<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 JUNE 30, 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)
<TABLE>
<S> <C>
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
</TABLE>
(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 June 30, 2000, the Company had
outstanding 934,918 shares of common stock, par value $0.002 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 June 30, 2000.
ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-QSB
CONTENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets............................................................ 2
Consolidated Statements of Operations.................................................. 4
Consolidated Statements of Stockholders' Equity (Deficit).............................. 6
Consolidated Statements of Cash Flows.................................................. 7
Notes to the Consolidated Financial Statements......................................... 9
</TABLE>
1
<PAGE> 4
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 2,497 $ 148,647
Accounts receivable, net (Note 1) 22,397 15,523
Inventory, net (Notes 1 and 2) 13,610 23,936
Prepaid expenses 89,353 53,067
----------- -----------
Total Current Assets 127,857 241,173
----------- -----------
PROPERTY AND EQUIPMENT (Note 1)
Computer hardware 565,379 564,018
Computer software 723,191 667,854
Furniture and office equipment 236,844 236,844
Less - accumulated depreciation (459,366) (244,907)
----------- -----------
Total Property and Equipment 1,066,048 1,223,809
----------- -----------
OTHER ASSETS
Restricted cash -- 110,000
----------- -----------
Total Other Assets -- 110,000
----------- -----------
TOTAL ASSETS $ 1,193,905 $ 1,574,982
=========== ===========
</TABLE>
2
<PAGE> 5
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,219,166 $ 766,214
Accrued expenses 212,833 228,865
Notes payable, current portion (Note 4) 65,000 --
Notes payable, related parties (Note 3) 557,000 25,000
------------ ------------
Total Current Liabilities 2,053,999 1,020,079
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.002 par value; 200,000,000 shares
authorized, 934,918 and 894,918 shares issued
and outstanding, respectively 1,870 1,790
Preferred stock, $0.002 par value; 20,000,000 shares
authorized, 178,000 and 0 shares issued and
outstanding, respectively 356 --
Additional paid-in capital 15,031,220 12,494,031
Accumulated deficit prior to the development stage (13,136,034) (11,940,918)
Accumulated deficit since the inception of the
development stage (2,757,506) --
------------ ------------
Total Stockholders' Equity (Deficit) (860,094) 554,903
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 1,193,905 $ 1,574,982
============ ============
</TABLE>
3
<PAGE> 6
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
-----------------------------
2000 1999
------------ ----------
<S> <C> <C>
NET SALES $ -- $ --
------------ ----------
EXPENSES
General and administrative 1,724,666 --
Selling and marketing 248,306 --
Research and development 79,264 --
------------ ----------
Total Expenses 2,052,236 --
------------ ----------
LOSS FROM OPERATIONS (2,052,236) --
------------ ----------
OTHER INCOME (EXPENSES)
Interest expense (29,930) --
Interest income 1,006 --
Other income 3,100 --
Loss on sale of assets (26,203) --
------------ ----------
Total Other Income (Expenses) (52,027) --
------------ ----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (2,104,263) --
INCOME TAX EXPENSE -- --
------------ ----------
LOSS FROM CONTINUING OPERATIONS (2,104,263) --
LOSS FROM DISCONTINUED
OPERATIONS -- (795,482)
------------ ----------
NET LOSS $ (2,104,263) $ (795,482)
============ ==========
BASIC LOSS PER COMMON SHARE -
BASIC AND DILUTED (Note 1)
Loss from continuing operations $ (2.26) $ 0.00
Loss from discontinued operations 0.00 (1.12)
------------ -----------
Basic Loss Per Share $ (2.26) $ (1.12)
============ ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 929,643 710,662
============ ===========
</TABLE>
4
<PAGE> 7
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
From
Inception of the
Development
Stage on
For the Six Months Ended March 1, 2000
June 30, Through
--------------------------------- June 30,
2000 1999 2000
----------- --------------- ----------------
<S> <C> <C> <C>
NET SALES $ -- $ -- $ --
----------- --------------- -----------
EXPENSES
General and administrative 2,768,801 -- 2,278,564
Selling and marketing 432,776 -- 313,298
Research and development 143,260 -- 103,722
----------- --------------- -----------
Total Expenses 3,344,837 -- 2,695,584
----------- --------------- -----------
LOSS FROM OPERATIONS (3,344,837) -- (2,695,584)
----------- --------------- -----------
OTHER INCOME (EXPENSES)
Interest expense (40,382) -- (40,125)
