AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1999
REGISTRATION NO. 333-85683
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SWISS NATURAL BRANDS, INC.
(Name of small business issuer in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
2080
(Primary standard industrial classification code number)
13-3762562
(I.R.S. Employer Identification No.)
1031 ROUTE 9W
UPPER GRANDVIEW, NEW YORK 10960
(914) 358-1212
(Address and telephone number of principal executive offices and
principal place of business)
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DR. RALPH M. FERRANTE
Chairman and Chief Executive Officer
Swiss Natural Brands, Inc.
1031 Route 9W
Upper Grandview, New York 10960
(914) 358-1212
(Name, address and telephone number of agent for service)
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Copy to:
HANK GRACIN, ESQ. STEVEN MORSE, ESQ.
Lehman & Eilen LLP Lester Morse P.C.
50 Charles Lindbergh Blvd. - Suite 505 111 Great Neck Road, Suite 420
Uniondale, New York 11553 Great Neck, New York 11021
Telephone: (516) 222-0888 Telephone: (516) 487-1446
Facsimile: (516) 222-0948 Facsimile: (516) 487-1452
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO OFFERING PRICE OFFERING REGISTRATION
REGISTERED BE REGISTERED PER SHARE(1) PRICE(1) FEE(5)
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<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share (2) 1,437,500 $ 5.25 $7,546,875 $ 2,098.03
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Underwriter's Common Stock
Warrants, each to purchase one
share of Common Stock (3) 125,000 .0008 100.00 (4)
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Common Stock, par value $.01 per
share, issuable upon exercise
of the Underwriter's Common
Stock Warrants 125,000 8.66 1,082,500 300.94
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Total Registration Fee $ 2,398.97
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) promulgated under the Securities Act of 1933, as
amended.
(2) Assumes the Underwriter's over-allotment option to purchase up to 187,500
additional shares of Common Stock is exercised in full.
(3) Represents warrants to be issued by Swiss Natural to the Underwriter at the
time of delivery and acceptance of the securities to be sold by Swiss
Natural to the public hereunder.
(4) None, pursuant to Rule 457(g).
(5) Fees are calculated by multiplying the aggregate offering price by .000278.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 10, 1999
PROSPECTUS
SWISS NATURAL BRANDS, INC.
1,250,000 SHARES OF COMMON STOCK
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Swiss Natural is offering 1,250,000 shares of common stock. This is our
initial public offering and no public market currently exists for our shares.
Swiss Natural develops and sells premium beverage products utilizing the
Swiss Natural trademark and other national brand programs.
------------------
We have applied for quotation of our common stock on the Nasdaq Smallcap
Market under the symbol "SWIS".
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AN INVESTMENT IN OUR SECURITIES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 6.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS COMPANY
---------- --------- ----------
Per Share.............. $ 5.25 $ .525 $ 4.725
Total.................. $6,562,500 $656,250 $5,906,250
Three stockholders of Swiss Natural have granted the underwriters the right
to purchase up to an additional 187,500 shares of common stock to cover
over-allotments.
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COMPREHENSIVE CAPITAL CORPORATION
SEABOARD SECURITIES, INC.
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, 1999
<PAGE>
[Photos of the Swiss Natural product line.]
"SWISS NATURAL", "REACH FOR THE PEAK", "ULTRA PEAK", "SWISS NATURAL ICY
BERRY","SWISS NATURAL ICY CITRUS", "SWISS NATURAL ICY MELONADE" and "SWISS
NATURAL ICY COFFEE" are registered trademarks of Swiss Natural.
<PAGE>
PROSPECTUS SUMMARY
Swiss Natural develops and sells premium beverage products utilizing the
Swiss Natural brand and other national brand programs. We have developed and
currently sell vitamin-fortified flavored fruit and tea beverages, as well as a
vitamin-fortified 100% orange juice product and a 100% apple juice product,
under our registered Swiss Natural trademark. We also sell a variety of fruit
and tea beverages, an orange juice product and an apple juice product under a
private label beverage program developed for a nationwide chain of restaurants.
Our beverages are made with natural flavors and juices and do not contain any
preservatives or artificial colors. All our Swiss Natural label beverages are
fortified with our proprietary Ultra Peakt vitamin formula to provide an
enhanced nutritional value. In addition, all of our beverages are bottled in our
proprietary glass bottles.
We sell a majority of our beverages through customer-owned or
customer-designated distribution systems and, to a lesser extent, through a
network of select independent distributors. We are currently developing an
Internet distribution system which we expect will permit us to distribute our
products in new packaging directly to consumers and retailers who place orders
with us via the Swiss Natural website.
THE OFFERING
<TABLE>
<S> <C>
Securities offered....................... 1,250,000 shares of common stock.
Common stock outstanding before the
offering................................. 2,591,708 shares.
Common stock to be outstanding after the
offering................................. 3,841,708 shares. This figure excludes an
aggregate of up to 2,001,267 shares of common
stock issuable upon:
* exercise and/or conversion of all outstanding
warrants and convertible securities and
* exercise of all underwriters' warrants to be
issued in connection with this offering.
Proposed Nasdaq Smallcap Symbol.......... Common stock -- SWIS
</TABLE>
Unless otherwise indicated, all information in this prospectus assumes that
the underwriters' overallotment option will not be exercised.
Unless otherwise indicated, all information in this prospectus, including
per share data and information relating to the number of shares issued and
outstanding, has been adjusted to reflect a
1.5 for 1 reverse split of our common and preferred stock effected on October 1,
1999.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
which is contained in this prospectus. We are offering to sell shares of common
stock and seeking offers to buy shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of the common stock.
3
<PAGE>
SUMMARY OF FINANCIAL DATA
FOR THE FISCAL YEARS ENDED
FEBRUARY 28, 1999 AND 1998 (AUDITED) AND FOR THE
SEVEN MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
The following summary financial data should be read in conjunction with
Swiss Natural's financial statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations". The
statement of operations data for the years ended February 28, 1999 and February
28, 1998 are derived from the financial statements of Swiss Natural that have
been audited by Goldstein Golub Kessler LLP, independent certified public
accountants. The balance sheet data as of September 30, 1999 and the statement
of operations data for each of the seven month periods ended September 30, 1999
and 1998 are derived from the unaudited financial statements of Swiss Natural;
however, such information reflects all adjustments (consisting of only normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of financial position, and the results of operations of the
interim periods.
<TABLE>
<CAPTION>
FISCAL 2000 FISCAL 1999
FISCAL YEAR ENDED SEVEN MONTHS SEVEN MONTHS
FEBRUARY 28, ENDED ENDED
--------------------------- SEPTEMBER 30, SEPTEMBER 30,
STATEMENT OF OPERATIONS DATA: 1999 1998 1999 1998
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales.............................. $ 3,005,872 $ 2,324,189 $ 2,519,102 $ 1,736,034
Cost of sales.......................... 2,001,701 1,941,074 1,546,378 1,144,267
----------- ----------- ----------- -----------
Gross profit......................... 1,004,171 383,115 972,724 591,767
----------- ----------- ----------- -----------
Expenses:
General and administrative........... 871,057 834,679 530,414 420,001
Selling and promotional.............. 502,652 508,401 298,878 191,808
Product development.................. 30,895 12,602 1,440 24,085
----------- ----------- ----------- -----------
Total expenses......................... 1,404,604 1,355,682 830,732 635,894
----------- ----------- ----------- -----------
Income (loss) from operations.......... (400,433) (972,567) 141,992 (44,127)
Other income........................... 11,079 23,036 8,836 7,943
Interest expense....................... (50,062) (80,759) (103,919) (21,567)
----------- ----------- ----------- -----------
Net Income (loss)...................... $ (439,416) $(1,030,290) $ 46,909 $ (57,751)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income (loss) per common share --
Basic................................ $ (0.12) $ (0.31) $ 0.01 $ (0.02)
----------- ----------- ----------- -----------
Weighted average number of common
shares outstanding -- Basic (3)...... 3,797,708 3,276,971 3,279,241(1) 3,797,708
</TABLE>
<TABLE>
<CAPTION>
FISCAL 2000 FISCAL 1999
FISCAL YEAR ENDED SEVEN MONTHS SEVEN MONTHS
FEBRUARY 28, ENDED ENDED
--------------------------- SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Gross Sales............................ $ 3,061,586 $ 2,369,599 $ 2,566,658 $ 1,764,835
Sales Returns and allowances........... (55,714) (45,410) (47,556) (28,801)
----------- ----------- ----------- -----------
Net sales............................ $ 3,005,872 $ 2,324,189 $ 2,519,102 $ 1,736,034
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
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BALANCE SHEET DATA: ACTUAL AS ADJUSTED(2)
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<S> <C> <C>
Cash and cash equivalents...................................... $ 151,788 $ 5,259,062
Working capital (deficiency)................................... (130,060) 5,326,942
Total assets................................................... 1,359,153 6,343,800
Total liabilities.............................................. 1,833,859 1,484,131
Stockholders' (deficiency) equity.............................. (474,706) 4,859,669
<FN>
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(1) Does not give effect to the conversion of any shares of the convertible
preferred stock which were issued on June 30, 1999 and may be converted into
1,206,000 shares of common stock. Also does not give effect to the
conversion of any convertible subordinated debentures.
(2) Gives effect to the sale of the 1,250,000 shares of common stock being
offered hereby and anticipated application of the estimated net proceeds
therefrom including the repayment of indebtedness and interest payable to a
stockholder.
(3) Gives effect to the reverse stock split effective October 1, 1999.
</FN>
</TABLE>
<TABLE>
<CAPTION>
FISCAL 2000 FISCAL 1999
SEVEN MONTHS SEVEN MONTHS
ENDED ENDED
FEBRUARY 28, FEBRUARY 28, SEPTEMBER 30, SEPTEMBER 30,
PERFORMANCE RATIOS 1999 1998 1999 1998
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Return on Equity.................... 0.84 5.81 -0.10 0.29
Return on Assets.................... -0.33 -1.44 0.03 -0.07
A/R turnover........................ *12.68 *12.22 *6.77 *7.75
Inventory Turnover.................. **7.10 **5.89 **3.93 **3.89
Profit Margin on Sales.............. 33.41% ***16.48% 38.61% 34.09%
<FN>
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*Average Accounts Receivable computed by using month-end amounts.
**Average Inventory computed by using month-end amounts.
***The profit margin on sales for the year ended February 28, 1998 reflects a
one time charge to cost of sales of $185,941 related to the relocation of our
bottling facility and the abandonment of obsolete inventory, bottling labels
and other raw materials that could not be used by the new bottling facility,
as well as the higher production costs at the former bottling facility. In
addition, sales of our higher profit margin Swiss Natural label products
increased by approximately 61% in the year ended February 28, 1999.
</FN>
</TABLE>
5
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RISK FACTORS
You should carefully consider the following risks before making an
investment decision. The trading price of our common stock could decline due to
any of these risks, and you could lose all or part of your investment. You also
should refer to the other information set forth in this prospectus, including
our financial statements and the related notes thereto.
SWISS NATURAL HAS INCURRED LOSSES FROM INCEPTION AND MAY NEVER GENERATE
SUBSTANTIAL PROFITS, IF ANY AT ALL.
For each fiscal year since our inception in April 1993, Swiss Natural has
generated net losses. We may never generate substantial profits, if any at all.
Swiss Natural had an accumulated deficit of $2,527,516 as of September 30, 1999.
We can provide no assurances that our operations will be profitable in the
future.
WE MAY NEED ADDITIONAL CAPITAL AND MAY NOT BE ABLE TO OBTAIN IT.
We believe that the proceeds from this offering together with our current
cash balances and anticipated cash to be generated from operations will be
sufficient to meet our expected operating and capital requirements for at least
one year. However, we may need to raise additional funds in order to support
further expansion, meet competitive pressures, or respond to unanticipated
requirements. We cannot assure you that additional financing will be available
if needed on terms favorable to us.
WE HAVE LIMITED WORKING CAPITAL AND MAY ENCOUNTER FUTURE LIQUIDITY PROBLEMS.
We have historically had limited working capital. We had a working capital
deficiency of $130,060 at September 30, 1999. While we expect the proceeds of
this offering to provide us with sufficient working capital, there is no
assurance that future operations will not encounter capital resource and
liquidity problems.
THE LOSS OF SBARRO, INC. AS A CUSTOMER WOULD HAVE A MATERIAL ADVERSE EFFECT ON
OUR BUSINESS.
We currently sell our private label beverages only to Sbarro, Inc., a
nationwide chain of restaurants. The loss of Sbarro, Inc. as a customer would
have a material adverse effect on our business. We also depend significantly
upon the revenue derived from the sale of our beverages to Dunkin' Donuts
franchisees and several major independent distributors and retail outlets. Our
agreements with Sbarro and Dunkin' Donuts do not require them to purchase any
specified quantity of products from us. Although we consider our relationship
with each of these customers to be good, any one of them could decide not to
purchase our beverages.
THE LOSS OF ANY OF OUR THIRD-PARTY SUPPLIERS OR SERVICE PROVIDERS COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR OPERATIONS AND FINANCIAL RESULTS.
We rely on third parties to produce our beverages, to produce our glass
bottles and to bottle our beverages. The loss of our third-party suppliers or
service providers could have a material adverse effect on our operations and
financial results.
THE LOSS OF OUR THIRD PARTY BEVERAGE DISTRIBUTORS COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR OPERATIONS AND FINANCIAL RESULTS.
We depend on customer-owned or customer-designated distributors and other
third-party distributors to distribute our Swiss Natural products. The loss of
our third party beverage distributors could have a material adverse effect on
our operations and financial results. Most of our distributors are not bound by
written agreements with us and may discontinue their relationship with us on
short notice. The loss of one or more of our distributors could have a
significant negative effect on the sales of our Swiss Natural label beverages.
6
<PAGE>
IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH OUR COMPETITORS, MANY OF WHOM HAVE
BEEN IN EXISTENCE LONGER THAN US, HAVE A MORE ESTABLISHED MARKET PRESENCE AND
HAVE SUBSTANTIALLY GREATER RESOURCES THAN US, WE WILL NOT BE ABLE TO INCREASE
REVENUES OR GENERATE PROFITS.
Our ability to increase revenues and generate profitability is directly
related to our ability to compete effectively with our competitors. Swiss
Natural faces intense competition from other beverage companies producing
similar products, including Snapple, Fruitopia, Ocean Spray, Arizona, Mistic and
various other lesser known brands. Increased competition could diminish our
ability to be profitable or result in loss of market share and damage the Swiss
Natural brand. Many of our competitors are larger, better established and have
greater financial, marketing and distribution resources than Swiss Natural.
These greater resources permit our competitors to implement extensive
advertising and promotional programs which Swiss Natural has not been, and will
not be, able to match.
IF WE ARE NOT ABLE TO RETAIN OUR CHIEF EXECUTIVE OFFICER, IT WILL BE MORE
DIFFICULT FOR US TO MANAGE OUR OPERATIONS AND OUR OPERATING PERFORMANCE WOULD
SUFFER.
The success of our business is greatly dependent upon the active
involvement of our Chief Executive Officer, Dr. Ralph Ferrante, who is
responsible for the development of the formulas used to manufacture our
products. The loss of the services of Dr. Ferrante would materially and
adversely affect our business and prospects. We have applied for $1,000,000 of
key man life insurance on Dr. Ferrante.
IF OUR COMPETITORS MISAPPROPRIATE OUR UNPATENTED PROPRIETARY KNOW-HOW, TRADE
DRESS AND TRADE SECRETS IT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
If our competitors develop substantially equivalent proprietary information
or otherwise obtain access to Swiss Natural's know-how it could materially and
adversely affect our business. We rely primarily on unpatented proprietary
know-how in the production of our beverages, as well as on confidentiality
agreements with the companies that produce our beverages and with our employees.
We regard the protection of our trademarks, trade dress and trade secrets
as critical to our future success. We have registered our trademarks in the
United States. We also rely on a combination of laws and contractual
restrictions, such as confidentiality agreements, to establish and protect our
proprietary rights, trade dress and trade secrets. However, laws and contractual
restrictions may not be sufficient to prevent misappropriation of our
proprietary rights, trade dress or trade secrets.
THE YEAR 2000 PROBLEM COULD CAUSE US TO SUFFER BUSINESS INTERRUPTIONS, OR
SHUTDOWN, REPUTATIONAL HARM OR LEGAL LIABILITY, AND AS A RESULT, MATERIAL
FINANCIAL LOSS.
We rely on information technology supplied by third parties, and our third
party suppliers and vendors also are dependent on information technology systems
and on their own third party vendors' systems. The Year 2000 problem could cause
us to suffer business interruptions, or shutdown, reputational harm or legal
liability, and as a result, material financial loss.
We are evaluating our internal information technology systems and
contacting our information technology suppliers and third party suppliers and
vendors to ascertain their Year 2000 status. However, we cannot guarantee that
our own systems will be Year 2000 compliant in a timely manner, that any of our
third party suppliers and vendors will be Year 2000 compliant in a timely
manner, or that there will not be significant interrelated operational problems
among information technology systems.
ANY DECREASE IN THE SUPPLY OF FRUIT JUICES OR INCREASE IN THE PRICES OF FRUIT
JUICES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND RESULTS OF
OPERATIONS.
