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 September 30, 2000
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 84095
-------------------- -----------
Address of principal executive offices) Zip Code
</TABLE>
Issuer's telephone number
----------------------------------------------------------------------------
(Former name or former address and former fiscal year, if changed since last
report.)
<PAGE>
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 September 30, 2000, the Company
had outstanding 2,607,301 shares of common stock, par value $0.002 per share.
Transitional Small Business Disclosure Format (check one) [ ] Yes [x ] No
<PAGE>
PART I
FINANCIAL INFORMATION
The Financial Statements of the Company are prepared as of September 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>
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------ -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note 1) $ 71,138 $ 148,647
Accounts receivable, net (Note 1) 22,839 15,523
Inventory, net (Notes 1 and 2) 12,213 23,936
Prepaid expenses 56,336 53,067
------------------ -----------------
Total Current Assets 162,526 241,173
------------------ -----------------
PROPERTY AND EQUIPMENT (Note 1)
Computer hardware 518,789 564,018
Computer software 721,809 667,854
Furniture and office equipment 226,520 236,844
Less - accumulated depreciation (546,413) (244,907)
------------------ -----------------
Total Property and Equipment 920,705 1,223,809
------------------ -----------------
OTHER ASSETS
Restricted cash - 110,000
------------------ -----------------
Total Other Assets - 110,000
------------------ -----------------
TOTAL ASSETS $ 1,083,231 $ 1,574,982
================== =================
</TABLE>
2
<PAGE>
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------ ----------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 1,253,364 $ 766,214
Accrued expenses 393,633 228,865
Notes payable, current portion (Note 4) 115,000 -
Notes payable, related parties (Note 3) 517,000 25,000
------------------ -----------------
Total Current Liabilities 2,278,997 1,020,079
------------------ -----------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.002 par value; 200,000,000 shares
authorized, 2,607,301 and 894,918 shares issued
and outstanding, respectively 5,215 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 15,486,741 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 (3,552,044) -
------------------ -----------------
Total Stockholders' Equity (Deficit) (1,195,766) 554,903
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 1,083,231 $ 1,574,982
================== =================
</TABLE>
3
<PAGE>
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
September 30,
--------------------------------------
2000 1999
------------------ ------------------
<S> <C> <C>
NET SALES $ - $ -
------------------ ------------------
EXPENSES
General and administrative 484,698 486,145
Selling and marketing 199,718 240,620
Research and development 61,925 66,254
------------------ ------------------
Total Expenses 746,341 793,019
------------------ ------------------
LOSS FROM OPERATIONS (746,341) (793,019)
------------------ ------------------
OTHER INCOME (EXPENSES)
Interest expense (36,453) (63)
Interest income - 13,889
Other income 50 -
Gain on forgiveness of debt 4,040 -
Loss on sale of assets (15,834) -
------------------- -----------------
Total Other Income (Expenses) (48,197) 13,826
------------------- -----------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (794,538) (779,193)
INCOME TAX EXPENSE - -
------------------ -----------------
LOSS FROM CONTINUING OPERATIONS (794,538) (779,193)
LOSS FROM DISCONTINUED
OPERATIONS - (1,604,525)
------------------ ------------------
NET LOSS $ (794,538) $ (2,383,718)
================== =================
BASIC LOSS PER COMMON SHARE -
BASIC AND DILUTED (Note 1)
Loss from continuing operations $ (0.44) $ (0.91)
Loss from discontinued operations 0.00 (1.87)
------------------ ------------------
Basic Loss Per Share $ (0.44) $ (2.78)
================== ==================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 1,794,234 857,271
================== ==================
</TABLE>
4
<PAGE>
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Operations (Continued)
(Unaudited)
<TABLE>
<CAPTION>
From
Inception of the
Development
Stage on
March 1, 2000
For the Nine Months Ended Through
September 30, September 30,
--------------------------------------