Interest income 2,277 -- 1,306
Other income 3,100 -- 3,100
Loss on sale of assets (26,203) -- (26,203)
----------- --------------- -----------
Total Other Income (Expenses) (61,208) -- (61,922)
----------- --------------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (3,406,045) -- (2,757,506)
INCOME TAX EXPENSE -- -- --
----------- --------------- -----------
LOSS FROM CONTINUING OPERATIONS (3,406,045) -- (2,757,506)
LOSS FROM DISCONTINUED
OPERATIONS (Note 9) (546,577) (1,632,863) --
----------- --------------- -----------
NET LOSS $(3,952,622) $ (1,632,863) $(2,757,506)
=========== =============== ===========
BASIC LOSS PER COMMON SHARE -
BASIC AND DILUTED (Note 1)
Loss from continuing operations $ (3.68) $ 0.00
Loss from discontinued operations (0.59) (2.73)
----------- ---------------
Basic Loss Per Share $ (4.27) $ (2.73)
=========== ===============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 924,808 598,844
=========== ===============
</TABLE>
5
<PAGE> 8
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
------------------- ---------------- Paid-In
Shares Amount Shares Amount Capital
------- --------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 -- $ -- 382,563 $ 765 $ 1,651,646
Recapitalization (Note 1) -- -- 122,086 245 1,549,253
Issuance of common stock for -- -- 248,912 498 5,610,218
cash (net of issuance costs of
$501,274)
Issuance of common stock for -- -- 26,550 53 621,697
fundraising services (Note 5)
Stock offering costs -- -- -- -- (621,750)
Issuance of common stock for -- -- 47,244 94 3,749,906
purchase of Sportzz.com
Issuance of common stock for -- -- 67,563 135 1,026,829
exercise of warrants issued for
fundraising services (Note 5)
Stock offering costs -- -- -- -- (1,026,964)
Receipt of cash for subscription -- -- -- -- --
receivable
Minority interest in subsidiary -- -- -- -- (66,804)
(Note 1)
Net loss for the year ended -- -- -- -- --
December 31, 1999 ------- --------- ------- ------- -----------
Balance, December 31, 1999 -- -- 894,918 1,790 12,494,031
Issuance of common stock for -- -- 25,000 50 234,950
cash (net of issuance costs of
$15,000) (unaudited)
Warrants issued below market -- -- -- -- 1,889,625
value (unaudited)
Preferred shares issued for 178,000 356 -- -- 394,644
cash (unaudited)
Stock offering costs (unaudited) -- -- -- -- (19,500)
Shares issued for services -- -- 15,000 30 37,470
(unaudited)
Net loss for six months end
June 30, 2000 (unaudited) -- -- -- -- --
------- --------- ------- ------- -----------
Balance, June 30, 2000 178,000 $ 356 934,918 $ 1,870 $ 15,031,220
======= ========= ======= ======= ============
(unaudited)
</TABLE>
<TABLE>
<CAPTION>
Total
Accumulated Subscription Minority Stockholder's
Deficit Receivable Interest Equity (Deficit)
------------ ----------- --------- ---------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $ (2,015,236) $ (85,000) $ -- $ (447,825)
Recapitalization (Note 1) -- -- -- 1,549,498
Issuance of common stock for -- -- -- 5,610,716
cash (net of issuance costs of
$501,274)
Issuance of common stock for -- -- -- 621,750
fundraising services (Note 5)
Stock offering costs -- -- -- (621,750)
Issuance of common stock for -- -- -- 3,750,000
purchase of Sportzz.com
Issuance of common stock for -- -- -- 1,026,964
exercise of warrants issued for
fundraising services (Note 5)
Stock offering costs -- -- -- (1,026,964)
Receipt of cash for subscription -- 85,000 -- 85,000
receivable
Minority interest in subsidiary -- -- 66,804 --
(Note 1)
Net loss for the year ended (9,925,682) -- (66,804) (9,992,486)
December 31, 1999 ------------ --------- --------- ------------
Balance, December 31, 1999 (11,940,918) -- -- 554,903
Issuance of common stock for -- -- -- 235,000
cash (net of issuance costs of
$15,000) (unaudited)
Warrants issued below market -- -- -- 1,889,625
value (unaudited)
Preferred shares issued for -- -- -- 395,000
(unaudited)
Stock offering costs (unaudited) -- -- -- (19,500)
Shares issued for services -- -- -- 37,500
(unaudited)
Net loss for six months end
June 30, 2000 (unaudited) (3,952,622) -- -- (3,952,622)
------------ --------- --------- ------------
Balance, June 30, 2000 $(15,893,540) $ -- $ -- $ (860,094)
============ ========= ========= ============
(unaudited)
</TABLE>
6
<PAGE> 9
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
From
Inception of the
Development
Stage on
For the Six Months Ended March 1, 2000
June 30, Through
-------------------------- June 30,
2000 1999 2000
----------- ----------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,952,622) $(1,632,863) $(2,757,506)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation 235,489 111,843 157,734
Common stock issued for services and
marketing expenses 37,500 114,000 37,500
