<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 15, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3 TO
FORM SB-2
------------------------
SILVER STAR FOODS, INC.
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C> <C>
NEW YORK 0638 11-3265942
(State or other Jurisdiction of (Primary Standard Industrial I.R.S. Employer
Incorporation or Organization) Classification Code No. Identification Number)
</TABLE>
1000 South Avenue
Staten Island, New York 10314
Telephone: (718) 763-3000
Facsimile: (718) 763-6004
(Address and Telephone Number of Principal
Executive Offices and Principal Place Of Business)
MICHAEL TROTTA
CHIEF EXECUTIVE OFFICER, PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY
(Name, Address and Telephone Number of Agent for Service)
1000 South Avenue
Staten Island, New York 10314
Telephone: (718) 763-3000
Facsimile: (718) 763-6004
------------------------------
COPIES TO:
<TABLE>
<S> <C>
Richard I. Anslow, Esq. Jay M. Kaplowitz, Esq.
Richard I. Anslow & Associates Gersten, Savage & Kaplowitz, LLP
Freehold Office Plaza 101 East 52nd Street
4255 Route 9, Suite D New York, New York 10022
Freehold, New Jersey 07728 Telephone: (212) 752-9700
Telephone: (732) 409-1212 Facsimile: (212) 980-5192
Facsimile: (732) 577-1188
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities of Act, check the following box
and list the Securities Act registration statement number 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 effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS MAXIMUM OFFERING AGGREGATE
OF SECURITIES TO BE AMOUNT TO BE PRICE PER OFFERING
REGISTERED REGISTERED SECURITY (1) PRICE
<S> <C> <C> <C>
Units 862,500 $6.00 $5,175,000
units(2)(3)
Common Stock $.0001 par value................... 862,500 shares (4) (4)
Common Stock Purchase Warrants.................. 1,725,000 warrants (4) (4)
Common Stock $.0001 par value................... 1,725,000 shares(5)(8) $6.00 $10,350,000
Underwriter's Warrants.......................... 75,000 warrants(6) $.0001 $7.50
Units........................................... 75,000 units $9.90 $742,500
Common Stock $.0001 par value................... 75,000 shares (7) (7)
Common Stock Purchase Warrants.................. 150,000 warrants (7) (7)
Common Stock $.0001 par value................... 150,000 shares(5)(8) $6.00 $900,000
Units........................................... 20,000 units(2)(9) $6.00 $120,000
Common Stock $.0001 par value................... 20,000 shares (10) (10)
Common Stock Purchase Warrants.................. 40,000 warrants (10) (10)
Common Stock $.0001 par value................... 40,000 shares(5)(8) $6.00 $240,000
Total........................................... $17,527,507.50
<CAPTION>
AMOUNT
TITLE OF EACH CLASS OF
OF SECURITIES TO BE REGISTRATION
REGISTERED FEE
<S> <C>
Common Stock $.0001 par value................... --
Common Stock Purchase Warrants.................. --
Common Stock $.0001 par value................... $2,877.30
Underwriter's Warrants.......................... $.01
Units........................................... $206.42
Common Stock $.0001 par value................... --
Common Stock Purchase Warrants.................. --
Common Stock $.0001 par value................... $250.20
Units........................................... $33.38
Common Stock $.0001 par value................... --
Common Stock Purchase Warrants.................. --
Common Stock $.0001 par value................... 66.72
Total........................................... $4,839.30(11)
<CAPTION>
Units $1,438.65
</TABLE>
(1) Estimated solely for purposes of computation of the registration fee
pursuant to Rule 457.
(2) Each Unit offered hereby consists of one share of Common Stock and two
Common Stock Purchase Warrants.
(3) Includes 112,500 Units subject to an over-allotment option granted to the
Underwriter.
(4) Pursuant to Rule 457(i), no additional registration fee is required for
these shares and warrants being registered as part of the Units offered
hereby, since no additional consideration is being paid for them.
(5) Issuable upon exercise of the Common Stock Purchase Warrants included in the
Units.
(6) Underwriter's Warrants to be issued to the Underwriter consists of warrants
to purchase 75,000 Units.
(7) Pursuant to Rule 457(i), no additional registration fee is required for
these shares and warrants being registered as part of the 75,000 Units
included in the Underwriter's Warrants, since no additional consideration is
being paid for them.