2000 1999 2000
------------------ ------------------ -----------------
<S> <C> <C> <C>
NET SALES $ - $ - $ -
------------------ ------------------ -----------------
EXPENSES
General and administrative 3,256,516 486,335 2,766,278
Selling and marketing 629,493 240,620 510,015
Research and development 205,185 66,254 165,648
------------------ ----------------- ----------------
Total Expenses 4,091,194 793,209 3,441,941
------------------ ------------------ ----------------
LOSS FROM OPERATIONS (4,091,194) (793,209) (3,441,941)
------------------ ------------------ ----------------
OTHER INCOME (EXPENSES)
Interest expense (76,834) (63) (76,577)
Interest income 2,267 13,889 1,296
Other income 3,175 - 3,175
Gain on forgiveness of debt 4,040 - 4,040
Loss on sale of assets (42,037) - (42,037)
-------------------------------------- ----------------
Total Other Income (Expenses) (109,389) 13,826 (110,103)
------------------ ------------------ ----------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (4,200,583) (779,383) (3,552,044)
INCOME TAX EXPENSE - - -
------------------ ------------------ ----------------
LOSS FROM CONTINUING OPERATIONS (4,200,583) (779,383) (3,552,044)
LOSS FROM DISCONTINUED
OPERATIONS (Note 10) (546,577) (3,237,198)
------------------- ----------------- ----------------
NET LOSS $ (4,747,160) $ (4,016,581) $ (3,552,044)
================== ================= ================
BASIC LOSS PER COMMON SHARE -
BASIC AND DILUTED (Note 1)
Loss from continuing operations $ (3.45) $ (1.14)
Loss from discontinued operations (0.45) (4.72)
------------------ -----------------
Basic Loss Per Share $ (3.90) $ (5.86)
================== =================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 1,216,769 685,933
================== ==================
</TABLE>
5
<PAGE>
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 cash - - 248,912 498 5,610,218
(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 - - - - -
Decenber 31, 1999 --------- -------- ------- ------- -----------
Balance, December 31, 1999 - - 894,918 1,790 12,494,031
Issuance of common stock for cash - - 927,383 1,855 458,146
(net of issuance costs of $15,000)
(unaudited)
Warrants issued below market value - - - - 1,954,209
(unaudited)
Preferred shares issued for cash 178,000 356 - - 394,644
(unaudited)
Stock offering costs (unaudited) - - - - (19,500)
Shares issued for services (unaudited) - - 285,000 570 164,440
Shares issued for debt payment - - 500,000 1,000 40,771
(unaudited)
Net loss for nine months ended - - - - -
September 30, 2000 (unaudited) ------- ------ --------- ------- ------------
Balance, September 30, 2000 178,000 $ 356 2,607,301 $ 5,215 $ 15,486,741
(unaudited) ======= ====== ========= ======= ============
</TABLE>
<TABLE>
<CAPTION>
Accumulated Subscription Minority Total 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 - 85,000 - 85,000
subscription receivable
Minority interest in - - 66,804 -
subsidiary (Note 1)
Net loss for the year ended
December 31, 1999 (9,925,682) - (66,804) (9,992,486)
----------- ---------- ------- ----------
Balance, December 31, 1999 (11,940,918) - - 554,903
Issuance of common stock for - - - 460,001
cash (net of issuance costs of
$15,000) (unaudited)
Warrants issued below market - - - 1,954,209
value (unaudited)
Preferred shares issued for - - - 395,000
cash (unaudited)
Stock offering costs - - - (19,500)
(unaudited)
Shares issued for services - - - 165,010
(unaudited)
Shares issued for debt payment - - - 41,771
(unaudited)
Net loss for nine months ended
September 30, 2000 (unaudited) (4,747,160) - - (4,747,160)
----------- ---------- ------- -----------
Balance, September 30, 2000 $(16,688,078) $ - $ - $ (1,195,766)
(unaudited) ============ =========== ======= ==============
</TABLE>
6
<PAGE>
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
From
Inception of the
Development
Stage on
March 1, 2000
For the Nine Months Ended Through
September 30, September 30,
-------------------------------------
2000 1999 2000
------------------ ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,747,160) $ (4,016,581) $ (3,552,044)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation 349,940 192,343 272,185
Amortization of intangible assets 146,500
Common stock issued for services and
marketing expenses 165,010 114,000 165,010
Warrants issued below market value 1,954,209 - 1,672,084
Deferred income taxes - (1,258) -
Minority interest - (66,804)
Loss on sale of fixed assets 42,037 42,037