Warrants issued below market value 1,889,625 -- 1,607,500
Deferred income taxes -- (1,258) --
Minority interest -- (66,804)
Loss on sale of fixed assets 26,203 26,203
Changes in operating assets and liabilities:
Accounts receivable (6,874) (6,729) (805)
Inventory 10,326 (44,070) 7,846
Restricted cash 110,000 -- 110,000
Other current assets (36,286) (39,284) 49,053
Accounts payable 452,953 78,078 68,211
Accrued expenses (16,032) (31,715) 1,708
----------- ----------- -----------
Net Cash Used in Operating Activities (1,249,718) (1,518,802) (692,556)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (139,817) (708,526) (36,014)
----------- ----------- -----------
Net Cash Used in Investing Activities (139,817) (708,526) (36,014)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in cash overdraft -- (47,683) --
Proceeds from sale of fixed assets 35,885 35,885
Proceeds from issuance of notes payable 622,000 -- 210,000
Proceeds from issuance of common stock 645,000 4,873,400 395,000
Stock offering costs (34,500) (19,500)
Payments on stock subscription receivable -- 85,000 --
Principal payments of notes payable (25,000) (301,618) (8,000)
----------- ----------- -----------
Net Cash Provided by Financing Activities $ 1,243,385 $ 4,609,099 $ 613,385
----------- ----------- -----------
</TABLE>
7
<PAGE> 10
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
From
Inception of the
Development
Stage on
For the Six Months Ended March 1, 2000
June 30, Through
--------------------------- June 30,
2000 1999 2000
---------- ---------- ----------------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ (146,150) $2,381,771 $ (115,185)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 148,647 -- 117,682
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 2,497 $2,381,771 $ 2,497
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest $ 2,235 $ 4,241 $ 2,235
Income taxes $ -- $ -- $ --
</TABLE>
8
<PAGE> 11
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 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 (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 55,175 to 122,086 shares. As part of the
Reorganization, the Company issued 382,563 shares of Common Stock to
the Participating Shareholders of SportsNuts in exchange for their
collective 584,150 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 167,656 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 90,410 shares of Common Stock to
acquire the remaining 138,050 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.
On June 25, 2000, the Company effected a 1-for-20 reverse split of all
outstanding shares of Common and Preferred Stock, and amended and
restated its Certificate of Incorporation to restate its par value at
$0.002 per Common and Preferred share. All references to shares
outstanding have been retroactively restated.
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 direct sales 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 direct sales distributor force sold
club memberships with access to these products and services on the Web
Site.
9
<PAGE> 12
This business strategy had continued since its inception and subsequent
to the Reorganization until March 1, 2000, when the Company determined
to discontinue its direct sales operations (see Note 10).
10
<PAGE> 13
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 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 47,244 shares of its common stock
valued at $79.40 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 six months ended June 30, 2000 and 1999
was $235,489 and $111,843, respectively.
11
<PAGE> 14
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 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 $22,032 at June 30, 2000 and $32,327 at 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 Six Months Ended
June 30,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Basic loss per share from continuing operations: (Unaudited) (Unaudited)
Loss (numerator) $ 3,406,044 $ --
Shares (denominator) 924,808 598,844
Per share amount $ (3.68) $ 0.00
Basic loss per share from discontinued operations:
Loss (numerator) $ 546,577 $ 1,632,863
Shares (denominator) 924,808 598,844
Per share amount $ (0.59) $ (2.73)
</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.
12
<PAGE> 15
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued))
k. Provision for Taxes
At June 30, 2000, the Company has net operating loss carryforwards of
approximately $15,900,000 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. Unaudited Consolidated Financial Statements
The accompanying unaudited financial statements include all of the
adjustments which, in the opinion of management, are necessary for a
fair presentation. Such adjustments are of a normal recurring nature.