We depend upon an uninterrupted supply of fruit juices from the fruit of
apple trees and orange trees. Any decrease in the supply of these fruit juices
or increase in the prices of these fruit juices as a result of any adverse
weather conditions, pests or fungal disease could have a material adverse effect
on our business and results of operations. Apple and orange trees may become
damaged, diseased or
7
<PAGE>
destroyed as a result of any adverse weather conditions, pests or fungal
disease. Additionally, there are types of controllable fungal diseases that can
affect fruit production although not fatal to the trees themselves. These types
of fungal diseases are generally controllable with fungicides. However, we can't
be sure that such control measures will continue to be effective.
STOCKHOLDERS MAY NOT BE ABLE TO RE-SELL THEIR STOCK OR MAY HAVE TO SELL AT
PRICES SUBSTANTIALLY LOWER THAN THE PRICE THEY PAID FOR IT.
Prior to this offering, you could not buy or sell our common stock
publicly. Although the initial public offering price was determined based on
several factors, the market price after the offering may vary from the initial
offering price. As a result, stockholders may not be able to re-sell their stock
or may have to sell at prices substantially lower than the price they paid for
it. In addition, the stock market is subject to price and volume fluctuations
affecting the market price for public companies generally, or within broad
industry groups, which fluctuations may be unrelated to the operating results or
other circumstances of a particular company. Such fluctuations may adversely
affect the liquidity of the common stock, as well as the price that holders may
achieve upon any future sale.
BECAUSE IT MAY BE DIFFICULT TO EFFECT A CHANGE IN CONTROL OF SWISS NATURAL
WITHOUT CURRENT MANAGEMENT'S CONSENT, MANAGEMENT MAY BE ENTRENCHED EVEN THOUGH
STOCKHOLDERS MAY BELIEVE OTHER MANAGEMENT MAY BE BETTER AND A POTENTIAL SUITOR
WHO OTHERWISE MIGHT BE WILLING TO PAY A PREMIUM TO ACQUIRE SWISS NATURAL MAY
DECIDE NOT TO ATTEMPT AN ACQUISITION.
Upon consummation of this offering, Dr. Ralph M. Ferrante, the Chairman and
Chief Executive Officer of Swiss Natural, and Herbert Paul, the President and
Chief Financial Officer of Swiss Natural, together with trusts owned by their
respective family members, will hold approximately 38% and 10%, respectively, of
our outstanding voting stock, including our convertible preferred stock which
carries rights to vote with the common stock on a one-vote-per-share basis. Such
concentration of ownership may have the effect of delaying, deferring or
preventing a change in control of Swiss Natural and entrenching current
management even though stockholders may believe other management may be better.
In addition, the issuance of a poison-pill or another large block of preferred
stock with voting rights could have the effect of delaying, deferring or
preventing a change in control of Swiss Natural. Potential suitors who otherwise
might be willing to pay a premium to acquire Swiss Natural may decide not to try
to acquire us because it may be difficult to effect a change in control of Swiss
Natural without current management's consent. If Messrs. Ferrante and Paul and
their family members act together, they are likely to have the ability to
control the outcome on all matters requiring stockholder approval, including the
election and removal of directors and any merger, consolidation or sale of all
or substantially all of our assets, and the ability to control our management
and affairs.
FUTURE SALES OF COMMON STOCK MAY CAUSE THE MARKET PRICE OF THE COMMON STOCK TO
DROP.
Future sales of shares of common stock by Swiss Natural and/or its
stockholders could cause the market price of the common stock to drop. After
this offering, we will have outstanding 3,841,708 shares of common stock. We
have reserved an additional 2,001,267 shares of common stock for issuance
pursuant to outstanding convertible securities, preferred stock and warrants.
All of the shares of common stock to be sold in this offering will be freely
tradeable without restriction or further registration under the federal
securities laws. Assuming the underwriters' over-allotment option is exercised
in full, the remaining shares of outstanding common stock, representing
approximately 63% of the outstanding common stock upon completion of this
offering, will be "restricted securities" under the Securities Act subject to
restrictions on the timing, manner and volume of sales of such shares.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price is expected to be substantially higher
than the net tangible book value of each outstanding share of common stock.
Purchasers of common stock in this offering will
8
<PAGE>
suffer immediate and substantial dilution. The dilution will be $4.01 per share,
or 76%, in the net tangible book value of the common stock from the expected
initial public offering price. If the outstanding options and warrants to
purchase shares of common stock are exercised, there would be further dilution.
FORWARD LOOKING STATEMENTS
Some of the statements under "Prospectus Summary", "Risk Factors",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, those listed under "Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may", "will", "should", "could", "expects", "plans", "anticipates",
"believes", "estimates", "predicts", "potential", or "continue" or the negative
of such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus.
USE OF PROCEEDS
The primary purposes of this offering are to obtain additional capital,
create a public market for the common stock, and facilitate future access to
public markets. The net proceeds to Swiss Natural from the sale of our common
stock are estimated to be approximately $5,334,375, after deducting
underwriters' compensation and other estimated offering expenses totaling
$1,228,125. Swiss Natural intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
NET PROCEEDS NET PROCEEDS
------------ -------------
<S> <C> <C>
Purchase of additional inventory........................ 822,000 15.41%
Purchase of vending and refrigeration equipment......... 825,000 15.47%
Purchase of manufacturing equipment..................... 500,000 9.37%
Marketing and promotion................................. 545,000 10.22%
New product research and development.................... 235,000 4.41%
Internet, distribution, computing and telecommunications
equipment............................................. 135,000 2.53%
New client selling and collateral materials............. 235,000 4.41%
Repayment of its indebtedness including accrued interest
of $4,575, to A. Donald McCulloch, Jr. and Carolyn B.
McCulloch, both of whom are stockholders of Swiss
Natural, and one of whom is a former director......... 326,530 6.12%
General corporate purposes, including working capital... 1,710,845 32.06%
---------- -------
Total.............................................. $5,334,375 100.00%
</TABLE>
Management will have broad discretion in the use of proceeds allocated to
general corporate purposes.
The indebtedness of Swiss Natural to A. Donald McCulloch, Jr. and Carolyn
B. McCulloch as of September 30, 1999 is evidenced by two promissory notes, one
in the principal amount of $152,500, which bears interest at the rate of 12% per
annum, and represents the outstanding principal amount of the original
obligation, and the other in the principal amount of $169,455, which represents
accrued interest on the original obligation, and is non-interest bearing. Both
promissory notes to the McCullochs mature upon the earlier to occur of:
* February 10, 2000;
* ten days after the receipt of funds by Swiss Natural of the proceeds of
an initial public offering of its common stock in an amount of at least
$10,000,000; or
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* the sale of all or substantially all of the assets of Swiss Natural.
Pending the above uses, Swiss Natural intends to invest the net proceeds
from this offering in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
Swiss Natural has not declared or paid any cash dividends on its common
stock since its inception and does not expect to pay any cash dividends on its
common stock in the foreseeable future. Holders of shares of Swiss Natural's
Series A Preferred Stock are entitled to receive a quarterly dividend commencing
on March 1, 2000 of two ($0.02) cents per share prior to any other class of
stock receiving any dividends, and to participate in dividends declared and paid
on the common stock, on an "as-converted" basis. Swiss Natural currently intends
to retain future earnings, if any, after paying the dividend on the preferred
stock, to finance the expansion of its business.
CAPITALIZATION
The following table sets forth the capitalization of Swiss Natural as of
September 30, 1999: (1) on an actual basis, and (2) as adjusted to reflect the
receipt by Swiss Natural of the estimated net proceeds from the sale of our
1,250,000 shares of common stock offered hereby (after deducting the estimated
offering expenses and underwriter' compensation). The information described in
the following table assumes that none of the convertible subordinated debentures
of Swiss Natural have been converted. This table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes thereto included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------
AS ADJUSTED
TO REFLECT
NET PROCEEDS
ACTUAL OF OFFERING
----------- ------------
<S> <C> <C>
Convertible Subordinated Debentures..................... $ 757,500 $ 757,500
----------- ------------
Compensation Payable.................................... 101,092 101,092
----------- ------------
Preferred Stock, $.01 par value, 3,000,000 shares
authorized; Series A Convertible Preferred Stock,
1,206,000 shares issued and outstanding (actual and as
adjusted)............................................. 12,060 12,060
Common Stock, $.01 par value, 20,000,000 shares
authorized, 2,591,708 shares issued and outstanding
actual; 3,841,708 shares outstanding, as adjusted..... 25,917 38,417
Additional paid in capital.............................. 2,014,833 7,336,708
Accumulated Deficit..................................... (2,527,516) (2,527,516)
----------- ------------
Stockholders' equity (deficiency)....................... (474,706) 4,859,669
----------- ------------
Total capitalization.................................... $ 383,886 $ 5,718,261
----------- ------------
----------- ------------
</TABLE>
DILUTION
The net tangible book value of Swiss Natural as of September 30, 1999 was a
negative $690,892, or a negative $.27 per share. "Net tangible book value per
share" is determined by dividing the number of outstanding shares of common
stock into the net tangible book value of Swiss Natural (total tangible assets
less total liabilities). Assuming the sale by Swiss Natural of the 1,250,000
shares of common stock offered hereby at a price of $5.25 for one share, the net
tangible book value of Swiss Natural as of September 30, 1999 would have been
approximately $4,766,110 or $1.24 per share. This represents an immediate
increase in net tangible book value of $5,457,002 to existing stockholders and
an immediate dilution of $4.01 per share, 76%, to new investors purchasing
shares at the initial public offering price of $5.25 per share. The following
table illustrates the per share dilution:
10
<PAGE>
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $ 5.25
Net tangible book value per share as of September 30, 1999..... $(.27)
Increase in net tangible book value per share attributable to
new investors............................................... $1.51
Net tangible book value per share after the offering............. $ 1.24
Dilution per share to new investors.............................. $ 4.01
</TABLE>
The following table summarizes as of September 30, 1999 the number of
shares of capital stock, including Series A Preferred Stock purchased from Swiss
Natural and the average cash price per share paid by existing stockholders and
by investors purchasing shares of common stock in this offering at an initial
public offering price of $5.25 per share, before deducting the underwriters'
compensation and other estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------
NUMBER PERCENT AMOUNT PERCENT
--------- ------- ---------- -------
<S> <C> <C> <C> <C>
Existing stockholders.............................. 3,797,708 75% $2,052,810 24%
New investors...................................... 1,250,000 25% $6,562,500 76%
--------- --- ---------- ---
Total.............................................. 5,047,708 100% $8,615,310 100%
--------- --- ---------- ---
--------- --- ---------- ---
</TABLE>
The sale by Messrs. Ferrante, Paul and Brescio of 187,500 shares of common
stock upon exercise in full of the underwriters' over-allotment option will
reduce the percentage of common stock held by existing stockholders to 63% of
the total number of shares of common stock to be outstanding upon consummation
of this offering and will increase the percentage of common stock held by new
investors to 37% of the total number of shares of common stock to be outstanding
upon consummation of this offering. See "Principal Stockholders."
The foregoing discussion and table exclude:
* the 125,000 shares of common stock issuable upon exercise of the 125,000
underwriters' common stock purchase warrants to be issued in connection
with this offering;
* 500,000 additional shares of common stock reserved for issuance under
the 1999 Stock Option Plan;
* 165,267 shares of common stock issuable upon exercise of outstanding
warrants at an exercise price of approximately $2.24 per share; and
* 505,000 shares of common stock issuable upon conversion of the $757,500
aggregate principal amount of convertible debentures presently
outstanding.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of Swiss Natural also should be read in conjunction with the
financial statements and related notes thereto included elsewhere in this
prospectus.
FISCAL YEAR 1999 ENDED FEBRUARY 28, 1999 COMPARED TO FISCAL YEAR 1998 ENDED
FEBRUARY 28, 1998.
Swiss Natural's net loss for the year ended February 28, 1999 was
$(439,416) as compared to ($1,030,290) for the year ended February 28, 1998 and
loss from operations was ($400,433) for the year ended February 28, 1999 as
compared to ($972,567) for the year ended February 28, 1998. The decrease in net
loss and loss from operations was primarily due to an increase in net sales
which was offset by an increase in expenses. Net sales for the year ended
February 28, 1999 increased approximately 29% from those of the year ended
February 28, 1998. The increase in sales is attributable to the addition of new
customers, the sale of new products such as orange and apple juice, and
increased sales of private label beverages in new territories. Cost of sales as
a percentage of sales was approximately 67% for the year ended February 28, 1999
as compared to 84% for the year ended February 28, 1998. Included in the cost of
sales are all raw materials to produce our 16 oz. and 12 oz. products. These
costs include flavoring, glass, trays, labels, partitions, bottling and packing
fee. Also included are freight charges to ship all raw materials to our
production facility. The declining trend in
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cost of sales is attributable to our change of production facilities and the
increase in sales of our Swiss Natural brand, which has a higher profit margin
than our private label beverages. In addition, we incurred a one time loss on
abandonment of inventory of $185,942 in the year ended February 28, 1998 when we
changed production facilities after determining that a majority of the raw
materials on hand would not be viable at the new facility. Gross profit as a
percentage of sales was approximately 33% for the year ended February 28, 1999
as compared to approximately 16% for the year ended February 28, 1998. Expenses
for the year ended February 28, 1999 increased approximately 4% as compared to
the prior year primarily as a result of the fact that there was an increase in
wages, product development expenses, and to a lesser extent costs associated
with higher sales volume. The increase in such expenses was partially offset by
a decrease in selling and promotional expenses. Other income decreased slightly
as compared with that of the prior year and interest expenses decreased $30,697
as compared with that of the prior year as a result of the reduction of
stockholder debt.
BALANCE SHEET DATA AS OF FEBRUARY 28, 1999 AS COMPARED TO BALANCE SHEET DATA AS
OF SEPTEMBER 30, 1999.
As of February 28, 1999, the Company had cash and cash equivalents of
$530,729 as compared to $151,788 as of September 30, 1999 and other assets of
$12,913 as of February 28, 1999 as compared to $26,478 as of September 30, 1999.
The decrease in cash and cash equivalents and the increase in other assets is
primarily attributable to deposits made to purchase certain labeling equipment
and certain prepaid costs incurred in connection with this offering.
As of February 28, 1999, the Company had accounts receivable (less an
allowance for doubtful accounts) of $227,038 as compared to $271,105 as of
September 30, 1999. This increase in accounts receivable is the result of timing
differences in the collection of outstanding bills.
As of February 28, 1999, the Company had inventory of $332,609 as compared
to $395,836 as of September 30, 1999. This increase is the result of a decision
by the Company to carry higher inventory levels throughout the year in order to
enable us to meet customer demands in a timely manner, as well as the
seasonality of its sales.
Property and Equipment increased from $76,514 as of February 28, 1999 to
$137,110 as of September 30, 1999 as a result of an increase in the number of
coolers that the Company purchased for use by customers during the seven months
ended September 30, 1999.
All other balance sheet items (other than accumulated deficit) remained
relatively constant as of September 30, 1999 as compared to February 28, 1999.
Accumulated deficit decreased as a result of the recognition of net income for
the seven months ended September 30, 1999.
SEVEN MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO SEVEN MONTHS ENDED SEPTEMBER
30, 1998.
Swiss Natural generated net income of $46,909 for the seven months ended
September 30, 1999 as compared to a net loss of $57,751 for the seven months
ended September 30, 1998. This increase is attributable to an increase in sales
which was partially offset by an increase in expenses. Net sales for the seven
months ended September 30, 1999 were $2,519,102 as compared to $1,736,034 for
the seven months ended September 30, 1998, representing an approximately 45%
increase. The increase in sales was primarily a result of an increase in the
sale of the Company's Swiss Natural brands products of $608,454 representing a
179% increase, and, to a lesser extent, an increase in the sale of our private
label beverages.
Cost of sales as a percentage of sales was approximately 61% for the seven
months ended September 30, 1999, as compared to 66% for the seven months ended
September 30, 1998. Gross profit as a percentage of sales was approximately 39%
for the seven months ended September 30, 1999, as compared to approximately 34%
for the seven months ended September 30, 1998. The increase in gross profit
reflects an increase in the overall selling price and volume of the Swiss
Natural brand. Expenses for the seven months ended September 30, 1999 increased
approximately 31% as compared to that of the seven months ended September 30,
1998, primarily as a result of an increase
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<PAGE>
in promotional and marketing expenses and an increase in compensation paid to
employees and consultants.
Since our inception, we have experienced greater sales of our beverages in
the spring and summer months and reduced sales of our beverages in the winter
and fall months. We expect to continue to experience fluctuations in our
revenues resulting from such seasonal variations in sales.
LIQUIDITY AND CAPITAL RESOURCES.
At February 28, 1999, Swiss Natural had cash and cash equivalents of
$530,729 as compared to $364,088 at February 28, 1998. The increase in cash and
cash equivalents during the twelve month period ended February 28, 1999 is due
to $545,532 of cash provided by financing activities which was partially offset
by $340,154 of cash used in operating activities and, to a lesser extent,
$38,737 of cash used in investing activity. Cash provided by financing
activities during the twelve month period ended February 28, 1999 consisted of
the proceeds from Swiss Natural's issuance of convertible subordinated
debentures, less amounts utilized to pay debt placement fees and to retire
certain indebtedness owed to two stockholders of Swiss Natural, one of whom is
also a former director of Swiss Natural. Cash used in investing activities
during the twelve month period ended February 28, 1999 consisted of payments
made to purchase property and equipment.