(8) Pursuant to Rule 416, there are also being registered such additional
securities as may become issuable pursuant to the anti-dilution provisions
of the Warrants.
(9) Represents shares owned by a security holder of the Company which are being
registered hereby but are not part of the Underwritten offering.
(10) Pursuant to Rule 457(i), no additional registration fee is required for
these shares and warrants being registered as part of the 20,000 units
included in the selling security holder units, since no additional
consideration is being paid for them.
(11) All of which has previously been paid.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH A 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 SUCH SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SILVER STAR FOODS, INC.
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF PART I ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING
IN FORM SB-2 REGISTRATION STATEMENT LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Front of Registration Statement and Outside Front
Cover Page of Prospectus........................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover Page; Outside B
3. Summary Information and Risk Factors................. Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Prospectus Summary; Use of Proceeds.
5. Determination of Offering Price...................... Outside Front Cover Page; Risk Factors
6. Dilution............................................. Risk Factors; Dilution
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Outside Front Cover Page; Underwriter
9. Legal Proceedings.................................... Not Applicable.
10. Directors, Executive Officers, Promoters and Control
Persons............................................ Management; Principal Shareholders
11. Security Ownership of Certain Beneficial Owners and
Management......................................... Management; Principal Shareholders
12. Description of Securities............................ Risk Factors; Capitalization; Securities; Shares
Eligible for Future Sale
13. Interest of Names Experts and Counsel................ Legal Matters
14. Disclosure of Commission Position on Indemnification
for Securities Act
Liabilities........................................ Management
15. Organization within Last Five Years.................. Management; Principal Shareholders
16. Description of Business.............................. Prospectus Summary; Business
17. Management's Discussion and Analysis or Plan of
Operation.......................................... Management's Discussion And Analysis
18. Description of Property.............................. Proposed Business
19. Certain Relationships and Related
Transaction........................................ Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters............................................ Outside Front Cover Page; Risk Factors; Description
Of the Securities
21. Executive Compensation............................... Management; Executive Compensation
22. Financial Statements................................. Financial Statements
23. Change in and Disagreements with Accountants On
Accounting and Financial Disclosure................ Not Applicable
</TABLE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENTS BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 15, 1998
750,000 UNITS
[LOGO]
SILVER STAR FOODS, INC.
EACH UNIT CONSISTING OF ONE SHARE
OF COMMON STOCK, $.0001 PAR VALUE, AND
TWO REDEEMABLE COMMON STOCK PURCHASE WARRANTS
Silver Star Foods, Inc. (the "Company"), a New York corporation, is offering
hereby 750,000 units ("Units"), through Royal Hutton Securities Corp. (the
"Underwriter"). Each Unit consists of one share of Common Stock, $.0001 par
value (the "Common Stock") and two Redeemable Common Stock Purchase Warrants
(the "Warrants"). This Prospectus also relates to the offering of 20,000 Units
by a securityholder of the Company (the "Selling Security Holder") which are
being registered for resale pursuant to the registration statement of which this
Prospectus is a part.
Each of the Warrants entitles the holder thereof to purchase one share of
Common Stock (the "Shares") at a price of $6.00 per share, subject to adjustment
in certain circumstances, at any time commencing on the first anniversary of the
effective date of the registration statement ("Effective Date") and expiring on
the four year anniversary of the Effective Date of the registration statement of
which this Prospectus is a part.
The Warrants are subject to redemption by the Company, commencing on the
first anniversary of the Effective Date at a price of $0.01 per Warrant, upon
prior written notice of not less than thirty (30) days mailed within ten (10)
days after the average of the closing bid price of the Common Stock, for a
period of ten (10) consecutive trading days has equaled or exceeded $8.50. See
"Description of Securities."
Prior to this offering (the "Offering"), there has been no public market for
the Units, the Common Stock or the Warrants (collectively the "Securities") and
there is no assurance that such a public market will develop or be sustained
after the completion of the Offering. The initial public offering price of the
Units and the exercise price and terms of the Warrants have been determined by
negotiation between the Company and the Underwriter and bear no relation to the
Company's earnings, assets, book value, net worth, or any other recognized
criteria of value. See "Underwriting." It is anticipated that the Units, Common
Stock and Warrants will be traded on the OTC Bulletin Board ("OTC Bulletin
Board"). In the event the Securities are not quoted on the OTC Bulletin Board,
quotes may be included in the "pink" sheets for the over-the-counter market.