NOTE 2 - INVENTORY
Inventory consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
(Unaudited)
<S> <C> <C>
Finished goods $ 18,147 $ 95,742
Reserve for obsolete inventory (4,537) (71,806)
-------- --------
Total $ 13,610 $ 23,936
======== ========
</TABLE>
13
<PAGE> 16
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 3 - NOTES PAYABLE - RELATED PARTIES
Notes payable - related parties consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------- ------------
(Unaudited)
<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. As of August 1, 2000, the Principal amount of the
Note is convertible into 4,500,000
shares of common stock of the Company 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 $1.00 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 $1.00 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 --
Note payable to a related individual, unsecured,
interest at 18%, due on demand 15,000 --
--------- ---------
Total notes payable - related parties 557,000 25,000
Less: current portion (557,000) (25,000)
--------- ---------
Long-term notes payable $ -- $ --
========= =========
</TABLE>
14
<PAGE> 17
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 3 - NOTES PAYABLE - RELATED PARTIES (Continued)
Maturities of notes payable - related parties are as follows:
<TABLE>
<CAPTION>
Year Ending
June 30, Amount
----------- --------
<S> <C>
2001 $557,000
--------
Total $557,000
========
</TABLE>
NOTE 4 - NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
(Unaudited)
<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 $1.00
per share $ 50,000 $ --
Note payable to an individual, unsecured,
interest at 16%, due on demand $ 15,000 $ --
-------- ---------
Total notes payable 65,000 --
Less: current portion (65,000) --
-------- ---------
Long-term notes payable $ -- $ --
======== =========
</TABLE>
Maturities of notes payable are as follows:
<TABLE>
<CAPTION>
Year Ending
June 30, Amount
----------- ---------
<S> <C>
2001 $ 65,000
---------
Total $ 65,000
=========
</TABLE>
NOTE 5 - COMMON AND PREFERRED STOCK TRANSACTIONS
Effective April 6, 1999, the Company issued 50,000 shares of common
stock at a price of $20.00 per share. In connection with this stock
issuance the Company incurred $50,000 in fundraising expenses.
15
<PAGE> 18
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 5 - COMMON AND PREFERRED STOCK TRANSACTIONS (Continued)
Effective April 8, 1999, the Company issued 67,563 shares of common
stock in connection with the exercise of warrants with an exercise
price of $15.27. The warrant holders surrendered 5,990 warrants to pay
for the 67,563 warrants that were exercised. The common stock had a
market value of $187.50 on the date of exercise. The warrants were
originally issued in connection with raising money for the Company.
Effective April 8, 1999, the Company issued 140,350 shares of common
stock at a price of $20.00 per share. The Company paid commissions of
$269,100, together with warrants to purchase 11,858 shares of common
stock at $20.00 per share and 22,013 shares of common stock.
Effective June 15, 1999, the Company issued 37,500 shares of common
stock at a price of $39.00 per share. The Company paid commissions of
$131,625, together with warrants to purchase 3,375 shares of common
stock at an exercise price of $39.00 per share.
Effective July 1, 1999, the Company issued 21,062 shares of common
stock at a price of $40.00 per share. The Company paid commissions of
$50,549, together with warrants to purchase 1,203 shares of common
stock at an exercise price of $40.00 per share and 4,538 shares of
common stock.
Effective July 28, 1999, the Company issued 47,244 shares, valued at
$3,750,000, to acquire all of the issued and outstanding shares of
Sportzz.com, Inc. 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 25,000 shares of common
stock at a price of $10.00 per share. The Company paid commissions of
$15,000 in connection with the stock issuance.
Effective April 10, 2000, the Company issued 50,000 shares of nonvoting
convertible preferred stock at a price of $2.00 per share, together
with warrants to acquire 250,000 shares of common stock at an exercise
price of $2.00 per share. Each share of preferred stock is convertible
into one (1) share of common stock. The Company paid cash commissions
of $10,000 in connection with the transaction.
Effective May 1, 2000, the Company issued 128,000 shares of nonvoting
convertible preferred stock at a price of $2.00 per share, together
with warrants to acquire 725,000 shares of common stock at an exercise
price of $2.00 per share. Each share of preferred stock is convertible
into one (1) share of common stock. The Company is obligated to pay
$5,000 in cash commissions in connection with the transaction.
Effective May 2, 2000, the Company issued 15,000 shares of common stock
in satisfaction of an obligation for consulting services received by
the Company. No
16
<PAGE> 19
commissions were paid in connection with the transaction.
NOTE 6 - OUTSTANDING STOCK OPTIONS AND WARRANTS
The Company did not issue any stock options during the six months ended
June 30, 2000. At June 30, 2000, the total number of options
outstanding was 123,313 at a weighted average exercise price of $59.00
per share. The total number of fully-vested options as of June 30, 2000
was 48,740. 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.
During the six months ended June 30, 2000, the Company issued warrants
to acquire 1,043,500 shares of common stock. Of this total, 1,000,000
warrants were issued at an exercise price of $2.00 per share, and
43,500 warrants were issued at an exercise price of $1.00 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 June 30, 2000, the Company had 1,146,689
outstanding warrants to purchase common stock at a weighted average
exercise price of $3.20 per share. Warrants issued through the six
months ending June 30, 2000 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 2-5 years from the date of grant.