Gain on forgiveness of debt (4,040) - (4,040)
Changes in operating assets and liabilities:
Accounts receivable (7,316) (22,831) (1,247)
Inventory 11,723 (19,149) 9,243
Restricted cash 110,000 - 110,000
Other current assets (3,269) 1,908 82,070
Accounts payable 498,816 (11,083) 114,074
Accrued expenses 166,539 65,745 184,279
------------------ ------------------ -----------------
Net Cash Used in Operating Activities (1,463,511) (3,617,210) (906,349)
------------------ ----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 43,318 - 43,318
Purchases of property and equipment (139,817) (1,042,333) (36,014)
Purchase of subsidiary - (100,000) -
------------------ ----------------- -----------------
Net Cash Provided (Used) in Investing Activities (96,499) (1,142,333) ( 7,304)
------------------ ----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C> <C>
Decrease in cash overdraft - (47,683) -
Proceeds from issuance of notes payable 709,500 - 264,500
Proceeds from issuance of common stock 475,001 7,130,840 225,001
Proceeds from issuance of preferred stock 395,000 - 395,000
Stock offering costs (34,500) - (19,500)
Payments on stock subscription receivable - 85,000 -
Principal payments of notes payable (62,500) (301,618) (12,500)
------------------ ----------------- -----------------
Net Cash Provided by Financing Activities $ 1,482,501 $ 6,866,539 $ 852,501
------------------ ----------------- -----------------
</TABLE>
8
<PAGE>
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
From
Inception of the
Development
Stage on
March 1, 2000
For the Nine Months Ended Through
September 30, September 30,
-------------------------------------
2000 1999 2000
------------------ ----------------- -----------------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ (77,509) $ 2,106,996 $ (46,544)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 148,647 - 117,682
------------------ ----------------- -----------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 71,138 $ 2,106,996 $ 71,138
================== ================= =================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest $ 2,821 $ 4,361 $ 2,821
Income taxes $ - $ - $ -
Non-cash financing activiites:
Common stock issued for services and marketing expenses $ 165,010 $ 114,000 $ 165,010
Common stock issued to convert notes payable and interest $ 41,771 $ - $ 41,771
Equipment exchanged for reduction of accounts payable $ 7,626 $ - $ 7,626
</TABLE>
9
<PAGE>
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
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.com, Inc. ("SportsNuts") a privately held
company. As a result of the Reorganization, the Company recorded
a minority interest of $66,804 in SportsNuts. The Reorganiza-
tion 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 Interna-
tional, 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 138,111
shares of Common Stock to acquire the remaining 210,887 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,
10
<PAGE>
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
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. This
business strategy had continued since its inception and subsequent
to the
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reorganization until March 1, 2000, when the Company determined to
discontinue its direct sales operations (see Note 10).
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 certain shareholders of
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:
11
<PAGE>
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
<TABLE>
<S> <C>
Computer hardware 3 years
Computer software 3 years
Office equipment 7 years
</TABLE>
Depreciation expense for the nine months ended September 30, 2000
and 1999 was $349,940 and $192,343, respectively.
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 September 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 Nine Months Ended
September 30,
---------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
Basic loss per share from continuing operations: (Unaudited) (Unaudited)
Loss (numerator) $ 4,200,583 $ 779,383
Shares (denominator) 1,216,769 685,933
Per share amount $ (3.45) $ (1.14)
Basic loss per share from discontinued operations:
Loss (numerator) $ 546,577 $ 3,237,198
Shares (denominator) 1,216,769 685,933
Per share amount $ (0.45) $ (4.72)
</TABLE>
12
<PAGE>
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
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.