At September 30, 1999, Swiss Natural had cash and cash equivalents of
$151,788 as compared to $165,713 at September 30, 1998. The decrease in cash and
cash equivalents of $378,941 from February 28, 1999 is due to $129,680 of cash
used in financing activities, $172,392 of cash used in operating activities, and
$76,869 of cash used in investing activities. Cash used in financing activities
during the seven month period ended September 30, 1999 consisted primarily of
deferred offering costs of this offering and to a lesser extent, interest
payments made on the note payable to stockholders of Swiss Natural. Cash used in
investing activities during the seven month period ended September 30, 1999
consisted of payments made to purchase equipment. Swiss Natural invests its cash
in a money market fund.
Based upon its current operating plan, Swiss Natural anticipates that the
net proceeds of this offering, together with cash generated from operations,
will be sufficient to satisfy its future liquidity requirements for at least the
next 12 months. However, the ability of Swiss Natural to meet future liquidity
needs is directly related to its sales volume and the costs associated with the
development and marketing of its products. It is anticipated that a portion of
the proceeds of this offering will be used to purchase refrigeration equipment
and vending equipment to be used by our customers to hold and display our
products. It is anticipated that this will be an ongoing expense which will
adversely affect Swiss Natural's cash flow. Furthermore, Swiss Natural may have
the on-going expense of making interest payments to any holder of its
convertible debentures who does not convert its debenture into shares of common
stock. Since Swiss Natural does not currently have any outside sources of
financing, such as a line of credit, all of these expenses will have to be paid
for either out of the proceeds of this offering or cash generated from
operations.
BUSINESS
INDUSTRY OVERVIEW
Our business competes in the alternative beverage category of the beverage
industry.
Alternative beverages consist of fruit juices, fruit drinks that are not
100% juice, sparkling and still water, ready-to-drink teas, sports drinks and
natural soda. From 1992 to 1998, the alternative beverage market has experienced
significant growth, with volumes approximately doubling, from 480 million cases
to 1.10 billion cases, according to the Beverage Digest Fact Book. In 1998, the
Beverage Digest Fact Book indicated that the volume of the alternative beverage
market grew to approximately 1.28 billion cases. Nonetheless, alternative
beverages currently remain only a small portion of the entire beverage market,
which, in the opinion of management, provides significant opportunity for future
growth.
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<PAGE>
In general, the segments of the alternative beverage category in which
Swiss Natural competes enjoyed strong growth in 1998. According to information
published in the Beverage Digest Fact Book, the fruit juice and fruit juice
drink segment grew from 450 million cases sold in 1997 to 515 million cases sold
in 1998, and the ready to-drink tea segment grew from 310 million cases sold in
1997 to 355 million cases sold in 1998.
The alternative age beverage category generally consists of products
classified as "premium", more specialized goods, and to a lesser extent,
"non-premium", lower-margin, generic or more mainstream products. Premium
beverage products typically command higher prices and higher margins for the
brand owner, the distributor and the retailer than other beverages because of
the following:
* Higher Quality Ingredients. Premium beverage ingredients are positioned
to be higher quality and usually do not include preservatives.
* Distribution. The primary distribution channels for premium beverages are
convenience stores and other small retail outlets. These locations
usually sell premium beverages in single refrigerated cold servings
instead of at room temperature in larger containers.
* Packaging and Marketing. Packaging is a key differentiation in the
single-serve market and critical to building a premium image. Marketing
premium beverages relies heavily on product innovation, unique
advertising and availability.
We market and distribute a variety of premium beverages, including fruit
drinks, ready-to-drink teas and 100% juice products under our Swiss Natural
brand name and under a private label program. Under the Swiss Natural brand, we
market and distribute nine flavored beverages and two 100% juice products,
including three diet beverages. Under our private label program, we sell six
flavored beverages, including one diet beverage and two 100% juice products.
Swiss Natural was incorporated under the laws of the State of Delaware in
April 1993. We changed our name from Swiss Natural Foods, Inc. to Swiss Natural
Brands, Inc. on October 1, 1999. Our principal office is located at 1031 Route
9W, Upper Grandview, New York 10960, and our telephone number at that location
is (914) 358-1212.
OUR BUSINESS STRATEGY
Our business strategy for our Swiss Natural label products and private
label beverage business is to:
* Continue to develop new products and innovative packaging: During 1998,
we redeveloped our diet line of products, Diet Icy Tea With Lemon, Diet
Icy Berry and Diet Icy Peach utilizing a new zero calorie sweetener. We
intend to continue to introduce new products and flavors. We also intend
to continue to develop proprietary and innovative packaging to attract
consumers to the Swiss Natural brand.
* Increase consumer awareness and brand imagery: We intend to develop
innovative marketing and promotions to increase the visibility and image
of our Swiss Natural brand.
* Commence distribution via the Internet: We are in the process of
developing a new system of marketing and distribution utilizing the
Internet which we expect will increase direct sales to consumers and to
retailers.
* Expand our sales to private label clients: We plan to continue to expand
our sales to private label clients for whom we develop specific private
label beverage programs.
* Expand and enhance distributor relationships: We intend to focus our
sales force to continue to improve relationships with distributors. We
intend to continue to assist our distributors in developing local
marketing promotions.
* Expand and improve distribution: We plan to continue to expand in
existing and new geographic markets and channels of trade.
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<PAGE>
* Expand and improve in-store distribution and marketing: We plan to
increase the rate at which we place cold drink equipment in stores and
other outlets.
* Control production costs: We expect to continue to control production
costs through favorable supply agreements for raw materials, flavors, and
packaging. We also plan to introduce additional production initiatives to
further reduce costs and improve freight management.
* Minimize capital expenditures: We plan to continue to minimize capital
expenditures through the use of third party manufacturers for production
of our premium beverage products.
OUR BUSINESS
We market and sell premium beverages under both our proprietary Swiss
Natural trademark and private label brands. A significant portion of our
business consists of sales of a variety of fruit and tea beverages, orange juice
and apple juice under a private label beverage program developed by us for
Sbarro Inc. We sell vitamin-fortified flavored fruit and tea beverages, a 100%
orange juice product and a 100% apple juice product under our registered Swiss
Natural trademark. One of our larger customers for our Swiss Natural brand
products are Dunkin' Donuts franchisees. Our sales to the Dunkin' Donuts
franchisees, as well as to Sbarro Inc., each represent at least 10% of our total
overall revenues.
Prior to March 1996, our revenues were derived solely from the sale of our
Swiss Natural labeled beverages. At present we sell our beverages under a
private label in almost all Sbarro franchise restaurants including many Sbarro
restaurants located outside the United States. Our line of beverages is the only
authorized bottled soft drink of its kind to be sold in the Sbarro restaurants.
In January 1998, we renewed our agreement with Sbarro granting us a right of
first refusal to be the exclusive supplier of Sbarro private label beverages for
a three year period of time. We have agreed, as long as we are supplying
beverages to Sbarro, to refrain from developing a private label program for any
other company which sells pizza as its primary source of revenue.
Sbarro is a major customer of ours and we depend significantly upon the
sale of our beverages to Sbarro. At the request of Sbarro, we began production
of two 100% juice products to be supplied to Sbarro under the private label
program. We have been advised that the two 100% juice products supplied by Swiss
Natural have replaced all other juices currently being sold by the Sbarro
franchise restaurants and are the only authorized 100% juice products sold by
such franchise restaurants.
In February 1998, we began to supply our juice and other beverage products
on a trial basis to approximately 22 Dunkin' Donut franchisees which are
supplied from one Dunkin' Donut regional distribution center. On March 29, 1999
we executed a three year agreement with a Dunkin' Donuts regional distribution
center which designates our Swiss Natural label beverages as authorized
beverages for the region, which includes approximately 900 Dunkin' Donuts
franchisees. We currently supply approximately 200 Dunkin' Donuts franchisees
with our Swiss Natural label beverages. The Dunkin' Donut franchisees, however,
may purchase bottled beverage products from any supplier that they choose. Our
revenues have increased as a result of the sales of our beverages to the Dunkin'
Donut franchisees.
We entered into an agency agreement with Bentonville Associates Ventures
LLC effective May 5, 1998 whereby Bentonville agreed to act as the exclusive
marketing representative for us with regard to certain specified accounts which
include Walmart Stores and Sams Clubs stores, and a nonexclusive agent for other
accounts, all for a commission based upon a percentage of sales generated by
Bentonville. This agreement is cancellable by Bentonville upon 90 days notice.
We also utilize multiple independent distributors to sell our Swiss Natural
label beverages. These distributors sell Swiss Natural beverages to food service
accounts, convenience stores, delicatessens, pizza restaurants, golf courses,
hotels, schools, cafeterias, fitness clubs and a variety of other outlets which
sell beverages. In March 1997, we executed a letter of understanding with
Ritter/Sysco Food Services, Inc., a division of Sysco, a national food service
distributor for distribution of our beverages
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to food service customers receiving our beverages within a 100 mile radius of
Columbus Circle, New York, New York.
During the fiscal year ended February 28, 1999, our Swiss Natural brand
sales totaled $628,194 compared to $390,052 for the prior fiscal year. This
represents an increase of approximately 61%. Sales of our Swiss Natural brands
carry a significantly higher gross profit percentage than our private label
products. Gross profit percentage on Swiss Natural brand sales range by accounts
from approximately 33% to 56%. Swiss Natural private label sales totaled
$2,433,392 for the fiscal year ended February 28, 1999 compared to $1,979,547
for the prior fiscal year. This represents an increase of approximately 23%.
Gross profit percentage on Swiss Natural private labels ranges from
approximately 28% to 31%.
During the fiscal year ended February 28, 1998, the five largest
distributors of Swiss Natural label beverages purchased approximately 85% of the
case sales of our Swiss Natural label beverages (approximately 11% of the case
sales of all of our beverages including our private label beverages), each
purchasing in excess of approximately 7% of the case sales of Swiss Natural
label beverages, with none of the distributors accounting for more than
approximately 31% of our sales of Swiss Natural label beverages. During the
fiscal year ended February 28, 1999, the five largest distributors of Swiss
Natural label beverages purchased approximately 76% of the case sales of our
Swiss Natural label beverages (approximately 14% of the case sales of all of our
beverages including our private label beverages), each purchasing in excess of
approximately 9% of the case sales of Swiss Natural label beverages. No one
distributor accounted for more than approximately 30% of our sales of Swiss
Natural label beverages sold in such fiscal year.
Swiss Natural has initiated the development of an e-commerce plan which we
expect will increase direct distribution to customers and retailers utilizing
the Internet and a company website. In connection with our Internet distribution
initiative, we are developing new packaging concepts for our products which we
believe will help to promote our sales over the Internet. We have purchased
several web-site names, are interviewing web-site developers and estimate that
the site will be operational in May 2000.
OUR PRODUCTS
We currently sell nine (9) naturally flavored beverages under the
trademarks Swiss Natural Icy Berry, Swiss Natural Diet Icy Berry, Swiss Natural
Icy Citrus, Swiss Natural Icy Melonade, Swiss Natural Lemon Icy Tea, Swiss
Natural Diet Icy Tea With Lemon, Swiss Natural Raspberry Icy Tea, Swiss Natural
Peach Icy Tea and Swiss Natural Diet Peach Icy Tea. In addition, Swiss Natural
sells a 100% orange juice product and a 100% apple juice product under the Swiss
Natural label. The Swiss Natural Diet Icy Berry, Diet Peach Icy Tea and Diet Icy
Tea With Lemon were introduced to attract customers who are calorie conscious.
We also sell six naturally flavored beverages, a 100% orange juice product and a
100% apple juice product under our private label program. All of our beverages
are made utilizing natural flavors and juices and none contain preservatives or
artificial colors. In addition, the beverages sold under the Swiss Natural label
are fortified with our "Ultrapeakt" vitamin formula, a specific combination of
vitamins. Our beverages have a shelf life of approximately nine (9) months and
typically are sold to consumers within sixty to ninety days of their production.
RAW MATERIALS
We procure our bottles, water, juice products, apple and orange juice
concentrates, high fructose corn syrup, citric acid, our vitamin formulation and
other designated ingredients used in our proprietary beverages from various
suppliers which then supply our independent bottling company. Each of these
ingredients is readily available from several alternative suppliers.
We purchase our proprietary flavor bases from an independent flavor
supplier. We are the sole owner of the service formulae used in connection with
the production and manufacture of our beverages. If for any reason our flavor
supplier were to cease to supply the flavor bases used in our
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proprietary service formula to us, we believe we would be able to secure an
alternate source of supply.
PRODUCTION
All of our Swiss Natural label and private label beverages are currently
manufactured and bottled by an independent bottling company. We have recently
reached a multi-year production agreement with our current bottling facility. In
accordance with our arrangement with our current bottling facility, they are to
provide basic raw materials for our beverages such as water, while we provide a
flavor base, together with our Ultrapeakt vitamin formula. Our finished product
is then manufactured in accordance with our specifications in distinctive glass
bottles supplied by us utilizing our specified labels on such bottles. We
purchase our labels from an independent label manufacturer. We place orders for
finished goods with the bottler on a monthly basis based upon our best estimates
of our future needs prior to our receipt of orders from distributors. We monitor
the production of our beverages to assure adherence to production procedures and
quality standards. In addition, some of our suppliers have entered into
confidentiality agreements to protect our trade secrets. We have not experienced
any significant returns or incidents of product spoilage which we believe is due
to the nature of our customers and their ability to move product quickly.
In March 1998, we entered into an arrangement with an independent storage
company for the storage of all of our finished goods inventory. Pursuant to the
terms of such arrangement, our storage company, which operates its own trucking
company, transports our finished goods from the bottling facility to its own
storage facility at a fixed charge per case. In addition, our storage company
has agreed to transport our finished goods from the storage facility to our
customers for an additional fee. Inasmuch as neither we nor a majority of our
customers own or operate any trucking companies, we utilize our storage
company's trucking services for a majority of our customers.
All of our tea and fruit beverages, including both the Swiss Natural and
the private label beverages, are currently sold in our proprietary 16 ounce and
12 ounce, single serve, wide-mouth glass container, which has a distinctive and
unique shape designed to stimulate consumer interest and create brand
recognition. We use a private mold for the production of such glass containers
and we purchase these containers from the Canadian office of an independent
third party glass manufacturer, which has production facilities located in
Canada as well as in the United States. The glass manufacturer does not have a
written supply agreement with us. We are researching and developing the use of
other packaging containers, such as plastic containers and aluminum cans, to
expand the distribution of our brand. We plan to use the new types of packaging
in additional distribution channels including electronic commerce.
TRADEMARKS AND COPYRIGHTS
We have obtained registered trademarks to protect the name "Swiss Naturalt"
and the slogan "Reach For The Peakt" used in selling our beverages. We have also
obtained registered trademarks for the marks "Swiss Natural Icy Berryt", "Swiss
Natural Icy Citrust", "Swiss Natural Icy Melonadet", "Swiss Natural Icy Coffeet"
and for "Swiss Natural Icy Teat", and "Ultra Peakt", the name of our vitamin
formula. We use a private mold for the production of our proprietary glass
container. As to our beverage formulations, we rely on the unpatented know-how
of our Chief Executive Officer and the confidentiality agreements with our
flavor manufacturer, our bottling company and our employees.
COMPETITION
Competition in the beverage industry is intense. We face competition from
other beverage companies providing similar products such as Snapple, Fruitopia,
Ocean Spray, Arizona and Mistic and various other lesser known brands. We also
face competition from other beverage companies providing other beverages. Many
of our competitors, including the dominant brands named above, are better
established and have greater financial resources than us. We believe that the
quality of our
17
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beverages, distribution strategy, private label business, competitive prices and
profit margins will enable us to compete with these companies.
SALES AND MARKETING STRATEGY
Our marketing strategy is to create a consumer awareness of our brand in
our targeted markets as well as to increase our client base of private label
customers. The core marketing campaign theme of our Swiss Natural label
beverages has been and will be centered around our "Reach For The Peakt"
registered trademark. We also emphasize the fact that our products provide great
taste with enhanced nutritional benefits and utilize no artificial coloring or
preservatives. We also promote the fact that our products contain natural
ingredients.
To date, we have focused our marketing efforts mainly in the New York
metropolitan area. Following the consummation of this offering, we intend to
market our Swiss Natural label beverages in other regions of the United States
such as the Northeast, the Southeast, the Mid-Atlantic and the West Coast and to
increase our sales to private label customers.
Our sales strategy has been to provide a superior product at an
advantageous profit margin for both the distributor and retailer. This strategy
enables us to secure a degree of market acceptance and distribution capability
generating repeat sales with minimal expense for advertising. In addition, we
have offered, from time to time, sales allowances and/or discounts to
distributors based upon their performance. Our sales strategy has not included
the use of consignment sales. In order to increase our sales volume, we intend
to expend additional capital for an expanded sales force and enhanced
promotional material.