NOTE 7 - OPERATING LEASES
The Company leases four (4) different office and warehouse facilities
under non- cancelable operating leases expiring in 2000 and 2004.
Rental expense for the six months ended June 30, 2000 and 1999 was
$73,881 and $47,209, 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 $4,334 and $8,125 for the six months ended June 30,
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>
17
<PAGE> 20
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 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 June 30, 2000 of
approximately $15,900,000 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 six
months ended June 30, 2000 was $3,952,622. 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 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, now terminated, provided 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 Company paid $60,000 and is obligated to pay an
additional $15,000 to Moore, Clayton & Co. in connection with this
Agreement. A former director of the Company is a principal of Moore,
Clayton & Co.
18
<PAGE> 21
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 9 - RELATED PARTY TRANSACTIONS (Continued)
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. Under the second agreement,
now terminated, the Company paid $30,000 to Moore, Clayton & Co.,
together with 15,000 restricted shares of the Company's Common Stock. A
former director of the Company is a principal of Moore, Clayton & Co.
Effective February 1, 2000, the Company sold and issued a promissory
note secured by certain tangible and intangible assets of the Company
("GMI Note") to the Gardner Management, Inc. Profit Sharing Plan and
Trust, a principal shareholder of the Company, in exchange for $450,000
in cash proceeds. As of August 1, 2000, the principal amount of the GMI
Note is convertible into 4,500,000 shares of Common Stock. On March 31,
2000, the Company filed the GMI Note with the Securities and Exchange
Commission as an Exhibit to the Company's annual report on Form 10-KSB
for the year ended December 31, 1999.
Effective February 4, 2000, the Company sold and issued a promissory
note secured by certain tangible and intangible assets of the company
("MCC Note") to Moore, Clayton & Co. in exchange for $20,000 in cash
proceeds. As of August 1, 2000, the principal amount of the MCC Note is
convertible into 20,000 shares of Common Stock of the Company. A former
director of the Company is a principal of Moore, Clayton & Co.
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-.
19
<PAGE> 22
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2000 and December 31, 1999
NOTE 10 - DISCONTINUED OPERATIONS
Effective March 1, 2000, the Company has elected to discontinue its
direct sales 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
direct sales segment of the Company. The financial statements have been
retroactively restated to reflect this event.
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
--------------------------------------
2000 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 41,188 $ 463,441
----------- -----------
OPERATING EXPENSES
Cost of sales 34,136 444,416
General and administrative 277,990 777,319
Selling and marketing 225,932 814,702
Research and development 50,421 123,574
----------- -----------
Total Operating Expenses 588,479 2,160,011
----------- -----------
LOSS FROM OPERATIONS (547,291) (1,696,570)
----------- -----------
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) (1,699,667)
INCOME TAX (EXPENSE) -- --
----------- -----------
Minority interest -- 66,804
----------- -----------
LOSS FROM DISCONTINUED OPERATIONS $ (546,577) $(1,632,863)
=========== ===========
</TABLE>
20
<PAGE> 23
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
direct sales 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 direct selling operations. Effective March 1, 2000, with
the discontinuation of its direct selling operations, the Company began focusing
exclusively upon 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 direct sales 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 direct sales 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.
21
<PAGE> 24
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;
direct selling 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 as a result of the discontinuation of
the Company's direct sales operations. Wages and benefits, promotional,
marketing, sales, travel and other miscellaneous office expenses related to
direct selling were discontinued 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 June 30, 2000 and 1999. The balances
discussed below for the six months ending June 30, 2000 include both results
from continuing operations and from operations that were discontinued during the
period, as indicated in Note 10 of the footnotes to the consolidated financial
statements.
REVENUES. The Company generated no net revenues during the three month
period ended June 30, 2000, as compared to $322,137 during the second quarter of
1999. For the six months ended June 30, 2000, net revenues were $41,188, a 91%
decrease from $463,441 during the first six months of 1999. This decrease was
due to the fact that the Company discontinued its direct selling operations
effective March 1, 2000. Historically, all revenues generated by the Company had
been through its direct selling 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,
if any, during the remainder of the year 2000.