There can be no assurance that an active trading market will develop. As a
result an investor may find it more difficult to dispose of, or to obtain
adequate quotations, as to the prices of the Units, Common Stock and Warrants
offered hereby. See "Risk Factors."
THESE ARE SPECULATIVE SECURITIES. SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR
A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNTS (1) COMPANY(2)
<S> <C> <C> <C>
Per Unit....................................................... $6.00 $0.60 $5.40
Total (3)...................................................... $4,500,000 $450,000 $4,050,000
</TABLE>
(1) See "Underwriting" for additional compensation to the Underwriter consisting
of: (i) three (3%) percent of the gross proceeds of the Offering ($135,000
or $155,250 if the Over- Allotment Option (as defined below) is exercised in
full) as a non-accountable expense allowance; and (ii) a three (3) year
$36,000 annual financial consulting fee.
(2) The Company has granted to the Underwriter a forty-five (45) day option to
purchase up to an additional 112,500 Units, upon the same terms and
conditions set forth above, solely to cover over-allotments, if any (the
"Over-Allotment Option"). If the Over-Allotment Option is exercised in full
the total Price to Public, Underwriting Discounts and Proceeds to Company,
will be $5,175,000, $517,500, $4,657,500, respectively (see "Underwriting").
(3) Does not include 20,000 Units to be offered by the Selling Securityholder
(the "Selling Security Holder Units"), which are not part of the
underwritten offering. The Company will receive no proceeds from the sale of
the Selling Security Holder Units.
The Units are offered on a "firm commitment" basis by the Underwriter,
subject to prior sale, when, as, and if delivered and accepted by it and subject
to approval of certain legal matters by the Underwriter's legal counsel and
certain other conditions. The Underwriter reserves the right to reject orders in
whole or in part and to withdraw, cancel or modify the offer
<PAGE>
without notice. It is expected that delivery of the certificates representing
the securities comprising the Units will be made against payment therefor at the
offices of the Underwriter, in New York City, on or about March , 1999.
--------------------------
ROYAL HUTTON SECURITIES CORP.
------------------
THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION SET FORTH HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE SECURITIES
AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE AFFECTED ON THE OVER-THE-COUNTER ELECTRONIC BULLETIN BOARD
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements after the end of each fiscal year, and
make available such other periodic reports as the Company may deem to be
appropriate or as may be required by law. The Company's fiscal year ends on
March 31 of each year.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION, INCLUDING THE FINANCIAL
STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH
PROSPECTIVE INVESTOR IS THEREFORE URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "THE COMPANY" REFERS TO SILVER
STAR FOODS, INC., A NEW YORK CORPORATION. THIS PROSPECTUS CONTAINS FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS IN "RISK FACTORS."
THE COMPANY
Silver Star Foods, Inc. (the "Company") is a distributor of a wide range of
pre-packaged frozen pasta products in the New York metropolitan area. The
Company sells its products primarily to supermarkets or to distributors who
resell the products to supermarkets. The Company's products are primarily
"stuffed" pasta such as ravioli and tortellini, which must be refrigerated or
frozen when stored. The Company intends to establish a manufacturing facility
with the proceeds of this Offering. The Company believes, although there can be
no assurance, that acquiring manufacturing capacity and entering into agreements
with additional sales representatives will enable it to expand its customer base
to supermarket chains and small distributors in other regional markets and to
large volume customers such as club stores, restaurant chains, and customers
requiring private label manufacturing. See "Business--Expansion Strategy."
The family of the Company's Chairman, Chief Executive Officer and Principal
Shareholder, Michael Trotta, owned and operated Silver Star Ravioli & Macaroni,
Inc. ("SSRM") for over fifty years. SSRM was engaged in the business of selling
pasta products under the Silver Star name. In 1992, SSRM declared bankruptcy,
largely due to financial problems caused by SSRM's outdated manufacturing
facilities, and was liquidated. In March 1995, Michael Trotta, who had been an
employee at SSRM, formed the Company to distribute a select number of food
products under that label. The Company purchased the "Silver Star" trade name in
1997 from Vincent Trotta, the father of the Company's President. See "Business--
Background" and "Certain Transactions."