GOVERNMENT REGULATION
The production and sale of our beverages are subject to the rules and
regulations of various federal, state and local food and health agencies,
including the U.S. Food and Drug Administration. The FDA also regulates the
labeling of containers including, without limitation, statements concerning
product ingredients.
We are also subject to various federal, state and local environmental laws
and regulations that limit the discharge, storage, handling and disposal of a
variety of substances and by laws and regulations relating to workplace safety
and worker health, principally the Occupational Safety and Health Administration
Act, as well as similar state laws and regulations. We believe that we comply in
all material respects with these laws or regulations, although we cannot assure
that future compliance with such laws or regulations will not have a material
adverse effect on our results of operations or financial condition. We did not
incur any significant costs in the fiscal year ended February 28, 1999 to comply
with environmental laws.
EMPLOYEES AND CONSULTANTS
Our chief executive officer and chief financial officer are also directors
and stockholders of Swiss Natural. We presently employ four other people at our
executive offices on a full time basis, none of whom has a written employment
agreement with us. Two of the other employees are engaged in sales and
marketing, one employee is a certified public accountant who performs accounting
services and the fourth is a bookkeeper/secretary. Our chief executive officer
devotes his full business time to the business of Swiss Natural, and our chief
financial officer devotes a majority of his business time to the business of
Swiss Natural. The chief financial officer of Swiss Natural, an attorney and
certified public accountant, is engaged in the practice of law. In addition,
from time to time we engage sales consultants to assist us in expanding the
sales and distribution of our products.
We do not currently have any contingent forms of compensation for our
officers and directors, including any pension, retirement, stock appreciation,
or other compensation plan other than our 1999 Stock Option Plan. However, Swiss
Natural anticipates that it will institute such other forms of compensation in
the future.
18
<PAGE>
We have never had a work stoppage and our employees are not represented by
any collective bargaining unit. We consider our relations with our employees to
be good. Our future success will depend, in part, on our ability to continue to
attract, integrate, retain and motivate highly qualified sales and managerial
personnel for whom competition is intense.
SLOTTING FEES
For us to achieve placement of our products in certain supermarket chains
and individual supermarket stores, it may sometimes be necessary for us to
purchase shelf space by paying slotting fees. Typically, supermarket chains and
prominent local supermarkets impose these charges as a one time payment before
the products are permitted in the store or chain. Slotting fees are less
frequently imposed by other types of retail outlets such as individual
convenience stores and delicatessens. The fees are negotiated on an individual
basis.
MARKETING AND PROMOTION
We intend to position Swiss Natural as a brand name synonymous with
products of superior quality and nutritional benefit with great taste. To date,
we have used a limited amount of point of sale promotion material, and we
previously utilized some radio advertisements.
We believe that increased marketing expenditures may be necessary in order
to increase sales volume. During the current fiscal year, marketing expense is
budgeted at approximately three percent (3%) of Swiss Natural label beverage net
sales. On an ongoing basis we anticipate our marketing budget to be
approximately six percent (6%) to eight percent (8%) percent of the Swiss
Natural label beverage net sales. In addition, we anticipate a continuation of
our discount policy to distributors, which may result in higher promotional
expenses.
LEGAL PROCEEDINGS
On November 20, 1997, Sterling Color Process, Inc. ("Sterling") filed a
lawsuit in Supreme Court, Rockland County, New York entitled Sterling Color
Process, Inc. v. Swiss Natural, Case Number 7670-97 (the "Sterling Action"). In
the Sterling Action, Sterling claims that it supplied labels to Swiss Natural
between June 1995 and May 1996 and that Swiss Natural did not pay for such
goods. Sterling claims it is owed a balance of $72,776.60. An answer and
counterclaim was served on behalf of Swiss Natural on February 13, 1998. In its
answer, Swiss Natural denied any liability and alleged that Sterling was fully
paid for the labels. Swiss Natural stated in its counterclaim that Sterling
failed to perform according to the agreement between the parties thereby causing
damages of $84,090.00. Swiss Natural has filed a Demand for Written Particulars.
Swiss Natural intends to vigorously pursue its counter-claim against, and defend
the claim from, Sterling.
In addition to the matters set forth above, from time to time we may be
subject to legal proceedings and claims in the ordinary course of business. Such
claims, even if not meritorious, could result in the expenditure by us of
significant financial and managerial resources. We are not aware of any legal
proceedings or claims that we believe will have individually or in the
aggregate, a material adverse effect on our business, financial condition or
results of operations.
FACILITIES
Our executive and administrative office is located in approximately 1,250
square feet of office space located at 1031 Route 9W, Upper Grandview, New York.
Swiss Natural does not pay rent for the use of this office space. The office
space is owned by Dr. Ralph M. Ferrante, our Chairman and Chief Executive
Officer. Swiss Natural is currently seeking new office space to occupy as a
primary site of executive operations and it anticipates moving its corporate
headquarters to the State of New Jersey. Swiss Natural has no other office
facilities.
19
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information regarding the directors and
executive officers of Swiss Natural.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --- --------------------------------------------
<S> <C> <C>
Dr. Ralph M. Ferrante.................... 45 Chief Executive Officer, Chairman of the
Board and Secretary
Herbert M. Paul.......................... 64 Chief Financial Officer, President,
Assistant Secretary and Director
James P. McCann.......................... 41 Director
Kenneth D. Greenblatt.................... 53 Director -- Nominee
Donald L. Antle.......................... 60 Director -- Nominee
</TABLE>
DR. RALPH M. FERRANTE has been the Chief Executive Officer, Chairman of the
Board of Directors and Secretary of Swiss Natural since 1993. From 1982 to 1992,
he was the Executive Vice President of Ferrante Enterprises, Inc., a real estate
development company which he co-founded. From 1981 to 1985, he was a practicing
chiropractor at the Rockland Health Center. Dr. Ferrante has a Doctor of
Chiropractic degree from New York Chiropractic College and a BBA degree from
Pace University.
HERBERT M. PAUL is a certified public accountant and an attorney and has
been the Chief Financial Officer, President, Assistant Secretary and a Director
of Swiss Natural since 1993. Since 1981, Mr. Paul has been the managing partner
of Herbert Paul, P.C., a law firm specializing in business and tax matters.
Prior to 1981, he was a senior partner at Touche Ross & Co., an international
accounting firm which was the predecessor to Deloitte & Touche. Mr. Paul has
been a trustee and a professor at New York University as well as a member of
various professional committees. Mr. Paul has an MBA degree from the New York
University Graduate School of Business, an LLM degree from the New York
University Graduate School of Law, a JD degree from Harvard Law School and a BBA
degree from Baruch College. Mr. Paul is listed in Who's Who in Finance &
Industry, Who's Who in American Law and Who's Who in America.
JAMES P. MCCANN is a First Vice President at Prudential Securities. He had
been a First Vice President at Paine Webber since 1994, where he was directly
responsible for the management of in excess of $240 million of funds. Mr.
McCann's responsibilities include fixed income management and equity investments
for clients. Mr. McCann was employed by Paine Webber in 1981 when he graduated
from Manhattan College with a B.B.A. degree. Mr. McCann has been a director of
Swiss Natural since March 1, 1999.
KENNETH D. GREENBLATT was employed from 1968 to 1981 at Gilbert Frank
Corporation, a privately held textile company where he became President in 1976.
In 1981 Gilbert Frank Corporation was purchased by Guilford Mills Incorporated,
a public company where Mr. Greenblatt served as Chairman of the Gilbert Frank
division until 1987. In 1987 Mr. Greenblatt founded Waverly Converting Inc. a
textile company which was purchased by Missbrenner, Inc. where Mr. Greenblatt
served as President until 1997. From 1997 to the present, Mr. Greenblatt has
been Chairman of the Board of Kenneth John Productions, a Broadway production
company which has produced 17 shows winning 23 Tony awards since 1981. Mr.
Greenblatt has a BBA degree in Finance from the University of Miami. Mr.
Greenblatt is a member of the Presidents Council of the University of Miami, and
serves on the Board of Directors of the Helen Hayes Theater.
DONALD L. ANTLE has since 1987 been founder and President of Antle
Enterprises a private beverage industry consulting firm specializing in company
sales, mergers and acquisitions, corporate financing, industry expert witness,
and new product introductions. Mr. Antle began his beverage career in 1958 with
the Seven-Up Bottling Company in Colorado. In 1962 he joined the Dr Pepper
Company as a zone manager, in 1964 he became Division manager, and then in 1973
became Vice President of Franchise at the Dr. Pepper Company. In 1982 Mr. Antle
became President of Premier
20
<PAGE>
Beverages, which marketed the Welch's soft drink brand. Mr. Antle has a BBA
degree from the University of Colorado.
Directors are elected by the stockholders to hold office for a designated
period not to exceed one year. Officers and consultants serve at the discretion
of the Board.
BOARD OF DIRECTORS
Directors are elected at the annual meeting of Swiss Natural's stockholders
to hold office until the next annual meeting and until their successors are
elected and qualified. Officers serve at the discretion of the Board. Directors
may receive such compensation for their services as is fixed from time to time
by resolution of the Board.
DIRECTOR'S COMPENSATION
Directors of Swiss Natural currently receive no compensation for their
service as such. We anticipate granting no more than an aggregate of 20,000
options to purchase shares of common stock at the initial public offering price
to our outside directors as compensation for their services as directors. We do
reimburse directors for their reasonable expenses incurred in attending meetings
of the Board of Directors.
COMPENSATION OF OFFICERS AND KEY EMPLOYEES
Each of Swiss Natural's officers has agreed to forego payment for all
services performed by them on behalf of Swiss Natural during the period from
Swiss Natural's inception until February 28, 1995 pursuant to agreements between
Swiss Natural and each of its officers. However, such officers, as well as two
employees of Swiss Natural, one of whom is no longer with Swiss Natural, were
owed money for services performed for Swiss Natural during the fiscal year ended
February 29, 1996 and a portion of the fiscal year ended February 28, 1997. In
February, 1998, Dr. Ferrante, Mr. Paul and Mr. Brescio canceled all indebtedness
owed to them by Swiss Natural, including all indebtedness for compensation owed
to them by Swiss Natural, in exchange for shares of common stock. At that time,
Swiss Natural owed $601,737, $152,819 and $93,419 to Dr. Ferrante, Mr. Paul and
Mr. Brescio, respectively. Accordingly, in exchange for the cancellation of
indebtedness, Swiss Natural issued 353,653, 89,815 and 54,904 additional shares
of its common stock to Dr. Ferrante, Mr. Paul and Mr. Brescio, respectively. At
present, the only indebtedness of Swiss Natural remaining for accrued and unpaid
compensation is to a former employee and stockholder of Swiss Natural in the
amount of $101,092.
We have entered into an employment agreement with Dr. Ralph M. Ferrante
pursuant to which Dr. Ferrante has agreed to continue to serve as the chief
executive officer of Swiss Natural until February 28, 2002. Dr. Ferrante's
employment agreement provides that for the year ended February 29, 2000 he will
receive a base salary of $168,000 per annum, a $13,000 payment for medical
insurance, a $10,000 payment for life insurance and a $7,200 car allowance; and
that for each of the fiscal years ended February 28, 2001 and February 28, 2002
he will receive a ten percent increase from the previous year's base salary, a
$13,000 payment for medical insurance, a $12,000 payment for life insurance and
a car allowance of $9,600.
Herbert Paul has agreed to continue to serve as president and chief
financial officer of Swiss Natural. We have also entered into a consulting
agreement with Mr. Paul until February 28, 2002. Mr. Paul's consulting agreement
provides that for the year ended February 29, 2000 he will receive consulting
fees of $99,750 per annum, a $4,750 allocation for medical insurance and a
$4,750 allocation for life insurance; and that for each of the fiscal years
ended February 28, 2001 and February 28, 2002 he will receive a ten percent
increase from the previous year's consulting fees and a continuation of the
allocations for medical and life insurances.
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<PAGE>
SUMMARY OF COMPENSATION
The following Summary Compensation Table sets forth information concerning
compensation earned in the three fiscal years ended February 28, 1997, 1998 and
1999, by Swiss Natural's Chief Executive Officer and its President (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------------
AWARDS
ANNUAL COMPENSATION ------------------------ PAYOUTS
------------------------------------------- RESTRICTED SECURITIES ---------------------
NAME AND FISCAL YEAR OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL ENDED SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
POSITION FEBRUARY 28 ($) ($) ($) ($) (#) ($) ($)
- ------------------------- ----------- ------- ------- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. Ralph Ferrante....... 1999 160,000 -- 7,200 -- -- -- --
Chairman of the 1998 140,000 -- 7,200 -- -- -- --
Board and Chief 1997 132,000 -- -- -- -- -- --
Executive Officer
Herbert Paul............. 1999 -- -- 99,750 -- -- -- --
President and Chief 1998 -- -- 87,083 -- -- -- --
Financial Officer 1997 -- -- 79,000 -- -- -- --
</TABLE>
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted pursuant to the corporate law of the State of Delaware, Swiss
Natural's state of incorporation, the Certificate of Incorporation requires that
Swiss Natural indemnify its directors and officers against certain liabilities
and expenses incurred in their service in such capacities to the fullest extent
permitted by applicable law. These provisions would provide indemnification for
liabilities arising under the federal securities laws to the extent that such
indemnification is found to be enforceable under, and to be in accordance with
applicable law. Additionally, Swiss Natural has entered into an indemnity
agreement with each director and officer which generally provides that they are
indemnified with respect to actions taken in good faith. Furthermore, the
personal liability of the directors is limited as provided in Swiss Natural's
Certificate of Incorporation.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Swiss Natural
pursuant to the foregoing provisions, or otherwise, Swiss Natural has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore unenforceable.
SWISS NATURAL 1999 STOCK OPTION PLAN
The Swiss Natural 1999 Stock Option Plan was ratified and approved by the
Board of Directors of Swiss Natural as of June 30, 1999. The 1999 Stock Option
Plan is intended to promote the long term financial interests and growth of
Swiss Natural by providing employees, officers, directors, and consultants of
Swiss Natural with appropriate incentives and rewards to enter into and continue
in the employ of, or their relationship with, Swiss Natural and to acquire a
proprietary interest in the long-term success of Swiss Natural; and to reward
the performance of individual officers, other employees, consultants and
directors in fulfilling their responsibilities for long-range achievements.
GENERAL
The 1999 Stock Option Plan provides for the granting of awards to such
officers, other employees, consultants and directors of Swiss Natural and its
affiliates as the Board of Directors may select from time to time. A total of
500,000 shares of common stock has been reserved for issuance under the 1999
Stock Option Plan.
If any shares subject to an award are forfeited, canceled, exchanged or
surrendered or if an award otherwise terminates or expires without a
distribution of shares to the holder of such award, the shares of common stock
with respect to such award will, to the extent of any such forfeiture,
22
<PAGE>
cancellation, exchange, surrender, termination or expiration, again be available
for the awards under the 1999 Stock Option Plan.
In the event that the compensation committee determines that any dividend
or other distribution (whether in the form of cash, common stock, or other
property), recapitalization, stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the common stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of holders of awards under 1999 Stock Option Plan, then the compensation
committee will make such equitable changes or adjustments as it deems necessary
or appropriate to any or all of (i) the number and kind of shares of common
stock or other property (including cash) that may thereafter be issued in
connection with awards, (ii) the number and kind of shares of common stock or
other property (including cash) issued or issuable in respect of outstanding
awards and (iii) the exercise price, grant price, or purchase price relating to
any award; provided that, with respect to incentive stock options, such
adjustment shall be made in accordance with Section 424(h) of the Code.
ADMINISTRATION
The 1999 Stock Option Plan will be administered by the compensation
committee. The compensation committee has the authority in its sole discretion,
subject to and not inconsistent with the express provisions of the 1999 Stock
Option Plan, to administer the 1999 Stock Option Plan and to exercise all the
powers and authorities either specifically granted to it under, or necessary or
advisable in the administration of, the 1999 Stock Option Plan, including,
without limitation, the authority to grant awards; to determine the persons to
whom and the time or times at which awards shall be granted; to determine the
type and number of awards to be granted, the number of shares of common stock to
which an award may relate and the terms, conditions, restrictions and
performance goals relating to any award; to determine whether, to what extent,
and under what circumstances an award may be settled, canceled, forfeited,
exchanged, or surrendered; to make adjustments in the performance goals in
recognition of unusual or non-recurring events affecting Swiss Natural or the
financial statements of Swiss Natural (to the extent not inconsistent with
Section 162(m) of the Code, if applicable), or in response to changes in
applicable laws, regulations, or accounting principles; to construe and
interpret the 1999 Stock Option Plan and any award; to prescribe, amend and
rescind rules and regulations relating to the 1999 Stock Option Plan; to
determine the terms and provisions of agreements evidencing awards; and to make
all other determinations deemed necessary or advisable for the administration of
the 1999 Stock Option Plan.