13
<PAGE>
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued))
k. Provision for Taxes
At September 30, 2000, the Company has net operating loss
carryforwards of approximately $16,600,000 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>
September 30, December 31,
2000 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
Finished goods $ 16,283 $ 95,742
Reserve for obsolete inventory (4,070) (71,806)
----------------- -----------------
Total $ 12,213 $ 23,936
================= =================
</TABLE>
14
<PAGE>
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
NOTE 3 - NOTES PAYABLE - RELATED PARTIES
Notes payable - related parties consisted of the following:
<TABLE>
<CAPTION>
September 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 -
-
---------------- -----------------
Total notes payable - related parties 517,000 25,000
Less: current portion (517,000) (25,000)
---------------- ----------------
Long-term notes payable $ - $ -
================ ================
</TABLE>
15
<PAGE>
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
NOTE 3 - NOTES PAYABLE - RELATED PARTIES (Continued)
Maturities of notes payable - related parties are as follows:
<TABLE>
<CAPTION>
Year Ending
September 30, Amount
------------------------------- ---------
<S> <C>
2001 $517,000
----------
Total $517,000
==========
</TABLE>
NOTE 4 - NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
September 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 18%,
principal and interest due August 15, 2001. Note is convertible
into common stock of the Company at $0.25
per share. $ 50,000 $ -
Note payable to an individual, unsecured,
interest at 16%, due on demand. $ 15,000 $ -
---------- -----------
Total notes payable 115,000 -
Less: current portion (115,000) -
--------- -----------
Long-term notes payable $ - $ -
========= ===========
</TABLE>
Maturities of notes payable are as follows:
<TABLE>
<CAPTION>
Year Ending
September 30, Amount
------------------------------ ---------
<S> <C>
2001 $ 115,000
---------
Total $ 115,000
=========
</TABLE>
16
<PAGE>
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
NOTE 5 - COMMON AND PREFERRED STOCK TRANSACTIONS (Continued)
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 commissions were paid in connection
with the transaction.
Effective July 15, 2000, the Company issued 50,000 shares of
common stock in satisfaction of obligations for consulting
services received by the Company. No commissions were paid in
connection with the transaction
Effective July 15, 2000, the Company issued 200,000 shares of
common stock in satisfaction of an obligation for consulting
services received by the Company. No commissions were paid in
connection with the transaction.
<PAGE>
Effective August 15 through September 28, 2000, the Company sold
and issued 1,402,382 shares of its Common Stock to seven
accredited investors. No commissions were paid in connection with
these transactions.
Effective September 1, 2000, the Company issued 20,000 shares of
common stock in satisfaction of an obligation for consulting
services received by the Company. No commissions were paid in
connection with the transaction.
NOTE 6 - OUTSTANDING STOCK OPTIONS AND WARRANTS
During the nine months ended September 30, 2000, the Company
issued options to acquire 2,245,000 shares of common stock. At
September 30, 2000, the total number of options outstanding was
2,290,000 at a weighted average exercise price of $0.89 per share.
The total number of fully-vested options as of September 30, 2000
was 584,000. 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 nine months ended September 30, 2000, the Company
issued warrants to acquire 1,225,167 shares of common stock. Of
this total, 1,040,000 warrants were issued at an exercise price of
$2.00 per share, 18,500 warrants were issued at an exercise price
of $1.00 per share, and 166,667 were issued at an exercise price
of $0.75 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 September
30, 2000, the Company had 1,291,027 outstanding warrants to
purchase common stock at a weighted average exercise
17
<PAGE>
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
price of $2.64 per share. Warrants issued through the nine months
ending September 30, 2000 have been issued as commissions for
fundraising or 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
During the year 2000, the Company leased four (4) different office
and warehouse facilities under non-cancelable operating leases
expiring in 2000 and 2004. Rental expense for the nine months
ended September 30, 2000 and 1999 was $95,174 and $95,616,
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 $6,045 and $9,794 for the nine months
ended September 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>
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 September 30, 2000 of approximately
$16,600,000 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 nine
months ended September 30, 2000 was $4,747,160. To date the
Company has funded its operations through a combination of short
and long-term loans and the private placement of its common
18
<PAGE>
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
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,
NOTE 8 - GOING CONCERN (Continued)
(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.
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.
19
<PAGE>
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
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-.