The Company has become a distributor of a variety of pre-packaged Italian
stuffed pasta food products, including ravioli, tortellini, cavatelli, gnocchi
and manicotti. According to a report by A.C. Nielson & Co., in 1997, sales of
the Company's products accounted for approximately 7.5% of the frozen pasta
market among supermarkets in the New York Metropolitan area. The Company
promotes its products to these supermarkets with the assistance of food brokers,
who receive commissions for such sales. The Company regularly offers discounts
or "specials," on its products and arranges for such specials to be listed in
the supermarket circular which is available to each of the supermarket customers
as they enter the store. See "Business."
The Company also sells its products to small distributors who resell the
frozen pasta to grocery stores and restaurants. Although this constitutes a
small portion of the Company's business, the Company has distributors in
locations such as Nevada and California. The Company intends, although there can
be no assurance it will be able to, to establish relationships with additional
distributors in order to expand into other regions and markets. See
"Business--Sales and Distribution."
The Company's marketing efforts emphasize the Silver Star tradition of
quality. The Company also hopes to capitalize on the growing popularity of
pasta, many types of which are lower in fat than most other frozen food
products. See "Business--Marketing."
Currently, the Company has manufacturing agreements with Mount Rose Ravioli
and Macaroni, Inc. ("Mount Rose") and Savignano Foods Corporation ("Savignano").
These companies manufacture and package the products that the Company sells
under the Silver Star name. The Company believes that this arrangement is
satisfactory for sales to its existing customer base. However, this arrangement
limits the
3
<PAGE>
Company's ability to increase profit margins and to pursue certain types of
customers. In order to achieve significant sales growth and to operate
profitably, the Company's management believes it needs to establish its own
manufacturing facility or to seek better manufacturing terms from its suppliers.
See "Business--Principal Suppliers."
The Company believes, although there can be no assurance, that establishing
a manufacturing facility will enable it to produce its products at a lower cost
without sacrificing quality. A manufacturing facility should also allow the
Company to respond to customer orders more quickly and to allow it more
flexibility in changing its product mix. The Company intends, although there can
be no assurance, to establish a manufacturing facility. This will be done by
either: (i) acquiring land and constructing and equipping a new facility on such
land; or (ii) leasing an existing facility (possibly with an option to buy such
facility), which is likely to require an investment to update or improve the
facility. See "Business--Manufacturing."
The Company was incorporated in New York in March 1995 under the name Silver
Star Ravioli, Inc. The Company changed its name in July 1997. The Company
maintains its principal offices at 1000 South Avenue, Staten Island, New York,
10314 and its telephone number is (718) 763-3000.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered............ 750,000 Units. Each Unit consists of one share of Common
Stock and two Redeemable Common Stock Purchase Warrants.
The shares of Common Stock and the Warrants comprising the
units are detachable and separately transferable after
ninety (90) days from the Effective Date, or earlier with
the consent of the Underwriter(1).
See "Description of Securities" and "Underwriting."
Common Stock Outstanding
Prior to the Offering....... 3,276,000
After the Offering.......... 4,026,000(2)(3)
Warrants Outstanding
Prior to the Offering....... 96,000
After the Offering.......... 1,596,000(3)
Exercise Price of Warrants.... Each Warrant is exercisable at an exercise price of $6.00
per share. The exercise price of the Warrants is subject to
adjustment in certain circumstances. See "Description of
Securities--Warrants."
Exercise Period............... Each Warrant is exercisable commencing on the first
anniversary of the Effective Date of the Registration
Statement. The Warrants expire on the four year anniversary
of the Effective date of the Registration Statement.
Redemption.................... The Warrants are redeemable by the Company commencing on
the first anniversary of the Effective Date of the
Registration Statement at a price of $0.01 per Warrant,
upon prior written notice of not less than thirty (30) days
mailed within ten (10) days after the average of the
closing bid price of the Common Stock for a period of ten
(10) consecutive trading days has equaled or exceeded
$8.50.
Offering Price................ $6.00 per Unit
Use of Proceeds............... Purchase and/or renting of manufacturing facilities; buying
and/or leasing of equipment; repayment of bridge loan
promissory notes; working capital and for general corporate
purposes.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Risk Factors.................. An investment in the Units offered hereby involves a high
degree of risk and therefore the Units should not be
purchased by anyone who cannot afford the loss of their
entire investment. Prospective purchasers of the Units
should carefully review and consider the factors set forth
under "Risk Factors" as well as other information contained
herein, before purchasing any of the Units. See "Risk
Factors."