AWARDS UNDER THE 1999 STOCK OPTION PLAN
No options have been granted under the 1999 Stock Option Plan. Unless
otherwise determined by the compensation committee, options granted pursuant to
the 1999 Stock Option Plan will become exercisable ratably over three years
commencing on the first anniversary of the date of grant, but in no event may an
option be exercised more than 10 years following the date of its grant. The
purchase price per share payable upon the exercise of an option will be
established by the compensation committee; provided, however, that incentive
stock options may not have an exercise price less than the fair market value of
a share of common stock on the date of the grant. In addition, Swiss Natural has
agreed that if any options are granted prior to the closing of this offering or
within 90 days after the closing, the exercise price of the options will be no
less than $5.25 per share. The option exercise price is payable by any one of
the following methods or a combination thereof:
* in cash or by personal check, certified check, bank cashier's check or
wire transfer;
* in shares of common stock owned by the participant for at least six
months prior to the date of exercise and valued at their fair market value
on the effective date of such exercise; or
* by such other method as the compensation committee may from time to time
authorize.
The compensation committee also has the authority to specify, at the time
of grant or, with respect to options that are not intended to qualify as
incentive stock options ("non-qualified stock options"), at or after the time of
grant, that a participant shall be granted a new non-qualified stock
23
<PAGE>
option (a "reload option") for a number of shares of common stock equal to the
number of shares of common stock surrendered by the participant upon exercise of
all or a part of an option in the manner described above, subject to the
availability of common stock under the 1999 Stock Option Plan at the time of
such exercise; provided, however, that no reload option shall be granted to a
non-employee director. Reload options shall be subject to such conditions as may
be specified by the compensation committee in its discretion, subject to the
terms of the 1999 Stock Option Plan.
EMPLOYMENT ARRANGEMENTS
Ferrante Employment Agreement. We have entered into an employment agreement
with Dr. Ralph M. Ferrante pursuant to which Dr. Ferrante has agreed to continue
to serve as the chief executive officer of Swiss Natural until February 28,
2002. Dr. Ferrante's employment agreement provides that for the year ended
February 29, 2000 he will receive a base salary of $168,000 per annum, a $13,000
payment for medical insurance, a $10,000 payment for life insurance and a $7,200
car allowance; and that for each of the fiscal years ended February 28, 2001 and
February 28, 2002 he will receive a ten percent increase from the previous
year's base salary, a $13,000 payment for medical insurance, a $12,000 payment
for life insurance and a car allowance of $9,600.
Paul Consulting Agreement. Herbert Paul has agreed to continue to serve as
president and chief financial officer of Swiss Natural. We have also entered
into a consulting agreement with Mr. Paul until February 28, 2002. Mr. Paul's
consulting agreement provides that for the year ended February 29, 2000 he will
receive consulting fees of $99,750 per annum, a $4,750 allocation for medical
insurance and a $4,750 allocation for life insurance; and that for each of the
fiscal years ended February 28, 2001 and February 28, 2002 he will receive a ten
percent increase from the previous year's consulting fees and a continuation of
the allocation for medical and life insurances.
CERTAIN TRANSACTIONS
Swiss Natural utilizes approximately 1,250 square feet of office space for
its corporate headquarters in a facility owned by Dr. Ferrante, Swiss Natural's
Chairman of the Board, Chief Executive Officer and principal stockholder. Swiss
Natural does not pay rent for the use of its corporate headquarters. Swiss
Natural does not have any written agreement with respect to such arrangement.
As of February 1, 1999, Swiss Natural owed an aggregate amount of $455,527
to A. Donald and Carolyn B. McCulloch, Jr. for loans made by them to Swiss
Natural in order to fund Swiss Natural's operations. Mr. McCulloch is a former
director and stockholder of Swiss Natural. In February 1999, Swiss Natural paid
the McCullochs $75,000 out of the proceeds received by Swiss Natural from its
private placement of convertible debentures. In addition, two employees of Swiss
Natural paid the McCullochs $95,000 in exchange for the transfer to such
employees of 49,341 shares of common stock of Swiss Natural owned by the
McCullochs. The McCullochs also forgave $95,000 due to them by Swiss Natural and
released Swiss Natural from certain negative covenants.
The aggregate indebtedness of Swiss Natural to the McCullochs as of
September 30, 1999 is $326,530, inclusive of accrued interest. The indebtedness
is evidenced by two promissory notes, one in the principal amount of $152,500,
which bears interest at a rate of 12% per annum, and represents the outstanding
principal amount of the original obligation, plus accrued interest of $4,575 and
the other in the amount of $169,455 which represents accrued interest on the
original promissory note and is non-interest bearing. Both promissory notes to
the McCullochs mature on the earlier to occur of:
* February 10, 2000;
* ten days after the receipt by Swiss Natural of the proceeds of an
initial public offering of its common stock in an amount of at least
$10,000,000; or
* the sale of all or substantially all of the assets of Swiss Natural.
Swiss Natural will use a portion of the proceeds of this offering to repay
such amount plus all accrued interest thereon.
24
<PAGE>
OTHER TRANSACTIONS
Dr. Ferrante was previously owed an aggregate of $180,888 by Swiss Natural
for compensation due to him on account of services performed for Swiss Natural.
As of February 28, 1998 Dr. Ferrante exchanged this indebtedness owed to him by
Swiss Natural for 106,311 newly issued shares of common stock.
Dr. Ferrante was previously owed an aggregate of $420,849 by Swiss Natural
for loans made by him to fund the operations of Swiss Natural. As of February
28, 1998 Dr. Ferrante exchanged this indebtedness owed to him by Swiss Natural
for 247,342 newly issued shares of common stock.
Mr. Paul was previously owed an aggregate of $102,599 by Swiss Natural for
compensation due to him on account of services performed for Swiss Natural. As
of February 28, 1998 Mr. Paul exchanged this indebtedness owed to him by Swiss
Natural for 60,299 newly issued shares of common stock.
Mr. Paul was previously owed an aggregate of $50,220 by Swiss Natural for
loans made by him to fund the operations of Swiss Natural. As of February 28,
1998 Mr. Paul exchanged this indebtedness owed to him by Swiss Natural for
29,516 newly issued shares of common stock.
Mr. Brescio was previously owed an aggregate of $93,419 by Swiss Natural
for compensation due to him on account of services performed for Swiss Natural
as an employee. As of February 28, 1998 Mr. Brescio exchanged this indebtedness
owed to him by Swiss Natural for 54,904 newly issued shares of common stock.
Effective June 30, 1999, Messrs. Ferrante, Paul and Brescio exchanged
1,206,000 shares of common stock of Swiss Natural owned by them for 1,206,000
shares of Series A Preferred Stock. See "Description of Capital Stock -Preferred
Stock" for a more detailed description of the terms of such preferred stock.
OUR POLICY
Swiss Natural believes that each of the foregoing transactions has been on
terms no less favorable to us than those that could have been obtained from
unaffiliated parties. It is our intent that, in the future, transactions with
affiliated parties will be approved by a majority of our disinterested directors
or otherwise as permitted by applicable law. Any such future transactions are
expected to be on terms no less favorable to us than could be obtained from
unaffiliated parties.
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to Swiss Natural with
respect to beneficial ownership of Swiss Natural's common stock as of the date
of this prospectus by
* each stockholder known by Swiss Natural to be the beneficial owner of
more than 5% of Swiss Natural's common stock;
* each director of Swiss Natural;
* the Named Executive Officers; and
* all executive officers and directors as a group.
Except as otherwise indicated, Swiss Natural believes that the beneficial
owners of common stock listed below, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable. Swiss Natural assumes that
the underwriter's over-allotment option will not be exercised. In event the
underwriter's over-allotment option is exercised, Messrs. Ferrante, Paul and
Brescio will hold 745,448 shares, 145,768 shares and 101,020 shares,
respectively, after the offering, which in percentage terms is equal to 19.4%,
3.8% and 2.6%, respectively, of the then outstanding shares. The table does not
give effect to 111,667 shares of common stock purchasable by Mr. Rolls upon the
exercise of warrants or the 20,000 shares of common stock issuable upon the
conversion of the convertible debentures held by Mr. McCann.
25
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING OWNED AFTER OFFERING
NAME AND ADDRESS ---------------------- ----------------------
OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------------ --------- ------- --------- -------
<S> <C> <C> <C> <C>
Ralph M. Ferrante............................... 878,573 33.9% 878,573 22.9%
c/o Swiss Natural Brands, Inc.
1031 Route 9W
Upper Grandview, NY 10960
Herbert M. Paul................................. 179,518 6.9% 179,518 4.7%
c/o Swiss Natural Brands, Inc.
1031 Route 9W
Upper Grandview, NY 10960
A. Donald & Carolyn B. McCulloch, Jr............ 345,825 13.3% 345,825 9.0%
c/o Swiss Natural Brands, Inc.
1031 Route 9W
Upper Grandview, NY 10960
Ernest Rolls.................................... 223,334 8.6% 223,334 5.8%
c/o Swiss Natural Brands, Inc.
1031 Route 9W
Upper Grandview, NY 10960
Ronald Brescio.................................. 121,645 4.7% 121,645 3.1%
c/o Swiss Natural Brands, Inc.
1031 Route 9W
Upper Grandview, NY 10960
James P. McCann................................. 0 0% 0 0%
c/o Swiss Natural Brands, Inc.
1031 Route 9W
Upper Grandview, NY 10960
Mario V. Ferrante............................... 184,411 7.1% 184,411 4.8%
c/o Swiss Natural Brands, Inc.
1031 Route 9W
Upper Grandview, NY 10960
All directors and executive officers as a group
(3 persons)................................... 1,058,091 40.8% 1,058,091 27.6%
</TABLE>
The following table sets forth information known to Swiss Natural with
respect to beneficial ownership of Swiss Natural's Series A Preferred Stock as
of the date of this prospectus by
* each stockholder known by Swiss Natural to be the beneficial owner of
more than 5% of Swiss Natural's Series A Preferred Stock;
* each director of Swiss Natural;
* the Named Executive Officers; and
* all executive officers and directors as a group.
Except as otherwise indicated, Swiss Natural believes that the beneficial
owners of Series A Preferred Stock listed below, based on information furnished
by such owners, have sole investment and voting power with respect to such
shares, subject to community property laws where applicable.
26
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING OWNED AFTER OFFERING
NAME AND ADDRESS ---------------------- ----------------------
OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------------------------------ --------- ------- --------- -------
<S> <C> <C> <C> <C>
Ralph M. Ferrante............................... 849,867 70.5% 849,867 70.5%
c/o Swiss Natural Brands, Inc.
1031 Route 9W
Upper Grandview, NY 10960
Herbert M. Paul................................. 238,463 19.8% 238,463 19.8%
c/o Swiss Natural Brands, Inc.
1031 Route 9W
Upper Grandview, NY 10960
Ronald Brescio.................................. 117,670 9.7% 117,670 9.7%
c/o Swiss Natural Brands, Inc.
1031 Route 9W
Upper Grandview, NY 10960
All directors and executive officers as a group
(2 persons)................................... 1,088,330 90.3% 1,088,330 90.3%
</TABLE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized common stock of Swiss Natural consists of 20,000,000 shares,
par value $.01 per share. The authorized preferred stock of Swiss Natural
consists of 3,000,000 shares, par value $.01 per share. The 2,591,708 currently
outstanding shares of Swiss Natural common stock are owned by approximately 70
holders of record. Upon consummation of this offering, 3,841,708 shares of
common stock will be issued and outstanding. An additional 125,000 shares of
common stock will be outstanding if the 125,000 underwriter's common stock
purchase warrants are exercised in full. An additional 1,206,000 shares of
common stock will be outstanding upon conversion of all outstanding shares of
the Series A Preferred Stock. The foregoing description of the capital stock
excludes shares of common stock issuable upon exercise of the outstanding
warrants and upon exercise of the $757,500 aggregate principal amount of the
convertible debentures.
On October 1, 1999, Swiss Natural effected a 1.5-for-1 reverse stock split
of its common and preferred stock. Unless otherwise indicated, all information
in this prospectus has been adjusted to reflect this split.
COMMON STOCK
Voting Rights. Each holder of common stock outstanding is entitled to one
vote per share on all matters submitted to a vote of Swiss Natural's
stockholders, including the election of directors. Holders do not have
cumulative voting rights in connection with the election of directors or any
other matter.
Any action that may be taken at a meeting of the stockholders may be taken
by written consent in lieu of a meeting if Swiss Natural receives consents
signed by stockholders having the minimum number of votes that would be
necessary to approve the action at a meeting at which all shares entitled to
vote on the matter were present and voted. This could permit Dr. Ferrante and
Mr. Paul to take action regarding matters without providing other stockholders
the opportunity to voice dissenting views or raise other matters.
Liquidation. In the event of any dissolution, liquidation or winding up of
the affairs of Swiss Natural, whether voluntary or involuntary, holders of the
common stock are entitled to share ratably in all assets remaining after payment
of the debts and other liabilities of Swiss Natural.
27
<PAGE>
Dividends, distributions and stock splits. Each share of common stock will
have an equal and ratable right to receive dividends when, if and as declared
from time to time by the board of directors out of funds legally available
therefor. Swiss Natural does not anticipate paying cash dividends in the
foreseeable future.
Other provisions. The holders of common stock are not entitled to
preemptive rights. There are no redemption or sinking fund provisions applicable
to the common stock. Several of our principal stockholders have rights of first
refusal with respect to the transfer and sale by other stockholders of shares of
Swiss Natural's common stock.
PREFERRED STOCK
Messrs. Ferrante, Paul and Brescio have exchanged 1,206,000 shares of
common stock owned by them for 1,206,000 shares of Series A Preferred Stock
("Series A Preferred"), a newly issued series of preferred stock. The Series A
Preferred is non-redeemable, assignable and carries rights to vote with the
common stock on a one-vote-per-share basis. The Series A Preferred is
convertible into common stock, at the option of the holder, at any time after
the earliest to occur of:
* the first fiscal year of Swiss Natural or any trailing twelve (12) month
period in which Swiss Natural's financial statements show earnings before
interest, taxes, charges resulting from stock, debenture or stock option
issuances and underwriter's consulting fees have equaled or exceeded
$750,000;
* the date on which the closing price of the common stock of Swiss Natural
as reported by the NASDAQ system or its successor, or any national
securities exchange on which such stock is listed (or if not so reported,
the average of the closing bid and asked prices as furnished by two
members of the NASD selected by Swiss Natural for that purpose) is equal
to or greater than ten dollars ($10.00) per share;
* the closing date of any acquisition of all or a portion of the equity
securities of Swiss Natural, the acquisition of all or a portion of Swiss
Natural's assets, the merger of Swiss Natural with or into another entity
regardless of whether Swiss Natural is the surviving entity, or any
additional equity financing by Swiss Natural;
* two (2) years after the closing date of this offering; or
* March 1, 2000 if the closing of this offering and the closing of the
sale of the over-allotment shares hereunder have not occurred prior to
such date.
The Series A Preferred shall pay a quarterly dividend of two cents ($0.02)
per share commencing June 1, 2000, accruing from March 1, 2000 prior to any
other class of stock receiving any dividends, and to participate in dividends
declared and paid on the common stock, on an "as-converted"basis. In addition,
the Series A Preferred will upon liquidation participate pari passu with the
common stock, on an "as-converted" basis. The holders of the Series A Preferred
shares shall be protected against dilution of their interest in the common stock
into which their shares are convertible upon the occurrence of certain events.
If the holders of the Series A Preferred do not receive their quarterly
dividends on a timely basis, the amount of such dividend shall accrue and shall
be paid in full prior to the payment of any dividends to the holders of common
stock.
If and to the extent that the shares of common stock issuable upon
conversion of the Series A Preferred are not includable in a registration
statement on the form to be utilized by Swiss Natural, then, commencing one year
after the closing of this offering, at the request of the holders thereof,
delivered to Swiss Natural, Swiss Natural will prepare and file, at its own
expense, one (1) registration statement on such form as required, to enable such
holders to resell shares of common stock acquired upon the conversion of the
Series A Preferred.
UNDERWRITERS' WARRANTS
At the closing of this offering, Swiss Natural will sell to Comprehensive
Capital Corporation underwriters' stock warrants to purchase 125,000 shares of
common stock at an aggregate purchase
28
<PAGE>
price of $100. The underwriters' stock warrants will be exercisable to purchase
one share of common stock at a price equal to $8.66 per share at any time during
the four-year period commencing one year from the effective date of this
prospectus. The underwriters' stock warrants expire on .
OTHER WARRANTS AND OPTIONS
Swiss Natural has issued 165,267 warrants to purchase 165,267 shares of
common stock at a price of $2.24 per share. Of such warrants, 111,667 are issued
to one of the principal stockholders listed in the table set forth under
Principal Stockholders.
All of the warrants previously issued by Swiss Natural are exercisable at
any time prior to the earlier to occur of (a) June 14, 2002 or (b) the date
which is ten days after the date on which Swiss Natural mails to the holder of
the warrant a copy of a preliminary prospectus included in a registration
statement which has been filed with the Securities and Exchange Commission for
the registration of Swiss Natural's common stock under the Securities Act of
1933, as amended. The warrants are exercisable at a price of $2.24 per share,
subject to adjustment to prevent dilution in certain circumstances.
For the life of the warrant, the holders thereof are given the opportunity
to profit from a rise in the market price of Swiss Natural's common stock, which
exercise at the time of such rise may result in a dilution of the interests of
other stockholders. Swiss Natural may find it more difficult to raise additional
equity capital if it should be needed for the business of Swiss Natural while
the warrants are outstanding.