COST OF SALES. The Company had no Cost of Sales during the three month
period ended June 30, 2000, as compared to $320,803 during the second quarter of
1999. For the six month period ended June 30, 2000, cost of sales were $34,136,
a 92% decrease from $444,416 during the first six months of 1999. Such costs
consisted primarily of commission payments to the direct sales 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 decrease in revenues and the discontinuation of the
Company's direct selling business as of March 1, 2000.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses for the three months ended June 30, 2000 were 1,724,666, a 231%
increase from $521,322 during the second quarter of 1999. For the six months
ended June 30, 2000, general and administrative expenses were $3,046,791, a 292%
increase from $777,319 during the first six months of 1999. This increase was
principally due to
22
<PAGE> 25
the recognition of $1,889,625 in expenses relating to issuances of warrants
during the first six months of the year 2000. The company also realized
significant increases in professional fees, contract labor, and rent and
occupancy-related expense. The number of employees at the Company increased
substantially throughout 1999, as the Company began to assemble a management
team and added other personnel to support the Company's growth in its direct
sales operations. Due to the discontinuation of the Company's direct selling
operations, since March 1, 2000, the number of employees has declined sharply.
Payroll expense and professional fees accounted for approximately $284,990 and
$125,223, respectively, of this amount during the second quarter of 2000, as
compared to $370, 920 and 49,556 during the second quarter of 1999. For the six
months ended June 30, 2000, payroll expense and professional fees totaled
approximately $741,550 and $215,294, respectively, of general and administrative
expenses as compared to $623,771 and $59,603 during the first six months of
1999.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses for the
three month period ended June 30, 2000 were $248,306, a 21% decrease from
$313,353 during the second quarter of 1999. Selling and marketing expenses for
the six month period ended June 30, 2000 were $658,708, a 19% decrease from
$814,702 during the first six months of 1999. This decrease was primarily
attributable to the following: (1) The Company discontinued its direct selling
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 six
months of 1999 the Company incurred a one time selling & marketing charge of
$114,000 to buy out certain royalty obligations related to the direct sales
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
six months of 2000 is the amortization of non-cancelable marketing contracts
that were entered into during 1999 for benefits provided through the first six
months of the year 2000.
PRODUCT DEVELOPMENT. Product research and development expenditures for
the three month period ended June 30, 2000 were $79,264, a 174% increase from
$28,945 during the second quarter of 1999. Research and development expenses
were $193,681 during the six months ended June 30, 2000, as compared to $123,574
for the first six months of 1999, an increase of 57%. 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 $60,494 for the six
months ended June 30, 2000, compared to net expense of $3,097 for the six months
ended June 30, 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 six months of 2000 is due to interest accrued
on various short term loans made to the Company during the period. Such loans
did not exist during the first six months of the prior year.
EXPENSES RELATING TO PRIVATE OFFERINGS. During the first six months of
the year 2000, the Company issued 40,000 shares of Common Stock, 178,000 shares
of Preferred Stock, warrants to acquire 1,268,500 shares of Common Stock at a
weighted average exercise price of $1.99 per share, and convertible promissory
notes of an aggregate principal amount of $540,000 in exchange for cash proceeds
of $935,000 in a private placement of its debt and equity securities to seven
accredited investors. In connection with these issuances, the Company incurred
$34,500 in finder's fees and fundraising expenses.
23
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company's primary source of liquidity
consisted of $2,497 in cash and cash equivalents. 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 June 30, 2000 of $15,893,540 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 for the year ended December 31, 1999 and the six months ended June
30, 2000 was $9,925,682 and $3,952,622, 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 small startup technology-oriented companies. Such risks
include, but are not limited to, the ability to (i) generate revenues from 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 completely 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 significantly 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, "believes," "plans," "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.
24
<PAGE> 27
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.
RISK FACTORS
OPERATING RISKS
POSSIBLE LIABILITY TO DISTRIBUTORS. In connection with the
discontinuation of its direct sales 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 direct
selling 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
25
<PAGE> 28
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 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 effect 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 relatively
few laws or regulations directly applicable to the Internet. Due to the
increasing popularity and use of the Internet, it is possible
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<PAGE> 29
that a number of laws and regulations may be adopted with respect to the
Internet which could materially increase the cost of transacting business or
providing services through the Internet. Although transmissions from the
Company's Web Site will likely continue to originate from the State of Utah, 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 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
27
<PAGE> 30
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 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
28
<PAGE> 31
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.
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. According to the terms of a certain
convertible promissory note sold and issued by the Company to Gardner Management
Profit Sharing Plan and Trust ("Trust"), the Trust possesses voting rights with
respect to a substantial majority of the voting shares of the Company.
Consequently, the trustee of the Trust possesses the ability to unilaterally
control the election of the
29
<PAGE> 32
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 now or in the future, 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 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 19,750,000 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 control and thereby prevent stockholders
from obtaining a premium for their Common Stock.