Effective July 15, 2000, the Company entered into a one-year
consulting agreement with Eslie Barlow, a principal shareholder of
the Company, to receive strategic consulting and advisory
services. The Company issued 200,000 shares of common stock to Mr.
Barlow in connection with this Agreement.
NOTE 10 - DISCONTINUED OPERATIONS
Effective March 1, 2000, the Company 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 Nine Months Ended
September 30,
---------------------------------
2000 1999
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 41,188 $1,023,471
-------- ----------
OPERATING EXPENSES
Cost of sales 34,136 1,163,029
General and administrative 277,990 1,460,153
Selling and marketing 225,932 1,488,458
Research and development 50,421 241,186
-------- ----------
Total Operating Expenses 588,479 4,352,826
------- ----------
LOSS FROM OPERATIONS (547,291) (3,329,355)
--------- ----------
OTHER INCOME (EXPENSES)
Interest expense (257) (4,423)
Interest income 971 29,776
--------- ----------
Total Other Income (Expense) 714 25,353
--------- ----------
LOSS BEFORE INCOME TAX (EXPENSE) (546,577) (3,304,002)
</TABLE>
20
<PAGE>
SPORTSNUTS.COM INTERNATIONAL, INC.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
<TABLE>
<S> <C> <C>
INCOME TAX (EXPENSE) - -
---------- ---------
Minority interest - 66,804
---------- ---------
LOSS FROM DISCONTINUED OPERATIONS $ (546,577) $ 3,237,198)
============ =============
</TABLE>
21
<PAGE>
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 the end of February, 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.
22
<PAGE>
General and administrative expenses had 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 September 30, 2000, and 1999. The
balances discussed below for the nine months ending September 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 September 30, 2000, as compared to $560,030 during the third
quarter of 1999. For the nine months ended September 30, 2000, net revenues were
$41,188, a 96% decrease from $1,023,471 during the first nine 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 September 30, 2000, as compared to $718,613 during the third
quarter of 1999. For the nine month period ended September 30, 2000, cost of
sales were $34,136, a 97% decrease from $1,163,029 during the first nine 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 September 30, 2000 were $484,698, a 59%
decrease from $1,169,517 during the third quarter of 1999. For the nine months
ended September 30, 2000, general and administrative expenses
23
<PAGE>
were $3,534,506, a 81% increase from $1,954,506 during the first nine months of
1999. This increase was principally due to the recognition of $1,954,209 in
expenses relating to issuances of warrants during the first nine 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 expenses and professional fees accounted
for approximately $204,553 and $145,260, respectively, of this amount during the
third quarter of 2000, as compared to $618,499 and $257,485 during the third
quarter of 1999. For the nine months ended September 30, 2000, payroll expense
and professional fees totaled approximately $703,711 and $328,952, respectively,
of general and administrative expenses as compared to $1,242,270 and $316,965
during the first nine months of 1999.
Selling and Marketing Expenses. Selling and marketing expenses for the
three month period ended September 30, 2000 were $199,718, a 78% decrease from
$924,418 during the third quarter of 1999. Selling and marketing expenses for
the nine month period ended September 30, 2000 were $855,425, a 51% decrease
from $1,732,075 during the first nine 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 nine 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 nine months of 2000 is the amortization of non-cancelable marketing
contracts that were entered into during 1999 for benefits provided through the
first nine months of the year 2000.
Product Development. Product research and development expenditures for
the three month period ended September 30, 2000 were $61,925, a 64% decrease
from $171,789 during the third quarter of 1999. Research and development
expenses were $255,606 during the nine months ended September 30, 2000, as
compared to $296,426 for the first nine months of 1999, a decrease of 14%.
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 $108,675 for the nine
months ended September 30, 2000, compared to net other income of $39,180 for the
nine months ended September 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 nine 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 nine months of the prior year.
Furthermore, during the first nine months of 2000, certain fixed assets of the
company were either sold or transferred to vendors in order to reduce accounts
payable. The applicable losses have been recorded as other expenses.