CONVERTIBLE DEBENTURES
In January, 1999 Swiss Natural sold $757,500 principal amount of
convertible debentures. The convertible debentures bear interest at a rate of
12% per annum, payable annually. The convertible debentures mature in February,
2001. The holder of any convertible debenture has the right, exercisable at any
time up to the maturity of the convertible debenture, at his option, to convert
such convertible debenture at the principal amount thereof (or any portion
thereof that is an integral multiple of $1,500) into shares of the common stock
at a price of $1.50 per share (except that, in the event such convertible
debenture shall be called for redemption, such right shall terminate on the
close of business on the fifth day immediately preceding the redemption date).
INDEBTEDNESS
As of September 30, 1999, after the conversion into common stock of all the
indebtedness owed by Swiss Natural to Dr. Ferrante, Mr. Paul and Mr. Brescio,
Swiss Natural had outstanding debt, notes and interest payable to stockholders
in the aggregate amount of $326,530, all of such indebtedness is owed to A.
Donald and Carolyn B. McCulloch, Jr. for loans and accrued interest made by such
individuals to Swiss Natural in order to fund Swiss Natural's operations. The
two promissory notes evidencing such indebtedness to the McCullochs mature on
the earlier to occur of (i) February 10, 2000, (ii) ten days after the receipt
of funds by Swiss Natural from an initial public offering in any amount not less
than $10,000,000, or (iii) the sale of all or substantially all of the assets of
Swiss Natural. Swiss Natural intends to use a portion of the proceeds of this
offering to repay such amount plus all accrued interest thereon. See "Use of
Proceeds".
ANTI-TAKEOVER EFFECTS OF LAW AND CERTIFICATE OF INCORPORATION
Following consummation of the offering, Swiss Natural will be subject to
the business combination provisions of Section 203 of Delaware corporation law.
In general, such provisions prohibit a publicly held Delaware corporation from
engaging in various business combination transactions with any interested
stockholder (in general, a stockholder owning 15% of a corporation's outstanding
voting securities) for a period of three years after the date of the transaction
in which the person became an interested stockholder, unless:
29
<PAGE>
* the transaction is approved by the corporation's board of directors prior
to the date the stockholder became an interested stockholder;
* upon consummation of the transaction which resulted in the stockholder's
becoming an interested stockholder, the stockholder owned at least 85% of
the shares of stock entitled to vote generally in the election of
directors of the corporation outstanding at the time the transaction
commenced, excluding, for purposes of determining the number of shares
outstanding, those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do
not have the right to determine confidentiality whether shares held
subject to the plan will be tendered in a tender or exchange offer; or
* on or after such date, the business combination is approved by the board
of directors and authorized by the affirmative vote of at least 66 2/3%
of such outstanding voting stock not owned by the interested stockholder.
TRANSFER AGENT AND REGISTRAR
Corporate Stock Transfer, Inc. has been appointed as transfer agent and
registrar for the common stock.
LISTING
Swiss Natural has applied for listing of the common stock on the Nasdaq
SmallCap Market under the symbol "SWIS".
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the common
stock or the warrants. Swiss Natural cannot predict the effect, if any, that
sales of shares of the common stock to the public or the availability of shares
for sale to the public will have on the market price of the common stock
prevailing from time to time.
Upon consummation of this offering, Swiss Natural will have 3,841,708
shares of common stock outstanding. Of the shares outstanding after this
offering, the 1,250,000 shares of common stock sold in this offering and the
187,500 shares offered to the underwriters under the over-allotment option will
be freely tradeable without restriction under the Securities Act of 1933, except
that shares owned by an affiliate of Swiss Natural will be subject to the volume
limitations of Rule 144 under the Securities Act of 1933. As defined in Rule
144, an affiliate of an issuer is a person who, directly or indirectly, through
one or more intermediaries, controls or is controlled by, or is under common
control with, such issuer.
The remaining 2,404,208 shares of common stock will be restricted
securities (as that phrase is defined in Rule 144) and may not be resold in the
absence of registration under the Securities Act or pursuant to an exemption
from such registration, including the exemption provided by Rule 144 under the
Securities Act. Substantially all of the holders of such shares of common stock
have registration rights which entitle them under certain circumstances to
register their shares for resale in the event Swiss Natural proposes to register
additional shares of common stock in the future.
Subject to the foregoing and to the lock-up agreements described below,
under Rule 144 as currently in effect, a stockholder, including an affiliate,
who has beneficially owned his or her restricted shares for at least one year
from the date they were acquired from Swiss Natural or an affiliate of Swiss
Natural may sell, within any three-month period, a number of such shares that
does not exceed certain volume restrictions, provided that certain requirements
concerning availability of public information, manner of sale and notice of sale
are satisfied. In addition, under Rule 144(k), if a period of at least two years
has elapsed from the date any restricted shares were acquired from Swiss Natural
or an affiliate, a stockholder that is not an affiliate of Swiss Natural at the
time of sale and that has not been an affiliate for at least three months prior
to the sale is entitled to sell those shares
30
<PAGE>
without compliance with the requirements of Rule 144 set forth above. An
affiliate of Swiss Natural, however, must comply with the volume restrictions
and the other requirements referred to above.
Except for the holders of 187,500 shares offered to the underwriter
pursuant to the over-allotment option and the holders of the 1,250,000 shares
offered to the public in this offering, the holders of all other outstanding
shares of common stock (including those shares issuable upon the exercise of
outstanding warrants and convertible debentures) are subject to the
underwriters' lockup restrictions. Pursuant to the lockup, the holders have
agreed not to sell, transfer, hypothecate or convey, without the written consent
of Comprehensive Capital Corporation, by registration or otherwise, their shares
for a period of at least one year from the effective date of this prospectus. In
addition, the holders have agreed not to sell, transfer, hypothecate or convey
their shares for any longer period as may be required by NASDAQ. Any such
stockholder may however transfer his or her stock in a transaction not involving
a public offering including a transfer to a member of his family or in the event
of death, by will or operation of law, provided that any such transferee shall
agree, as a condition to such transfer, to be bound by such restrictions. The
foregoing lock-up restrictions will not apply to grants or awards under the 1999
Stock Option Plan or to shares sold to the underwriters to cover over-
allotments. If the 187,500 over-allotment shares are not purchased from
shareholders by the underwriters, such shares will not be subject to the
underwriters' lockup restrictions.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the form
of which has been filed as an exhibit to the registration statement of which
this prospectus forms a part, the underwriters named below, acting through
Comprehensive Capital Corporation and Seaboard Securities, Inc. as
representatives, have severally agreed to purchase from Swiss Natural, and Swiss
Natural has agreed to sell, an aggregate of 1,250,000 shares of common stock.
The underwriters' obligations to pay for and accept delivery of the shares of
common stock are subject to certain conditions set forth in the underwriting
agreement, including, but not limited to, satisfactory completion of due
diligence, delivery of a comfort letter from Swiss Natural's auditors, receipt
of an opinion of Swiss Natural's counsel and other closing conditions. The
underwriters are committed to purchase all of the shares of common stock if any
securities are purchased. Under certain circumstances, the commitments of non-
defaulting underwriters may be increased.
<TABLE>
<CAPTION>
UNDERWRITERS AMOUNT
------------------------------------------------------------ ---------
<S> <C>
Comprehensive Capital Corporation...........................
Seaboard Securities, Inc....................................
---------
Total..................................................
---------
---------
</TABLE>
The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover page of this prospectus and
to certain dealers, who are members of the NASD, at such price less an
underwriting discount of 10% of the public offering price, or $ per
share. The underwriting fee is equal to the difference between the initial
public offering price and the amount paid by the underwriters for the shares of
common stock in this offering. The underwriters may allow a concession of
$ per share to dealers that are members of the NASD. Comprehensive
Capital Corporation may permit dealers to reallow to other dealers securities
and receive a reallowance of $ per share. Until completion of this
offering, the public offering price, the underwriting discount, concession and
reallowances will not be changed.
Swiss Natural has agreed to pay Comprehensive Capital Corporation a
non-accountable expense allowance of 3% of the aggregate offering price of the
securities sold in this offering (including any shares purchased pursuant to the
over-allotment option), of which $15,000 has been paid by Swiss Natural to
Comprehensive Capital Corporation to cover a portion of the due diligence
expenses and underwriting costs related to this offering.
Swiss Natural has agreed to indemnify the underwriters against liabilities
under the Securities Act of 1933 in connection with this offering.
31
<PAGE>
Messrs. Ferrante, Paul and Brescio have granted to the underwriters an
option, exercisable during the 45-day period after the date of this prospectus,
to purchase up to 187,500 additional shares of the common stock owned by them at
the public offering price, less underwriting discounts and a pro rata portion of
the non-accountable expense allowance. Specifically, Mr. Ferrante has granted an
option to purchase 133,125 shares, Mr. Paul has granted an option to purchase
33,750 shares and Mr. Brescio has granted an option to purchase 20,625 shares to
the underwriter. The underwriters may exercise this option solely to cover
over-allotments, if any, made in the sale of the securities offered hereby.
Generally, to the extent that this option is exercised, each underwriter will
become obligated to purchase approximately the same percentage of such
additional securities as the percentage of securities it was originally
obligated to purchase as set forth above. If the underwriters exercise the
over-allotment option in full, the total gross public offering price will be
$ , the total underwriting discounts will be $ and the total
proceeds to Swiss Natural and the selling security holders will be $ and
$ , respectively.
Prior to this offering, there has been no public market for the common
stock. Accordingly, the public offering price for the securities was determined
by negotiation between Swiss Natural and Comprehensive Capital Corporation.
Among the factors considered in determining the public offering price were the
services, the experience of management, the economic conditions of Swiss
Natural's industry in general, the general condition of the equity securities
market and the demand for similar securities of companies considered comparable
to Swiss Natural and other relevant factors. There can be no assurance, however,
that the prices at which the common stock and warrants will sell in the public
market after this offering will not be lower than the price at which the shares
of common stock and warrants are sold by the underwriters.
The underwriting agreement also provides that Comprehensive Capital
Corporation shall have the right to designate a non-voting advisor to the Board
of Directors of Swiss Natural, which advisor shall be acceptable to Swiss
Natural, for a period of two years after the effective date of this prospectus.
Said designee shall attend meetings of the Board of Directors and shall be
entitled to receive reimbursement for all reasonable costs incurred in attending
such meetings. As of the date of this prospectus, no adviser has been
designated.
Swiss Natural has agreed to sell to Comprehensive Capital Corporation or
its designees, for nominal consideration, the underwriter's common stock
purchase warrants to purchase an aggregate of 125,000 shares of common stock at
a price of $8.66 per share. The shares of common stock will be identical to the
shares of common stock offered to the public hereby in all respects. All of the
underwriter's warrants will be exercisable for a four-year period commencing one
year after the date of this prospectus. During the period beginning on the date
of this prospectus and ending five years thereafter, Swiss Natural has agreed to
maintain a current registration statement with respect to the underwriter's
warrants and the underlying common stock. The underwriter's warrants will
contain anti-dilution provisions providing for appropriate adjustment of the
exercise price and number of securities that may be purchased upon the
occurrence of certain specified events.
Upon the closing of this offering, Swiss Natural shall enter into a
financial consulting agreement with Comprehensive Capital Corporation pursuant
to which Comprehensive Capital Corporation shall receive a consulting fee in an
amount equal to two (2%) percent of the dollar amount of the securities sold in
this offering (including securities sold pursuant to the over-allotment option,
to the extent exercised), for consulting services which shall be rendered by
Comprehensive Capital Corporation for a period of two (2) years from the date of
this prospectus. Such consulting services shall include, but shall not be
limited to, advising Swiss Natural in connection with possible acquisition
opportunities, advising Swiss Natural regarding shareholder relations including
the preparation of the annual report and other releases, assisting in long-term
financial planning, advising Swiss Natural in connection with corporate
reorganizations, expansion and capital structure, and other financial
assistance. Such consulting fee shall be paid in full in advance at each closing
of this offering.
The underwriting agreement also provides that if Swiss Natural shall,
within two (2) years from the effective date of this prospectus, enter into any
agreement or understanding with any person or
32
<PAGE>
entity exclusively introduced by Comprehensive Capital Corporation involving any
of the following transactions which were originated exclusively by Comprehensive
Capital Corporation:
* the sale of all or substantially all of the assets of Swiss Natural,
* the merger or consolidation of Swiss Natural (other than a merger or
consolidation effected for the purpose of changing Swiss Natural's
domicile) with another entity, or
* the acquisition by Swiss Natural of the assets or stock of another
business entity, which agreement or understanding is thereafter
consummated, whether or not during such two (2) year period.
Swiss Natural, upon such consummation, shall pay to Comprehensive Capital
Corporation an amount equal to the following percentages of the consideration
paid by Swiss Natural in connection with such transaction: 5% of the first
$1,000,000, or portion thereof, of such consideration; 4% of the second
$1,000,000, or portion thereof, of such consideration; and 3% of such
consideration in excess of the first $2,000,000 of such consideration. The fees
payable to Comprehensive Capital Corporation will be in the same form of
consideration as that paid by or to Swiss Natural, as the case may be, in any
such transactions.
Until the distribution of securities in this offering is completed, the
rules of the SEC may limit the ability of the underwriters and certain selling
group members to bid for and purchase the securities. As an exception to these
rules, the underwriters are permitted to engage in certain transactions that
stabilize the price of the securities. Such transactions consist of bids or
purchases for the purpose of maintaining the price of the securities. If the
underwriters create a short position in the securities in connection with this
offering, i.e., if they sell more shares of common stock or warrants than are
set forth on the cover page of this prospectus, the underwriters may reduce the
short position by purchasing common stock or warrants in the open market.
Comprehensive Capital Corporation may also elect to reduce any short position by
exercising all or part of the over-allotment option described above. In
addition, Comprehensive Capital Corporation may impose a penalty bid on certain
underwriters and selling group members. This means that if Comprehensive Capital
Corporation purchases shares of common stock or warrants in the open market to
reduce the underwriters' short position or to stabilize the price of the common
stock or warrants, it may reclaim the amount of the selling concession from the
underwriters and selling group members that sold those securities as part of
this offering. In general, purchases of a security for the purpose of
stabilization or to reduce a short position could cause the price of the
security to be higher than it might be in the absence of such purchases. The
imposition of a penalty bid might also have an effect on the price of a security
to the extent that it discouraged resales of that security. Neither
Comprehensive Capital Corporation nor any of the underwriters makes any
representations or predictions as to the direction or magnitude of any effect
that the transactions described above may have on the price of the securities.
In addition, neither Comprehensive Capital Corporation nor any of the
underwriters makes any representations that Comprehensive Capital Corporation or
any such underwriter will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
The underwriters have informed Swiss Natural that sales to any account over
which the underwriters exercise discretionary authority will not exceed 1% of
this offering.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby
will be passed upon for Swiss Natural by Lehman & Eilen LLP, Uniondale, New
York. Lester Morse P.C., Great Neck, New York will pass upon legal matters for
the Underwriters. Hank Gracin, Esq., counsel to Lehman & Eilen, owns 1,005
shares of the common stock.
EXPERTS
The financial statements of Swiss Natural as of February 28, 1999 and for
each of the two years in the period ended February 28, 1999 included in this
Prospectus and in this Registration Statement have been included herein in
reliance upon the report of Goldstein Golub Kessler LLP, independent
33
<PAGE>
certified public accountants, given upon the authority of such firm as experts
in accounting and auditing.
ADDITIONAL INFORMATION
Swiss Natural has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act
with respect to the common stock and warrants offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits thereto. For further information with respect to Swiss Natural
and the common stock and warrants offered hereby, reference is made to the
Registration Statement and the exhibits thereto. Statements contained in this
Prospectus regarding the contents of any contract or any other document to which
reference is made are not necessarily complete, and, in each instance where a
copy of such contract or other document has been filed as an exhibit to the
Registration Statement, reference is made to the copy so filed, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement and the exhibits thereto may be inspected without charge
at the offices of the Commission at Judiciary Plaza, 450 Fifth Street,
Washington, D.C. 20549, and copies of all or any part of the Registration
Statement may be obtained from the Public Reference Section of the Commission,
Washington, D.C. 20549 upon the payment of the fees prescribed by the
Commission. The Commission maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants, such as Swiss Natural, that file electronically with the
Commission.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
which is contained in this prospectus. We are offering to sell shares of common
stock and seeking offers to buy shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of the common stock.
34
<PAGE>
SWISS NATURAL BRANDS, INC.
(FORMERLY SWISS NATURAL FOODS, INC.)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
INDEPENDENT AUDITOR'S REPORT.................................................. F-2
FINANCIAL STATEMENTS:
Balance Sheet at February 28, 1999 and September 30, 1999 (unaudited)....... F-3
Statement of Operations for the Years Ended February 28, 1998 and 1999 and
the Seven-month Periods Ended September 30, 1998 and 1999 (unaudited).... F-4
Statement of Stockholders' Deficiency for the Years Ended February 28, 1998
and 1999 and the Seven-month Period Ended September 30, 1999
(unaudited).............................................................. F-5
Statement of Cash Flows for the Years Ended February 28, 1998 and 1999 and
the Seven-month Periods Ended September 30, 1998 and 1999 (unaudited).... F-6
Notes to Financial Statements............................................... F-7 - F-11
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders of
Swiss Natural Brands, Inc.