SECURITIES ELIGIBLE FOR PUBLIC TRADING. Of the 934,918 shares of the
Company's Common Stock outstanding on June 30, 2000, as of the filing date of
this report on Form 10-QSB, 659,592 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 the possible grant of options to
new management and other key personnel, and the possible filing of an S- 8
registration statement with respect to the Company's stock option 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 Restated Certificate of Incorporation, the Company is
authorized to issue up to 200,000,000 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 is also 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.
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<PAGE> 33
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 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 DIRECT SELLING OPERATIONS AND DISCONTINUANCE THEREOF
POSSIBLE LIABILITY TO DISTRIBUTORS. In connection with the
discontinuation of its direct selling 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 direct
selling 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.
POTENTIAL NEGATIVE IMPACT OF DISTRIBUTOR ACTIONS. Although the Company
has discontinued its direct sales 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 direct selling, 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 direct selling 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
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<PAGE> 34
and regulations relating to direct selling activities of the states in which the
Company operated.
GOVERNMENTAL REGULATION OF DIRECT SELLING IN GENERAL. The Company's
direct sales 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 direct selling operations were not in compliance with government
requirements could have a material adverse effect upon the Company's financial
condition and results of operations.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 11, 2000, the Phoenix Suns Limited Partnership, a Delaware
Limited Partnership, filed a claim against the Company in the Superior Court of
Arizona, Maricopa County. The purpose of the claim was a judicial attempt to
collect monies from the Company for advertising services rendered in the America
West Arena in Phoenix, Arizona during the 1999-2000 basketball season. The claim
seeks to recover $72,500, not including up to $5,000 in legal fees and costs.
ITEM 2. CHANGES IN SECURITIES
REVERSE STOCK SPLIT
On June 25, 2000, pursuant to a majority written consent of the
shareholders of the Company, the Board of Directors approved and executed a
1-for-20 reverse split of all of the Company's outstanding shares of Common and
Preferred Stock.
RECENT SALES OF UNREGISTERED SECURITIES
Effective March 26, 2000, the Company sold and issued a promissory note
to two accredited investors in exchange for $50,000 in cash proceeds. The Note
is convertible into shares of Common Stock of the Company at a ratio of one
share for each $1.00 of principal and interest outstanding under the Note at the
time of conversion. The Company paid $5,000 in cash commissions in connection
with the transaction. The Company believes that the transaction was exempt from
the registration provisions of the Securities Act of 1933 pursuant to Section
4(2) of such Act and Rule 506 promulgated thereunder.
Effective April 10, 2000 the Company sold and issued 50,000 shares of
nonvoting convertible Preferred Stock, together with warrants to acquire 250,000
shares of the Company's Common Stock at an exercise price of $2.00 per share to
an accredited investor in exchange for $113,000 in cash proceeds. Each share of
Preferred Stock is convertible into two shares of Common Stock. The Company paid
$10,000 in cash commissions in connection wiith the transaction. The Company
believes that the transaction was exempt from the registration provisions of the
Securities Act of 1933 pursuant to Section 4(2) of such Act and Rule 506
promulgated thereunder.
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<PAGE> 35
Effective May 1, 2000 the Company sold and issued 128,000 shares of
nonvoting convertible Preferred Stock, together with warrants to acquire 725,000
shares of the Company's Common Stock at an exercise price of $2.00 per share to
two accredited investors in exchange for $282,000 in cash proceeds. Each share
of Preferred Stock is convertible into two shares of Common Stock. The Company
is obligated to pay cash commissions of $5,000 in connection with these
transactions. The Company believes that the transaction was exempt from the
registration provisions of the Securities Act of 1933 pursuant to Section 4(2)
of such Act and Rule 506 promulgated thereunder.
Effective May 2, 2000, the Company sold and issued 15,000 shares of its
Common Stock to an accredited investor in satisfaction of an obligation to such
accredited investor for consulting services provided to the Company. No
commissions were paid in connection with the transaction. The Company believes
that the transaction was exempt from the registration provisions of the
Securities Act of 1933 pursuant to Section 4(2) of such Act.
Beginning in April, 1999 and continuing throughout 1999 until the end
of the second quarter, 2000, the Company has granted options to various
officers, directors, employees, and service providers of the Company to purchase
123,313 shares of its Common Stock pursuant to the Company's 1999 Stock Option
Plan ("Plan"). The Company believes that the options granted under the Plan are
exempt from registration under the Securities Act of 1933 pursuant to Section
4(2) of such Act.