Expenses Relating to Private Offerings. During the first nine months of the
year 2000, the Company issued 1,427,383 shares of Common Stock, 178,000 shares
24
<PAGE>
of Preferred Stock, warrants to acquire 1,225,167 shares of Common Stock at
a weighted average exercise price of $1.81 per share, and convertible promissory
notes of an aggregate principal amount of $590,000 in exchange for cash proceeds
of $911,772 in a private placement of its debt and equity securities to fourteen
accredited investors. In connection with these issuances, the Company incurred
$37,000 in finder's fees and fundraising expenses.
Liquidity and Capital Resources
As of September 30, 2000, the Company's primary source of liquidity
consisted of $71,138 in cash and cash equivalents. The Company holds most of its
cash reserves in local sweep accounts with various local financial institutions.
Since inception, the Company 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 September 30, 2000 of $16,688,078 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 nine months ended
September 30, 2000 was $9,925,682 and $4,747,160, 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 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
25
<PAGE>
those discussed below, that could cause actual results to differ materially from
those projected. These forward-looking statements speak only as of the date
hereof. All of these forward-looking statements are based on estimates and
assumptions made by management of the Company, which although believed to be
reasonable, are inherently uncertain and difficult to predict. There can be no
assurance that the benefits anticipated in these forward-looking statements will
be achieved.
The Company undertakes no obligation to update any forward-looking
statements, but investors are advised to consult any further disclosures by the
Company on this subject in its subsequent filings pursuant to the Securities
Exchange Act of 1934. Furthermore, as permitted by the Private Securities
Litigation Reform Act of 1995, the Company provides these cautionary statements
identifying risk factors, listed below, that could cause the Company's actual
results to differ materially from expected and historical results. It is not
possible to foresee or identify all such factors. Consequently, this list should
not be considered an exhaustive statement of all potential risks, uncertainties
and inaccurate assumptions.
Risk Factors
Operating Risks
Defaults in 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. If the holder
of the Note determines to foreclose upon the Note, the Company would likely be
forced to sell all of its tangible and intangible assets to satisfy the
obligation represented by the Note and would, therefore, likely cease operations
entirely. The Note and Security Agreement executed in connection therewith 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.
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.
26
<PAGE>
Additional Financing Requirements. The Company will likely require
substantial additional capital in the future for expansion, business
development, marketing, computer software and systems, overhead, administrative,
and other expenses. There is no assurance that the Company will be able to raise
additional funds or that financing will be available on acceptable terms. Lack
of additional funds could significantly affect the Company and its business.
Further, funds raised through future equity financing could be substantially
dilutive to existing shareholders.
Development Stage Company. The Company was organized on July 12, 1996.
Since the date of its inception, the Company has incurred substantial losses and
has not yet generated a profit. To achieve any significant measure of
profitability, the Company must create substantial activity through its Web Site
to generate revenues, and there is no assurance that the Company will do so in
the future or that such revenue generation will ultimately lead to the Company
becoming profitable.
Seasonality. While neither seasonal nor cyclical variations have
materially affected the 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
27
<PAGE>
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 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
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<PAGE>
misappropriation could damage the Company's reputation and expose the Company to
a risk of loss or litigation and possible liability, and could have a material
adverse effect upon the Company's business, results of operations, or financial
condition.
Rapid Technological Change. The Internet and on-line industries are
characterized by rapid technological change, changing market conditions and
customer demands, and the emergence of new industry standards and practices that
could render the Company's existing Web site and the services provided pursuant
thereto obsolete. The Company's future success will substantially depend on its
ability to enhance its existing services, develop new services, and otherwise
respond to technological advances in a timely and cost-effective manner. If the
Company is unable, for technical, legal, financial, or other reasons, to adapt
in a timely manner in response to changing market conditions or customer
requirements, or if the Company's Web site does not achieve market acceptance,
the Company's business, operating results, and financial condition would be
adversely affected.
No Proprietary Protection for Technology. The Company's statistical
information system and the league management system 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 requried 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
29
<PAGE>
functionality and features of its online services and sports information
management software. If new industry needs, standards, or practices emerge, the
Company's existing services, technology, and systems may become obsolete.
