property
which such Holder would have been entitled upon such consummation if such Holder
had exercised this Warrant immediately prior thereto. In each such case, the
terms of this Section 7 shall be applicable to the shares of stock or other
securities properly receivable upon the exercise of this Warrant after such
consummation.
(c) Stock Splits and Reverse Stock Splits. If at any
time on or after the date hereof the Company shall subdivide its outstanding
shares of Warrant Stock into a greater number of shares, the Exercise Price in
effect immediately prior to such subdivision shall thereby be proportionately
reduced and the number of shares of Warrant Stock receivable upon exercise of
the Warrant shall thereby be proportionately increased; and, conversely, if at
any time on or after the date hereof the outstanding
<PAGE> 11
NON-NEGOTIABLE
number of shares of Warrant Stock shall be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination shall
thereby be proportionately increased and the number of shares of Warrant Stock
receivable upon exercise of the Warrant shall thereby be proportionately
decreased.
8. Officer's Certificate. Whenever the Exercise Price or the
number of shares of Warrant Stock that may be acquired under the Warrant shall
be adjusted as required by the provisions of Section 6 hereof, the Company shall
forthwith file with its Secretary or an Assistant Secretary at its principal
office, and with its stock transfer agent, if any, an officer's certificate
showing the adjusted Exercise Price and shares of Warrant Stock determined as
herein provided and setting forth in reasonable detail the facts requiring such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the Holder, and the Company shall, forthwith
after each such adjustment, deliver a copy of such certificate to the Holder.
9. Transfer to Comply with the Securities Act of 1933.
(a) This Warrant and the shares of Warrant Stock issued
hereunder or any other security issued or issuable upon exercise of this Warrant
may not be sold, transferred or otherwise disposed of, except to a person who,
in the opinion of counsel reasonably satisfactory to the Company, is a person to
whom this Warrant or such shares of Warrant Stock may legally be transferred
pursuant to Section 5 hereof without registration and without the delivery of a
current prospectus under the Act with respect thereto and then only against
receipt of an agreement of such person to comply with the provision of this
Section 9 with respect to any resale or other disposition of such securities
unless, in the opinion of such counsel, such agreement is not required.
(b) The Company may cause the following legend to be set
forth on each certificate representing shares of Warrant Stock acquired under
this Warrant or any other security issued or issuable upon exercise of this
Warrant, unless counsel for the Company is of the opinion as to any such
certificate that such legend is unnecessary:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE LAW AND MAY NOT
BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED, OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR STATE LAW OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
THE SECURITIES, SUCH OFFER, SALE, OR TRANSFER, PLEDGE, OR HYPOTHECATION
IS IN COMPLIANCE THEREWITH.
10. Governing Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Utah excluding that body of law
pertaining to conflicts of law.
11. Notice. Notices and other communications to be given to the Holder
of the Warrants evidenced by this certificate shall be delivered by hand or
mailed, postage prepaid, to___________________________________________________
__________________________, or such other address as the Holder shall have
designated by written notice to the Company as provided herein. Notices or
other communications to the Company shall be deemed to have been sufficiently
given if
<PAGE> 12
NON-NEGOTIABLE
delivered by hand or mailed postage prepaid to the Company at The Towers at
South Towne II, 10421 South 400 West, Salt Lake City, UT 84095, attn: Kenneth I.
Denos, or such other address as the Company shall have designated by written
notice to such registered owner as herein provided. Notice by mail shall be
deemed given when deposited in the United States mail, postage prepaid, as
herein provided.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the 26
day of March, 2000.
SPORTSNUTS.COM INTERNATIONAL, INC.
By: /s/ Kenneth Denos
-------------------------
Kenneth Denos
Executive Vice President
<PAGE> 13
NON-NEGOTIABLE
PURCHASE FORM
Dated:__________________
The undersigned hereby irrevocably elects to exercise the within Warrant
to the extent of purchasing _________ shares of Warrant Stock, and hereby makes
payment of $________ in payment of the actual exercise price thereof.