(Formerly Swiss Natural Foods, Inc.)
We have audited the accompanying balance sheet of Swiss Natural Brands, Inc.
(Formerly Swiss Natural Foods, Inc.) as of February 28, 1999, and the related
statements of operations, stockholders' deficiency, and cash flows for each of
the two years in the period ended February 28, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Swiss Natural Brands, Inc. as
of February 28, 1999, and the results of its operations and its cash flows for
each of the two years in the period ended February 28, 1999 in conformity with
generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
April 7, 1999, except for Note 13, as to
which the date is August 18, 1999 and
the last paragraph of Note 1, as
to which the date is October 1, 1999
F-2
<PAGE>
SWISS NATURAL BRANDS, INC.
(FORMERLY SWISS NATURAL FOODS, INC.)
BALANCE SHEET
<TABLE>
<CAPTION>
FEBRUARY 28, SEPTEMBER 30,
1999 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................... $ 530,729 $ 151,788
Accounts receivable, less allowance for doubtful accounts of
$19,000................................................... 227,038 271,105
Inventory.................................................... 332,609 395,836
Other current assets......................................... 12,913 26,478
---------- -----------
TOTAL CURRENT ASSETS................................. 1,103,289 845,207
Property and Equipment, at cost, less accumulated depreciation
and amortization of $75,028 and $91,301, respectively 76,514 137,110
Trademarks, less accumulated amortization of $34,521 and
$36,264, respectively........................................ 3,990 2,247
Debt Placement Fees, less accumulated amortization of $5,707
and $45,656, respectively.................................... 131,261 91,312
Deferred Offering Costs........................................ -- 122,627
Deferred Income Tax Asset, net................................. -- --
Other Assets................................................... -- 160,650
---------- -----------
TOTAL ASSETS $1,315,054 $ 1,359,153
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses........................ $ 655,169 $ 648,737
Debt and interest payable -- stockholder..................... 322,908 326,530
---------- -----------
TOTAL CURRENT LIABILITIES............................ 978,077 975,267
Convertible Subordinated Debentures............................ 757,500 757,500
Compensation Payable........................................... 101,092 101,092
---------- -----------
TOTAL LIABILITIES.................................... 1,836,669 1,833,859
---------- -----------
Commitments
Stockholders' Deficiency:
Preferred stock -- Series A, $.01 par value; authorized
3,000,000 shares, issued and outstanding 1,206,000
shares.................................................... -- 12,060
Common stock -- $.01 par value; authorized 20,000,000 shares,
issued and outstanding 3,797,708 and 2,591,708 shares,
respectively.............................................. 37,977 25,917
Additional paid-in capital................................... 2,014,833 2,014,833
Accumulated deficit.......................................... (2,574,425) (2,527,516)
---------- -----------
STOCKHOLDERS' DEFICIENCY............................. (521,615) (474,706)
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY....... $1,315,054 $ 1,359,153
---------- -----------
---------- -----------
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
SWISS NATURAL BRANDS, INC.
(FORMERLY SWISS NATURAL FOODS, INC.)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEVEN-MONTH PERIOD ENDED
FEBRUARY 28, SEPTEMBER 30,
-------------------------- -------------------------
<S> <C> <C> <C> <C>
1998 1999 1998 1999
----------- ---------- ---------- ----------
(UNAUDITED)
Net sales.............................. $ 2,324,189 $3,005,872 $1,736,034 $2,519,102
Cost of sales.......................... 1,941,074 2,001,701 1,144,267 1,546,378
----------- ---------- ---------- ----------
Gross profit........................... 383,115 1,004,171 591,767 972,724
----------- ---------- ---------- ----------
Expenses:
General and administrative........ 834,679 871,057 420,001 530,414
Selling and promotional........... 508,401 502,652 191,808 298,878
Product development............... 12,602 30,895 24,085 1,440
----------- ---------- ---------- ----------
1,355,682 1,404,604 635,894 830,732
----------- ---------- ---------- ----------
Income (loss) from operations.......... (972,567) (400,433) (44,127) 141,992
Other income........................... 23,036 11,079 7,943 8,836
Interest expense....................... (80,759) (50,062) (21,567) (103,919)
----------- ---------- ---------- ----------
Net income (loss)...................... $(1,030,290) $ (439,416) $ (57,751) $ 46,909
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Income (loss) per common share --
basic................................ $ (.31) $ (.12) $ (.02) $ .01
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Weighted-average number of common
shares outstanding -- basic.......... 3,276,971 3,797,708 3,797,708 3,279,241
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
SWISS NATURAL BRANDS, INC.
(FORMERLY SWISS NATURAL FOODS, INC.)
STATEMENT OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED FEBRUARY 28, 1998 AND 1999 AND
THE SEVEN-MONTH PERIOD ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- --------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- -------- ---------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 28, 1997... -- -- 3,157,341 $ 31,573 $ 861,017 $(1,104,719) $ (212,129)
Issuance of common stock
through private placement
transaction.................. -- -- 141,996 1,420 215,825 -- 217,245
Conversion of notes and
compensation payable into
common stock................. -- -- 498,371 4,984 842,991 -- 847,975
Net loss....................... -- -- -- -- -- (1,030,290) (1,030,290)
--------- -------- ---------- -------- ----------- ----------- -----------
Balance at February 28, 1998... -- -- 3,797,708 37,977 1,919,833 (2,135,009) (177,199)
Forgiveness of debt and
interest payable --
stockholder.................. -- -- -- -- 95,000 -- 95,000
Net loss....................... -- -- -- -- -- (439,416) (439,416)
--------- -------- ---------- -------- ----------- ----------- -----------
Balance at February 28, 1999... -- -- 3,797,708 37,977 2,014,833 (2,574,425) (521,615)
Exchange of 1,206,000 common
shares for 1,206,000
preferred shares
(unaudited).................. 1,206,000 $ 12,060 (1,206,000) (12,060) -- -- --
Net income (unaudited)......... -- -- -- -- -- 46,909 46,909
--------- -------- ---------- -------- ----------- ----------- -----------
Balance at September 30, 1999
(unaudited).................. 1,206,000 $ 12,060 2,591,708 $ 25,917 $2,014,833 $(2,527,516) $ (474,706)
--------- -------- ---------- -------- ----------- ----------- -----------
--------- -------- ---------- -------- ----------- ----------- -----------
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
SWISS NATURAL BRANDS, INC.
(FORMERLY SWISS NATURAL FOODS, INC.)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEVEN-MONTH PERIOD ENDED
FEBRUARY 28, SEPTEMBER 30,
------------------------- ------------------------
1998 1999 1998 1999
----------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $(1,030,290) $ (439,416) $ (57,751) $ 46,909
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization............. 26,712 28,826 16,135 18,016
Amortization of debt placement fees....... -- 5,707 -- 39,949
Accrued interest.......................... 80,759 37,382 21,567 10,675
Changes in operating assets and
liabilities:
Decrease in funds held in escrow....... 919,599 -- -- --
(Increase) decrease in accounts
receivable........................... 94,090 (179,880) (142,820) (44,067)
Increase in inventory.................. (38,936) (118,819) (97,362) (63,227)
Increase in other current assets....... -- (9,512) (45,911) (13,565)
(Increase) decrease in other assets.... (15,459) 16,093 16,093 (160,650)
Increase (decrease) in accounts payable
and accrued expenses................. 226,334 319,465 128,211 (6,432)
Decrease in compensation payable....... (74,607) -- -- --
----------- ---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES................. 188,202 (340,154) (161,838) (172,392)
----------- ---------- ---------- ----------
Cash used in investing activity -- purchases
of property and equipment................. (37,709) (38,737) (36,537) (76,869)
----------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of convertible
subordinated debentures................ -- 757,500 -- --
Payment for debt placement fees........... -- (136,968) -- --
Deferred offering costs................... -- -- -- (122,627)
Net proceeds from issuance of common
stock.................................. 217,245 -- -- --
Payments of notes payable --
stockholders........................... (100,872) (75,000) -- (7,053)
----------- ---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES................. 116,373 545,532 -- (129,680)
----------- ---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents............................... 266,866 166,641 (198,375) (378,941)
Cash and cash equivalents at beginning of
period.................................... 97,222 364,088 364,088 530,729
----------- ---------- ---------- ----------
Cash and cash equivalents at end of
period.................................... $ 364,088 $ 530,729 $ 165,713 $ 151,788
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Income taxes........................... $ 661 $ 1,150 $ 730 $ 380
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Interest to stockholders.................... $ 50,874 $ -0- $ -0- $ 7,053
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING
ACTIVITIES:
Forgiveness of debt and interest payable --
stockholder............................... $ -0- $ 95,000 $ -0- $ -0-
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
See Notes to Financial Statements
F-6
<PAGE>
SWISS NATURAL BRANDS, INC.
(FORMERLY SWISS NATURAL FOODS, INC.)
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION PERTAINING TO THE SEVEN-MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES:
Swiss Natural Brands, Inc. (formerly Swiss Natural Foods, Inc.) (the "Company")
was incorporated on April 22, 1993 in the State of Delaware. The Company's
principal business activity involves the production and sale of refreshment
drinks (the "Product"). Effective October 1, 1999 the Company changed its name
from Swiss Natural Foods, Inc. to Swiss Natural Brands, Inc.
The financial information included herein as of September 30, 1999 and for the
seven-month periods ended September 30, 1998 and 1999 is unaudited. Such
information reflects all adjustments (consisting of only normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows of
the interim periods. The results of operations for the seven-month periods ended
September 30, 1998 and 1999 are not necessarily indicative of the results for
the full years.
The Company uses one independent outside bottler to handle all of its production
needs. The Company sells the Product directly to independent distributors who in
turn distribute the Product to the outside market, primarily in the New York,
New Jersey and Connecticut Tri-State Area. The Company also supplies the Product
under a private label program to a nationally franchised restaurant chain
comprised of approximately 750 restaurants. For the years ended February 28,
1998 and 1999, 83% and 81%, respectively, of the Company's sales, were to one
customer. For the seven-month period ended September 30, 1998, 81% of the
Company's sales were to one customer. For the seven month period ended September
30, 1999 63% and 13% of the Company's sales were to two customers.
Inventory is stated at the lower of cost, determined by the first-in, first-out
method, or market.
Depreciation of property and equipment is being provided for by the
straight-line method over the estimated useful lives of the assets.
Trademarks are being amortized by the straight-line method over a period of 60
months.
Cash equivalents consist of a money market account.
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant credit
risk on cash.
Sales are recorded as the product is shipped. The Company does not enter into
consigned merchandise agreements and returns and allowances are allowed on a
case by case basis. Those allowances are not material to the financial
statements and are included as an adjustment of sales.
Costs incurred for advertising are expensed as incurred and included in selling
and promotional expenses in the accompanying statement of operations.
Advertising expenses amounted to $92,376 and $11,792 for the years ended
February 28, 1998 and 1999, respectively. For the seven-month periods ended
September 30, 1998 and 1999, advertising expenses amounted to $2,450 and $3,385,
respectively.
Deferred offering costs represent costs attributable to a proposed initial
public offering (the "IPO"). The Company intends to offset these costs against
the proceeds from this transaction. In the event that such offering is not
completed, these costs will be charged to operations.
F-7
<PAGE>
SWISS NATURAL BRANDS, INC.
(FORMERLY SWISS NATURAL FOODS, INC.)
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION PERTAINING TO THE SEVEN-MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates by management. Actual
results could differ from these estimates.
Basic income (loss) per share is computed by dividing net income (loss) by the
weighted-average number of common shares outstanding during the period. Shares
to be issued upon the conversion of the subordinated debentures, preferred stock
and warrants are not included in the computation of income (loss) per share for
the years ended February 28, 1998 and 1999 and the seven month period ended
September 30, 1998 as their effect is antidilutive. Diluted earnings per share
for the seven month period ended September 30, 1999 is not presented because it
is the same as basic earnings per share.
Management does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
On October 1, 1999 the Board of Directors authorized a 1.5-for-1 (67%) reverse
stock split of the Company's issued and outstanding common and preferred stocks.
All references to number of shares and per share amounts have been restated to
reflect the reverse stock split.
2. INVENTORY:
Inventory consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, SEPTEMBER 30,
1999 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
Raw materials................................................ $124,570 $ 149,741
Finished goods............................................... 208,039 246,095
-------- ---------
$332,609 $ 395,836
-------- ---------
-------- ---------
</TABLE>
3. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, SEPTEMBER 30, ESTIMATED
1999 1999 USEFUL LIFE
------------ ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment........................ $116,014 $ 186,926 5 years
Office equipment............................... 20,378 26,335 5 years
Leasehold improvements......................... 10,185 10,185 5 years
Furniture and fixtures......................... 4,965 4,965 5 years
-------- --------- ---------
151,542 228,411
Less accumulated depreciation and
amortization................................. 75,028 91,301
-------- ---------
$ 76,514 $ 137,110
-------- ---------
-------- ---------
</TABLE>
Other assets include $159,500 advanced in connection with the construction of
two labeling machines. It is anticipated that these machines will be used by or
on behalf of the Company.
F-8
<PAGE>
SWISS NATURAL BRANDS, INC.
(FORMERLY SWISS NATURAL FOODS, INC.)
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION PERTAINING TO THE SEVEN-MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
4. DEBT AND INTEREST PAYABLE -- STOCKHOLDER:
As of February 10, 1999, the Company owed a stockholder $491,955 which was
evidenced by one promissory note (the "Promissory Note") and one demand note
(the "Demand Note"). The Company owed the stockholder the principal amount of
$300,000 plus accrued interest under the terms of the Promissory Note and the
principal amount of $22,500 plus accrued interest under the terms of the Demand
Note. Both notes provided that the principal amounts accrued interest at a rate
of 12% per annum. The Company used $75,000 from the January 1999 private
placement to pay $22,500 and retire the entire principal amount owed under the
Demand Note as well as $52,500 to pay a portion of the outstanding principal
balance owed under the Promissory Note. In addition, the stockholder forgave
$95,000 of the outstanding principal balance owed under the Promissory Note
(which was credited to additional paid-in capital for the year ended February
28, 1999). In order to evidence such payments, the debt forgiveness, and the
remaining principal on the Promissory Note and interest on both notes, the
Company replaced the Promissory Note with two substitute notes (the "Substitute
Promissory Notes") which together evidence the aggregate outstanding principal
balance on the Promissory Note and accrued and unpaid interest on both notes.
The first Substitute Note in the amount of $152,500 represents the unpaid
principal from the Promissory Note and accrues interest at 12% per annum. The
second Substitute Note, in the amount of $169,455 represents the accrued and
unpaid interest on the Promissory Note and the Demand Note, and bears no
interest. The Substitute Notes are due the earlier of February 10, 2000 or as
defined in the note agreements.
5. PRIVATE PLACEMENTS:
On January 29, 1999, the Company issued convertible subordinated debentures (the
"Debentures"), in the amount of $757,500, that mature in February 2001. Interest
is payable on the principal amount at 12% per annum, payable in arrears, on the
last day of each calendar year. The Debentures may be redeemed, at the option of
the Company, in whole or part at anytime, at a price equal to the principal
amount plus any unpaid accrued interest. The holders of the Debentures may
convert the principal amount into common stock of the Company, at any time prior
to maturity or redemption, at a price of $1.50 per share. In connection with the
issuance of these Debentures, the Company incurred debt placement fees of
$136,968 which are being amortized on the straight-line basis over the term of
the Debentures. As of February 28, 1999 and for the seven-month period ended
September 30, 1999, $5,707 and $39,949, respectively, of amortization was
recorded as interest expense in the accompanying statement of operations. The
payment of the Debentures is subordinated to any bank, financial institution
engaged in lending money, insurance company or similar institution.
During the year ended February 28, 1998, as part of a private placement, the
Company completed the sale of 141,996 shares of common stock. The Company
received net proceeds of $217,245 after incurring fees of $40,332 associated
with raising these funds. These costs have been shown as a reduction of
additional paid-in capital.
6. COMPENSATION PAYABLE:
For the year ended February 28, 1997 and prior, a former employee/stockholder of
the Company has not been paid his entire salary. The Company has accrued
compensation payable, in the amount of $101,092. The Company has an informal
arrangement whereby this individual has agreed not to demand repayment before
one year from the date of the financial statements.
F-9
<PAGE>
SWISS NATURAL BRANDS, INC.
(FORMERLY SWISS NATURAL FOODS, INC.)
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION PERTAINING TO THE SEVEN-MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
7. INCOME TAXES:
At February 28, 1999, the Company had net operating loss carryforwards for both
financial reporting and income tax purposes of approximately $2,165,000, which
are available to offset future federal, state and local taxable income. The
carryforwards resulted in a deferred tax asset of approximately $736,000 at
February 28, 1999 for which the Company has provided a full valuation allowance
due to the uncertainty about future realization of this tax benefit. Utilization
of the net operating loss carryforwards may be limited based upon the ownership
changes relating to the IPO.