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. As of May 1, 2000, the Company is in
default with respect to the Note. As of August 1, 2000, the principal amount of
the Note, together with interest as accrued, is convertible into approximately
4,859,014 shares of common stock. 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
The Company held its annual stockholders meeting on June 2, 2000, in
Sandy, Utah. In connection with the meeting, proxies were solicited by the
Company pursuant to Regulation 14A of the Securities Exchange Act of 1934. The
matters submitted to a vote of security holders were: (i) the election of
directors, (ii) approval of auditors, and (iii) approval of a restatement of the
Company's Certificate of Incorporation providing for an increase in the number
of authorized shares and a 1-for-20 reverse split of all outstanding shares of
capital stock. A quorum was not present at the meeting in person or by proxy,
and therefore no action with respect to the aforementioned matters could be
taken at that time.
Subsequent to the annual meeting of shareholders, the shareholders, by
majority written consent, elected the following individuals to serve as members
of the Company's Board of Directors for the stated terms:
<TABLE>
<CAPTION>
Name Expiration of Term
------------------- ------------------
<S> <C>
Kenneth Denos 2001
Pierre Boivin 2001
</TABLE>
33
<PAGE> 36
In addition to the election of directors, the shareholders, by majority
written consent, approved a restatement of the Company's Certificate of
Incorporation providing for an increase in the number of authorized shares of
Common Stock from 50,000,000 to 200,000,000 shares, an increase in the number of
authorized shares of Preferred Stock from 5,000,000 to 20,000,000 shares, and a
1-for-20 reverse split of all outstanding shares of capital stock. The Company
has filed its Restated Certificate of Incorporation as an Exhibit to this Form
10-QSB.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
The following documents are filed as exhibits to this Form 10-QSB:
34
<PAGE> 37
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.
3.2 Amended and Restated Bylaws of SportsNuts.com International, Inc., a
Delaware corporation. (1)
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. (2)
10.2 Convertible Promissory Note and Security Agreement among Moore, Clayton
& Co., SportsNuts.com, Inc., and the Company, dated February 4, 2000. (3)
10.3 Convertible Promissory Note and Security Agreement among George Napier,
SportsNuts.com, Inc., and the Company, dated March 10, 2000. (4)
10.4
Convertible Promissory Note and Warrant granted to John Schmitz and Stanley
Aber, dated March 27, 2000. (5)
10.5 Financial Consulting Agreement, dated March 23, 2000, between Moore,
Clayton & Co. and SportsNuts.com International, Inc.
10.6 Employment Agreement with Kenneth Denos dated November 16, 1998.(6)
10.11 SportsNuts.com International, Inc. 1999 Stock Option Plan (7)
21.1 Subsidiaries of the Registrant. (8)
27.1 Financial Data Schedule
</TABLE>
------------
(1) Filed as an Exhibit to the Company's annual report on Form 10-KSB,
filed with the Commission on March 30, 2000.
(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 quarterly report on Form
10-QSB, filed with the Commission on May 15, 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 quarterly report on Form
10-QSB, filed with the Commission on November 15, 1999/
(8) Filed as an Exhibit to the Company's quarterly report on Form
10-QSB, filed with the Commission on May 19, 1999.
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<PAGE> 38
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: August 17, 2000 By /s/ Kenneth I. Denos
--------------------------------------
Kenneth I. Denos
Chief Financial Officer
36
<PAGE> 39
Exhibit Index
<TABLE>
<CAPTION>
NUMBER EXHIBITS
------ --------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of SportsNuts.com
International, Inc., a Delaware corporation.
3.2 Amended and Restated Bylaws of SportsNuts.com International, Inc., a
Delaware corporation. (1)
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. (2)
10.2 Convertible Promissory Note and Security Agreement among Moore, Clayton
& Co., SportsNuts.com, Inc., and the Company, dated February 4, 2000. (3)
10.3 Convertible Promissory Note and Security Agreement among George Napier,
SportsNuts.com, Inc., and the Company, dated March 10, 2000. (4)
10.4
Convertible Promissory Note and Warrant granted to John Schmitz and Stanley
Aber, dated March 27, 2000. (5)
10.5 Financial Consulting Agreement, dated March 23, 2000, between Moore,
Clayton & Co. and SportsNuts.com International, Inc.
10.6 Employment Agreement with Kenneth Denos dated November 16, 1998.(6)
10.11 SportsNuts.com International, Inc. 1999 Stock Option Plan (7)
21.1 Subsidiaries of the Registrant. (8)
27.1 Financial Data Schedule
</TABLE>
------------
(1) Filed as an Exhibit to the Company's annual report on Form 10-KSB,
filed with the Commission on March 30, 2000.
(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 quarterly report on Form
10-QSB, filed with the Commission on May 15, 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 quarterly report on Form
10-QSB, filed with the Commission on November 15, 1999/
(8) Filed as an Exhibit to the Company's quarterly report on Form
10-QSB, filed with the Commission on May 19, 1999.