--------------------------------
Signature
_______________________________________________________________________________
ASSIGNMENT FORM
Dated:_________________
FOR VALUE RECEIVED, ________________________________________ hereby
sells, assigns and transfers unto______________________________________________
(please type or print)
________________________________________________________________________________
(address)
the right to purchase shares of Warrant Stock represented by this Warrant to the
extent of __________ shares as to which such right is exercisable, and does
hereby irrevocably constitute and appoint the Company and/or its transfer agent
as attorney to transfer the same on the books of the Company with full power of
substitution in the premises.
--------------------------
Signature
<PAGE> 1
EXHIBIT 10.5
J. D. HOLDEN ASSOCIATES
and
THE SUNVEST CORPORATION
A Professional Association
March 23, 2000
Personal & Confidential
Mr. Kenneth I. Denos
Executive Vice President
SportsNuts.com
The Towers at South Towne II
10421 South 400 West, Suite 550
Salt Lake City, Utah 84095
Dear Ken:
Pursuant to our recent discussions and correspondence, I am pleased to
confirm the arrangements under which J. D. Holden Associates (Holden) and The
Sunvest Corporation (Sunvest), herein referred to as "Holden Sunvest" ("HS") is
engaged by Sportsnuts.com ("Company"). Conditioned upon the initial raise by HS
of $500,000 of preferred stock or other financial instruments or securities of
the company, HS is hereby engaged on a two year exclusive basis as finders and
financial advisors to work with the Company on a best efforts basis with
potential sources introduced by HS ("Sources") that may provide financing to the
Company ("Financing").
Sources shall be listed on Exhibit A to this Agreement, and shall include
Sources HS introduced to the company prior to this Agreement.
As compensation for our services hereunder the Company shall pay to HS or
its designees the following percentages of the gross amount of any and all
monies or other consideration involved in the Financing from a Source
("Financing Compensation").
J. D. HOLDEN ASSOCIATES
64 KEATS WAY . MORRISTOWN, NJ 07960
PHONE: 973-898-9811 * FAX: 973-267-2313
*
THE SUNVEST CORPORATION
667 MADISON AVENUE, 20TH FLOOR
NEW YORK, N.Y. 10021
PHONE: 212-888-8118 * FAX: 212-888-8188
<PAGE> 2
-2- March 23, 2000
a) At the signing of this Agreement, Warrants to purchase 500,000 shares of the
Company's Common Stock ("Common Stock"), for an amount equal to the lower of
$0.10 per share or the current price of the current private placement.
b) A cash fee of ten percent (10%) of the gross amount of any and all monies or
other consideration provided to the Company, including monies form the
conversion of the preferred and the exercise of the warrants issued in the
Financing; plus
c) In cash, three percent (3%) of the gross amount of any and all monies or
other consideration provided to the Company, including monies from the
exercise of warrants issued in the Financing as unaccountable expense
allowance; plus
d) Warrants ("Warrants") to purchase shares of the Company's Common Stock
("Common Stock") for an amount equal to ten percent (10%) of the number of
the units (shares and warrants) "Units" purchased by the Sources from the
Company. Warrants shall be exercisable over five (5) years from the time of
the close of the Financing at a price per share equal to 100% of the price
paid in he respective Financing under this agreement. All shares underlying
such Warrants shall have piggyback registration rights should the company
file a registration statement.
Except as otherwise provided herein, any and all Financing Compensation is
due and payable upon the closing of the financing.
No advice rendered by HS, whether formal or informal, may be disclosed, in
whole or in part, or summarized, excerpted from or otherwise referred to without
our prior written consent. In addition, HS may not may not be otherwise referred
to without our prior written consent, except when the Company is required, based
on the advise of its counsel, to make such disclosure under any laws and
regulation. If requested by HS, the Company shall include a mutually acceptable
reference to HS in any press release or other public announcement made by the
Company regarding the matters described in the Agreement.