Developing and enhancing the Company's proprietary technology entails
significant technical and business risks, in addition to substantial costs. If
the Company faces delays in introducing new services, products and enhancements,
its users may forego the use of the Company's services and use those of its
competitors. The Company currently competes with many other amateur sports
information and product web sites and the Company anticipates competition to
intensify in the future. Barriers to entry may not be significant, and current
and new competitors may be able to launch new web sites quickly at a relatively
low cost. Accordingly, the Company believes that its success will depend heavily
upon achieving significant market acceptance before its competitors and
potential competitors introduce competing services. Many of the Company's
competitors, as well as potential entrants into the Internet amateur sports
market, have longer operating histories, larger customer or user bases, greater
brand recognition and significantly greater financial, marketing, and other
resources than the Company. Furthermore, several of the Company's competitors
have acquired certain key sponsorships and relationships with a few well-known
amateur sports organizations which may impede the Company's growth and thereby
have a material adverse effect upon the Company's business, results of
operations, and financial condition.
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.
30
<PAGE>
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 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 19,822,000 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 2,607,301 shares of the
Company's Common Stock outstanding on September 30, 2000, approximately
1,010,000 are freely tradeable or immediately eligible for resale under Rule 144
promulgated pursuant to the Securities Act of 1933, as amended. Sales of
significant 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 intends to file an S-8 registration statement with respect to the
Company's stock option plan, 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
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<PAGE>
designation and issuance of series of Preferred Stock in the future would create
additional securities which would have dividend and liquidation preferences over
Common Stock.
Volatility of Stock Prices. In the event that there is an established
public market for the Company's Common Stock, market prices will be influenced
by many factors and will be more subject to significant fluctuations in response
to variations in operating results of the Company and other factors such as
investor perceptions of the Company, supply and demand, interest rates, general
economic conditions and those specific to the industry, developments with regard
to the Company's activities, future financial condition and management.
Applicability of Low Priced Stock Risk Disclosure Requirements. The
Common Stock of the Company may be considered a low priced security under rules
promulgated under the Securities Exchange Act of 1934. Under these rules,
broker-dealers participating in transactions in low priced securities must first
deliver a risk disclosure document which describes the risks associated with
such stocks, the broker- dealers's duties, the customer's rights and remedies,
and certain market and other information, and make a suitability determination
approving the customer for low priced stock transactions based on the customer's
financial situation, investment experience and objectives. Broker-dealers must
also disclose these restrictions in writing to the customer, obtain specific
written consent of the customer, and provide 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 Actions by Former Distributors. Although
the Company has discontinued its direct sales operations, actions by certain
former 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
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<PAGE>
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
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
Recent Sales of Unregistered Securities
Effective August 15 through September 28, 2000, the Company sold
and issued 1,402,383 shares of its Common Stock to seven accredited investors.
No commissions were paid in connection with these transactions. The Company
believes that these transactions were 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 August 16, 2000, the Company sold and issued a
promissory note to an accredited investor 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 $0.25 of principal and interest outstanding under
the Note at the time of conversion. No commissions were paid in connection with
this transaction. In connection with this transaction, the Company also issued
warrants to purchase 100,000 shares of Common Stock of the Company at an
exercise price of $0.75 per share. The Company believes that this transaction
was exempt
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from the registration provisions of the Securities Act of 1933 pursuant to
Section 4(2) of such Act and Rule 506 promulgated thereunder.
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
2,290,000 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 September 30, 2000, the
principal amount of the Note, together with interest as accrued, is convertible
into approximately 4,979,342 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
Not Applicable.
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>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Exhibits
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of
SportsNuts.com International, Inc., a Delaware
corporation.(1)
3.2 Amended and Restated Bylaws of SportsNuts.com
International, Inc., a Delaware corporation. (2)
10.1 Convertible Promissory Note and Security Agreement
among Gardner Management Profit Shareing Plan and
Trust, SportsNuts.com, Inc., Sportzz.com, Inc., and
the Company, including amendments, dated
February 1, 2000. (3)
10.2 Co-Branding Agreement between MyFamily.com, Inc. and
the Company, dated September 12, 2000.