8. INTEREST EXPENSE:
Interest expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED SEVEN-MONTH PERIOD ENDED
FEBRUARY 28, SEPTEMBER 30,
----------------------- ------------------------
1998 1999 1998 1999
------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Debentures............................. -- $ 6,973 -- $ 53,295
Stockholder............................ $80,759 37,382 $21,567 10,675
Amortization of debt placement fees.... -- 5,707 -- 39,949
------- ------- ------- --------
$80,759 $50,062 $21,567 $103,919
------- ------- ------- --------
------- ------- ------- --------
</TABLE>
9. WARRANTS:
The Company has 165,267 warrants outstanding to purchase an equal amount of the
Company's common stock at an exercise price of $2.24 per share. These warrants
are exercisable at the earlier of June 14, 2002, subject to antidilution
provisions, or 10 days after the date on which the Company mails to the
warrantholders a copy of the preliminary prospectus included in a Registration
Statement filed with the Securities and Exchange Commission under the Securities
Act of 1933.
10. COMMITMENTS:
In the normal course of business, the Company may from time to time have
commitments to purchase preprinted custom packaging materials from certain
vendors. At February 28, 1999, these commitments totaled approximately $65,000.
11. RELATED PARTY TRANSACTIONS:
Included in professional fees and costs associated with the private placements
are legal fees paid to a relative of one of the principal stockholders. For the
years ended February 28, 1998 and 1999, this amounted to approximately $30,000
and $80,000, respectively. Of the $80,000 paid during the year ended February
28, 1999, $50,000 relates to the private placements and is included in debt
placement fees on the balance sheet. For both of the seven-month periods ended
September 30, 1998 and 1999, professional fees paid to this individual amounted
to $17,000.
In addition, approximately $95,000 was paid to a stockholder for professional
services rendered during each of the years ended February 28, 1998 and 1999. For
each of the seven-month periods ended September 30, 1998 and 1999, approximately
$55,400 was paid to this stockholder for professional services.
F-10
<PAGE>
SWISS NATURAL BRANDS, INC.
(FORMERLY SWISS NATURAL FOODS, INC.)
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION PERTAINING TO THE SEVEN-MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED)
The Company occupies office space that is owned by the principal stockholder.
There were no amounts paid as rent expense for the years ended February 28, 1998
and 1999, nor for the seven-month periods ended September 30, 1998 and 1999.
12. INITIAL PUBLIC OFFERING:
The Company is in the process of filing a registration statement on Form SB-2
under the Securities Act of 1933. The registration statement contemplates an
offering of 1,250,000 shares of common stock at an offering price of $5.25.
13. SUBSEQUENT EVENTS:
As of March 1, 1999, the Company entered into an employment agreement with a key
employee and a consulting agreement with a stockholder, each for a three-year
period ending February 28, 2002. The employment agreement includes a base
compensation of $168,000 per annum with additional benefits as defined in the
agreement. The consulting agreement includes compensation of $99,750 per annum
with additional compensation as defined in the agreement. Both agreements
include a 10% increase in compensation during the second and third years.
In August 1999, effective as of June 30, 1999, several major stockholders
exchanged 1,206,000 shares of common stock for the same amount of Series A
Preferred Stock (the "Preferred Stock"). The Preferred Stock is nonredeemable,
assignable and carries rights to vote with the common stock on a
one-vote-per-share basis. The Preferred Stock will, upon liquidation,
participate pari passu with the common stock on an "as converted" basis. The
holders of the Preferred Stock are entitled to receive a quarterly cumulative
dividend of $.02 per share commencing on March 1, 2000, with the first dividend
payment being June 1, 2000. If the holders of the Preferred Stock do not receive
their quarterly dividends on a timely basis, the amount of such dividends shall
accrue and be paid in full prior to the payment of any common stock dividends.
The Preferred Stock is convertible into common stock at the option of the holder
at any time if the Company meets certain earnings levels and other criteria, as
defined in the agreement, or at the earlier of two years after the date of the
IPO or March 1, 2000 if the IPO including the over-allotment is not completed.
The board of directors of the Company has approved the 1999 Stock Option Plan
(the "Plan"). All employees, officers, directors and consultants are eligible to
participate in the Plan. No options have been granted as of and for the period
ended September 30, 1999.
The board of directors has increased the number of authorized shares of common
stock from 7,500,000 to 20,000,000 shares.
F-11
<PAGE>
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all
dealers that buy, sell or trade in our common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This
delivery requirement is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.................... 3
The Offering.......................... 3
Summary of Financial Data............. 4
Risk Factors.......................... 6
Forward Looking Statements............ 9
Use of Proceeds....................... 9
Dividend Policy....................... 10
Capitalization........................ 10
Dilution.............................. 10
Management's discussion and analysis
of financial condition and results
of operations....................... 11
Business.............................. 13
Management............................ 19
Swiss Natural 1999 Stock Option
Plan................................ 22
Certain Transactions.................. 24
Principal Stockholders................ 25
Description of Capital Stock.......... 26
Shares eligible for future sale....... 29
Underwriting.......................... 30
Legal Matters......................... 33
Experts............................... 33
Additional Information................ 33
SWISS NATURAL
BRANDS, INC.
1,250,000 SHARES OF COMMON STOCK
------------------------
PROSPECTUS
------------------------
COMPREHENSIVE CAPITAL
CORPORATION
SEABOARD SECURITIES, INC.
DECEMBER , 1999
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Amended and Restated certificate of incorporation and by-laws of the
Registrant provide that the Registrant shall indemnify any person to the full
extent permitted by the Delaware General Corporation Law (the "GCL"). Section
145 of the GCL, relating to indemnification, is hereby incorporated herein by
reference.
In accordance with Section 102(a)(7) of the GCL, the certificate of
incorporation of the Registrant eliminates the personal liability of directors
to the Registrant or its stockholders for monetary damage for breach of
fiduciary duty as a director with certain limited exceptions set forth in
Section 102(a)(7) of the GCL.
The Registrant has entered into indemnification agreements with each of its
officers and directors, the form of which is filed as Exhibit 10.19, to which
reference is hereby made.
Reference is made to Section 9 of the underwriting agreement (Exhibit 1.1)
which provides for indemnification by the underwriter of the Registrant, its
officers and directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses (other than
underwriting discounts, consulting fees and the underwriters % non-accountable
expense allowance) payable by the Registrant in connection with the issuance and
distribution of the securities being registered. Except for the SEC and NASD
filing fees, all expenses have been estimated and are subject to future
contingencies.
<TABLE>
<S> <C>
SEC registration................................................... $ 4,831.00
NASD fee........................................................... 2,237.82
Nasdaq Listing Fees................................................ 5,000
Legal fees and expenses............................................ 125,000
Printing and engraving expenses.................................... 100,000
Accounting fees and expenses....................................... 100,000
Blue sky fees and expenses......................................... 55,000
Miscellaneous......................................................
Total.............................................................. $
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since June 30, 1996, the Registrant has issued unregistered securities in
the transactions described below:
In February and April, 1997, the Registrant completed a private placement
offering pursuant to which it issued 437,599 and 141,996 shares respectively, of
common stock to investors. The offering raised an aggregate of approximately
$1,300,000 from such investors. The Registrant issued the common stock pursuant
to the provisions of Rule 506 promulgated under the Securities Act of 1933, as
amended and filed a Report on Form D in connection therewith. Winchester
Investment Securities, Inc. acted as the placement agent for such offering and
received a placement fee of 10% in connection with such offering. Winchester,
its designees and certain consultants also received 85,302 shares of common
stock in connection with such offering.
In February, 1998, Dr. Ferrante, Mr. Paul and Mr. Brescio canceled all
indebtedness owed to them by the Registrant, including all indebtedness for
compensation owed to them by the Registrant, in exchange for shares of common
stock. At that time, the Registrant owed $601,737, $152,819 and $93,419 to Dr.
Ferrante, Mr. Paul and Mr. Brescio, respectively. Accordingly, in exchange for
the cancellation of indebtedness, the Registrant issued 353,653, 89,815 and
54,904 additional shares of its
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<PAGE>
common stock to Dr. Ferrante, Mr. Paul and Mr. Brescio, respectively. The
Registrant issued the shares in a cashless exchange pursuant to the exemption
afforded by Section 3(a)9 of the Securities Act, as amended.
In January, 1999 the Registrant issued $757,500 principal amount of
convertible debentures. The convertible debentures bear interest at a rate of
12% per annum, payable annually. The convertible debentures mature in February,
2001. The holder of any convertible debenture has the right, exercisable at any
time up to the maturity of the convertible debenture, at his option, to convert
such convertible debenture at the principal amount thereof (or any portion
thereof that is an integral multiple of $1,500) into shares of the common stock
at a price of $1.50 per share (except that, in the event such convertible
debenture shall be called for redemption, such right shall terminate on the
close of business on the fifth day immediately preceding the redemption date).
The Registrant issued the convertible debentures pursuant to the provisions of
Rule 506 promulgated under the Securities Act of 1933, as amended, and filed a
Report on Form D in connection therewith. Comprehensive Capital Corporation
acted as the placement agent for such offering and received placement fees of
$136,968 in connection with such offering.
As of June 30, 1999 the Registrant issued 1,206,000 shares of the Series A
Preferred Stock to Messrs. Ferrante, Paul and Brescio in exchange for the
delivery to the Registrant by such persons of 1,206,000 shares of common stock
held by them. The Registrant issued the Preferred Stock in a cashless exchange
pursuant to the exemption afforded by Section 3(a)9 of the Securities Act of
1933, as amended.
ITEM 27. EXHIBITS
<TABLE>
<C> <S>
**1.1 --Revised Form of Underwriting Agreement.
**1.2 --Revised Agreement Among Underwriters.
**1.3 --Revised Selected Dealer Agreement.
**3.1 --Amended and Restated Certificate of Incorporation of the Registrant
**3.2 --Amended and Restated By-Laws of the Registrant.
**3.3 --Certificate of Designations for Series A Preferred Stock.
**3.4 --Certificate of Amendment of Certificate of Incorporation of the Registrant.
**3.5 --Amendment to Certificate of Designations for Series A Preferred Stock.
**4.1 --Specimen Certificate for Registrant's Common Stock
**4.2 --Revised Form of Underwriter's Stock Warrant
**4.3 --Form of Convertible Subordinated Debenture
*5.1 --Opinion of Lehman & Eilen LLP
**10.1 --1999 Stock Option Plan of Registrant.
**10.2 --Employment Agreement dated as of March 1, 1999, as amended, between
Registrant and Ralph M. Ferrante
**10.3 --Consulting Agreement dated as of March 1, 1999, as amended, between
Registrant and Herbert M. Paul
**10.4 --Amended Agreement dated as of February 10, 1999 among the Registrant, A.
Donald McCulloch, Jr., Carolyn B. McCulloch, Ralph M. Ferrante and
Herbert M. Paul.
**10.5 --Promissory Note dated February 10, 1999 in the principal amount of $152,500
made by the Registrant in favor of A. Donald McCulloch, Jr. and Carolyn
B. McCulloch.
**10.6 --Promissory Note dated February 10, 1999 in the principal amount of $169,455
made by the Registrant in favor of A. Donald McCulloch, Jr. and Carolyn
B. McCulloch.
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
**10.7 --Glass Supply Agreement between the Registrant and Consumers Packaging Inc.,
as amended.
**10.8 --Agreement of Confidentiality dated January 11, 1995 between the Registrant
and Consumers Glass Company.
**10.9 --Agreement dated August 7, 1997 between the Registrant and Comax
Manufacturing Corporation.
**10.10 --Confidentiality Agreement dated November 6, 1998 between the Registrant and
Comax Manufacturing Corporation.
**10.11 --Agreement dated October 31, 1997 by and between the Registrant and Ritter/
Sysco Foods, Inc.
**10.12 --Hold Harmless Agreement and Guaranty/Warranty of Product dated February 7,
1997 between the Registrant and Sysco Corporation.
**10.13 --Agreement dated January 30, 1998 between the Registrant and Sbarro, Inc.
**10.14 --Beverage Supply Agreement dated March 29, 1999 between the Registrant and
Dunkin' Donuts MidAtlantic DCP, Inc.
**10.15 --Agency Agreement dated May 5, 1998 between the Registrant and Bentonville
Associates Ventures, LLC, as amended.
**10.16 --Vendor Agreement between the Registrant and Wal-Mart Stores.
**10.17 --Revised Form of Financial Consulting Agreement between the Registrant and
the Underwriter.
**10.18 --Form of Indemnification Agreement between the Registrant and each officer
and director of the Registrant.
**10.19 --Agreement dated September 22, 1999 between the Registrant and Cartaret
Packaging, Inc.
**10.20 --Agreement dated as of December 1, 1998 among the Registrant, A. Donald
McCulloch, Jr., Carolyn B. McCulloch, Ralph M. Ferrante and Herbert M.
Paul.
*23.1 --Consent of Goldstein Golub Kessler LLP
*23.2 --Consent of Lehman & Eilen LLP (contained in opinion of counsel set forth as
Exhibit 5).
**24.1 --Power of Attorney.
**27 --Financial Data Schedule.
</TABLE>
- ------------------
* Filed herewith.
** Previously filed.
ITEM 28. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes that it will:
(a) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act,
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20
percent change
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<PAGE>
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(b) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(c) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of this offering.
(2) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(4) The undersigned Registrant hereby undertakes that it will:
(a) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(b) For determining any liability under the Securities Act, treat each post
effective amendment that contains a form of prospectus as a new registration
statement for the securities offered in the registration statement, and the
offering of such securities at that time as the initial bona fide offering of
those securities.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this registration
statement or amendment thereto to be signed on its behalf by the undersigned,
whereunto duly authorized, in the City of Upper Grandview, State of New York on
the 10th day of December, 1999.
SWISS NATURAL BRANDS, INC.
By: /s/ Ralph M. Ferrante
___________________________________
Ralph M. Ferrante
Chairman of the Board and
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement or amendment thereto has been signed by the following
persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ---------------------------- ----------------------
<C> <S> <C>
/s/ RALPH M. FERRANTE Chairman of the Board, Chief December 10, 1999
- ---------------------------------------- Executive Officer and
Ralph M. Ferrante Secretary
/s/ HERBERT PAUL President, Chief Financial December 10, 1999
- ---------------------------------------- Officer, (Principal
Herbert Paul Financial Officer
Principal Account Officer)
Assistant Secretary and
Director
/s/ JAMES P. MCCANN Director December 10, 1999
- ----------------------------------------
James P. McCann
</TABLE>
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LEHMAN & EILEN LLP
50 Charles Lindbergh Boulevard
Suite 505
Uniondale, New York 11553
December 10, 1999
Board of Directors
Swiss Natural Foods, Inc.
1031 Route 9W
Upper Grandview, New York 10960
Re: Registration Statement on Form SB-2
Ladies and Gentlemen:
At your request, this letter relates to the Registration Statement on
Form SB-2, as amended (the "Registration Statement"), filed by Swiss Natural
Foods, Inc. (the "Company") with the Securities and Exchange Commission in
connection with the registration under the Securities act of 1933, as amended,
of 1,562,500 shares of common stock, par value $.01 per share, of the Company
(collectively herein, the "Shares"). Capitalized terms utilized herein and not
defined herein shall have the respective meanings ascribed to such terms in the
Registration Statement.
In so acting, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of the proceedings taken by the
Company in connection with the issuance of the Shares, the Registration
Statement and such corporate records, agreements, documents and other
instruments, and such certificates or comparable documents of public officials
and of officers and representatives of the Company, and have made such inquiries
of such officers and representatives, as we have deemed relevant or necessary as
a basis for the opinions hereinafter set forth.
In such examination, we have assumed without independent verification,
the genuineness of all signatures, the authenticity of all documents submitted
to us as originals, the conformity to original documents of documents submitted
to us as certified or photostatic copies and the authenticity of the originals
of such latter documents. As to all questions of fact material to this opinion
that have not been independently established, we have relied upon
representations of the Company in the Registration Statement, certificates or
comparable documents of officers of the Company and of public officials. Our
examination of matters of law has been limited to the Delaware General
Corporation Law.
<PAGE>
Board of Directors
Swiss Natural Foods, Inc.
December 10, 1999
Page 2
Based on the foregoing, and subject to the qualifications stated
herein, as of the date hereof, it is our opinion that upon the issuance and sale
in the manner described in the Registration Statement, such Shares will be
validly issued, fully paid and non-assessable. This opinion is being provided
solely to the Company and may not be relied upon by any other person. This
opinion relates only to the number of Shares set forth above.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name under the caption "Legal
Matters" in the Prospectus included therein.
Very truly yours,
Lehman & Eilen LLP
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
To the Stockholders of
Swiss Natural Brands, Inc.
(formerly Swiss Natural Foods, Inc.)
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2 of our report dated April 7, 1999, except
for Note 13, as to which the date is August 18, 1999, and the last paragraph of
Note 1, as to which the date is October 1, 1999, on the financial statements of
Swiss Natural Brands, Inc. (formerly Swiss Natural Foods, Inc.), which appear in
such Prospectus. We also consent to the reference to our Firm under the captions
"Experts" and "Summary of Financial Data" in such Prospectus.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
December 10, 1999