By executing this Agreement you agree to indemnify and hold harmless HS and
each of its affiliates and their respective directors, officers, employees,
agents, advisors, attorneys and consultants (each an "Indemnified Party") from
and against any and all losses, claims, damages, liabilities, costs and
expenses, including, without limitation, environmental liabilities, costs and
expenses and all reasonable fees and disbursements of counsel, which may be
incurred by or asserted or awarded against any such Indemnified Party in
connection with or arising out of, or related to this Agreement or the
transactions or services covered thereby or hereby, and whether or not any such
transactions are consummated or
<PAGE> 3
-3- March 23, 2000
services rendered, including without limitation any investigation, litigation or
proceeding, whether or not any such Indemnified Party is party thereto,
provided, however, that you shall not have any obligation under this paragraph
to an Indemnified Party with respect to an indemnified matter caused by o
resulting from the gross negligence or willful misconduct of that Indemnified
Party, as determined by a court of competent jurisdiction in a final
non-appealable judgement or order. The provisions of this paragraph shall
survive the termination of this letter.
HS's engagement hereunder may be terminated at any time, with or without
cause, by either HS or the Company upon thirty days' prior written notice
thereof to the other party; provided, however, that in the event of any
termination of HS's engagement hereunder, HS will continue to be entitled to its
full fee provided for herein in the event that at any time prior to the
expiration of two years after any such termination the Company enters into an
agreement effecting the transaction by a source provided directly or indirectly
by HS; and provided further, that any termination of HS's engagement hereunder
shall not affect the Company's obligation to pay other fees and expenses to the
extent provided for herein, and to indemnify HS and certain related persons and
entities as provided in the indemnification above.
The Company represents and warrants that it has all requisite power and
authority, and has obtained all authorization required, to enter into and carry
out the terms of this Agreement, and is not currently a party to, and during the
term of this Agreement, without prior consent of HS, it will not enter into any
agreement that is inconsistent or conflicts with its obligations to HS under
this agreement.
The Company acknowledges and agrees that other than Howard Bronson and
Associates, there are no brokers, representative or other persons who have an
interest in the finder's compensation due to HS from any transaction
contemplated herein.
The Company shall not attempt to circumvent, contact, avoid or bypass HS
directly or indirectly for the purpose of avoiding payment of fees, or
otherwise, by way of any corporation, trust, partnership or other entity or
individually by the use of any information or the name of any Sources introduced
by HS to the Company. This clause shall survive for a period of two years
following the termination of this Agreement.
In connection with the engagement, HS is acting as an independent
contractor with duties owing solely to the Company. This Agreement shall be
governed by and construed in accordance with the laws of New York, without
regard to conflicts of law principles thereof. The parties agree that all
claims, disputes or controversies arising under, out of or in connection with
the Agreement shall be resolved by arbitration. If either party initiates
arbitration,
<PAGE> 4
-4- March 23, 2000
such arbitration shall be held in New York, NY. The parties agree to select a
single arbitrator who will establish the rules and procedures of the arbitration
under the applicable rules. The parties irrevocably submit to the jurisdiction
of New York courts for their respective jurisdictions for entry of any
arbitration decision or to obtain any preliminary relief that may be necessary
and consent to the enforcement of any award rendered in such arbitration.
We are delighted to accept this engagement and look forward to working with
you on this assignment. Please confirm that the foregoing is in accordance with
your understanding by signing and returning to us the enclosed duplicate of this
letter.
Very truly yours,
/s/ J. Daniel Holden
- -----------------------------------
J. Daniel Holden
President
J. D. Holden Associates
/s/ S. Hong Nguyen
- -----------------------------------
S. Hong Nguyen
President
The Sunvest Corporation
Accepted and agreed to as of the date first written above:
By: /s/ Kenneth I. Denos
- -----------------------------------
Name: Kenneth I. Denos
Name: Senior Vice President
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