10.3 Consulting Agreement between the Company and Eslie
Barlow, dated July 15, 2000. (4)
10.4 Consulting Agreement between the Company and Todd
Shell, dated July 15, 2000. (5)
10.5 Convertible Promissory Note and Warrant granted to
John Schmitz and Stanley Aber, dated
March 27, 2000. (6)
10.6 Financial Consulting Agreement, dated March 23, 2000,
between Moore, Clayton & Co. and SportsNuts.com
International, Inc. (7)
10.7 Employment Agreement with Kenneth Denos dated
November 16, 1998. (8)
10.8 SportsNuts.com Internatinoal, Inc. 1999 Stock Option
Plan. (9)
21.1 Subsidiaries of the Registrant. (10)
27.1 Financial Data Schedule
</TABLE>
---------------
(1) Filed as an Exhibit to the Company's quarterly report on Form
10-QSB, filed with the Commission on August 18, 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 registration statement
on Form S-8, filed with the Commission on September 8, 2000.
(5) Filed as an Exhibit to the Company's registration statement
on Form S-8, filed with the Commission on September 8, 2000.
(6) Filed as an Exhibit to the Company's quarterly report on Form
10-QSB, filed with the Commission on May 15, 2000.
(7) Filed as an Exhibit to the Company's quarterly report on Form
10-QSB, filed with the Commission on August 18, 2000.
(8) Filed as an Exhibit to the Company's quarterly report on Form
10-QSB, filed with the Commission on May 19, 1999.
(9) Filed as an Exhibit to the Company's quarterly report on Form
10-QSB, filed with the Commission on November 15, 1999.
(10) 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>
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.
Dated: November 9, 2000 By: /s/ Kenneth I. Denos
------------------------------------
Kenneth I. Denos
Chief Financial Officer
36
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Number Exhibits
<S> <C> <C>
3.1 Amended and Restated Certificate of Incorporation of
SportsNuts.com International, Inc., a Delaware
corporation.(1)
3.2 Amended and Restated Bylaws of SportsNuts.com
International, Inc., a Delaware corporation. (2)
10.1 Convertible Promissory Note and Security Agreement
among Gardner Management Profit Shareing Plan and
Trust, SportsNuts.com, Inc., Sportzz.com, Inc., and
the Company, including amendments, dated
February 1, 2000. (3)
10.2 Co-Branding Agreement between MyFamily.com, Inc. and
the Company, dated September 12, 2000.
10.3 Consulting Agreement between the Company and Eslie
Barlow, dated July 15, 2000. (4)
10.4 Consulting Agreement between the Company and Todd
Shell, dated July 15, 2000. (5)
10.5 Convertible Promissory Note and Warrant granted to
John Schmitz and Stanley Aber, dated
March 27, 2000. (6)
10.6 Financial Consulting Agreement, dated March 23, 2000,
between Moore, Clayton & Co. and SportsNuts.com
International, Inc. (7)
10.7 Employment Agreement with Kenneth Denos dated
November 16, 1998. (8)
10.8 SportsNuts.com Internatinoal, Inc. 1999 Stock Option
Plan. (9)
21.1 Subsidiaries of the Registrant. (10)
27.1 Financial Data Schedule
</TABLE>
---------------
(1) Filed as an Exhibit to the Company's quarterly report on Form
10-QSB, filed with the Commission on August 18, 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 registration statement
on Form S-8, filed with the Commission on September 8, 2000.
(5) Filed as an Exhibit to the Company's registration statement
on Form S-8, filed with the Commission on September 8, 2000.
(6) Filed as an Exhibit to the Company's quarterly report on Form
10-QSB, filed with the Commission on May 15, 2000.
(7) Filed as an Exhibit to the Company's quarterly report on Form
10-QSB, filed with the Commission on August 18, 2000.
(8) Filed as an Exhibit to the Company's quarterly report on Form
10-QSB, filed with the Commission on May 19, 1999.
(9) Filed as an Exhibit to the Company's quarterly report on Form
10-QSB, filed with the Commission on November 15, 1999.
(10) Filed as an Exhibit to the Company's quarterly report on
Form 10-QSB, filed with the Commission on May 19, 1999.