</TABLE>
<TABLE>
<CAPTION>
SYMBOLS
---------
<S> <C> <C>
OTC Bulletin Board Symbols(4)......... Units SILVU
Common Stock SILV
Warrants SILVW
</TABLE>
- ------------------------
(1) Does not include 20,000 Units being registered herein on behalf of the
Selling Securityholder.
(2) Does not include an aggregate of 500,000 shares of Common Stock reserved for
issuance upon the exercise of options available for grant under the
Company's 1998 Stock Option Plan, See "Management--Option Plan."
(3) Assumes no exercise of the Over-Allotment Option, Warrants offered herein,
or Underwriter's Warrants.
(4) It is anticipated that the Units, Common Stock and Warrants will be traded
on the OTC Bulletin Board or through the "pink sheets." There can be no
assurance that an active trading market will develop. As a result, an
investor may find it more difficult to dispose of, or to obtain adequate
quotations as to the prices of the Units, Common Stock and Warrants offered
hereby. See "Risk Factors."
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth summary historical financial information of
the Company for the years ended March 31, 1997 and March 31, 1998 and the nine
months ended December 31, 1997 and December 31, 1998.
The summary historical financial data should be read in conjunction with the
financial statements (and notes thereto) of the Company and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
1997 1998 1997 1998
---------- ---------- ----------- -------------
FOR THE YEARS FOR THE NINE MONTHS
ENDED MARCH 31, ENDED DECEMBER 31,
---------------------- --------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Statement of Operating Data:
Revenues................................................................ $1,450,438 $1,343,276 $ 961,811 $ 856,723
Gross Profit............................................................ $ 478,190 $ 144,521 $ 143,975 $ 121,514
Operating Expenses...................................................... $ 479,881 $ 485,293 $ 317,353 $ 415,353
Net Income (Loss)....................................................... $ (19,221) $ (355,113) $ (184,103) $ (423,230)
Per Share Data:
Net Earnings (Loss) Per Share......................................... $ (.01) $ (.08) $ (.04) $ (.11)
Weighted Average Number of Shares Outstanding......................... 3,200,000 4,300,274 4,136,727 3,944,320
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
MARCH 31 ---------------------------
------------------------ AS ADJUSTED
1997 1998 ACTUAL (1),(2)
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Total Assets.............................................. $ 195,842 $ 352,367 $ 618,621 $3,201,716
Working Capital (Deficiency).............................. $ (295,311) $ (316,443) $ (1,203,042) $2,180,053
Stockholders' Equity (Deficiency)......................... $ (112,390) $ (67,503) $ (612,133) $3,013,116
</TABLE>
- ------------------------
(1) Assumes gross proceeds from the offering of $4,500,000, less underwriter's
discount and expenses and other costs of the offering of $450,000, $135,000
and $200,000, respectively. Also assumes repayment of the bridge loan of
$700,000 and the amortization of deferred finance costs of $142,154. Does
not include any amount payable to the Underwriter pursuant to a financial
advisory and investment banking agreement.
(2) Does not assume the sale of any of the shares or warrants available to cover
the underwriter's over-allotment option, the exercise of the warrants or the
exercise of the underwriter's warrants.
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SECURITIES BEING OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. PRIOR TO MAKING ANY INVESTMENT DECISION, PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS TOGETHER WITH THE OTHER
INFORMATION PRESENTED IN THIS PROSPECTUS INCLUDING THE FINANCIAL STATEMENTS (AND
NOTES THERETO).
RECENT LOSSES, GOING CONCERN LETTER IN AUDITOR'S REPORT, WORKING CAPITAL DEFICIT
For the nine months ended December 31, 1998, the year ended March 31, 1998
and the year ended March 31, 1997, the Company has recorded a net (loss) of
($423,230), ($355,113) and ($19,221), respectively. At December 31, 1998, the
Company had a working capital deficit of $1,203,042 and an accumulated deficit
of $891,053. The auditor's report to the Company's financial statements for the
year ended March 31, 1998, states that the working capital deficit and
stockholder equity deficit raise doubts about the Company's ability to operate
as a going concern. For at least the current fiscal year, the Company is likely
to incur losses from operations as a result of, among other things, its
expansion strategy. There can be no assurance that the Company will achieve
profitability at any time in the future or, if achieved, sustain such
profitability. See "Financial Statements."
RISKS RELATED TO EXPANSION STRATEGY
The Company's expansion strategy and the opening and success of its proposed
manufacturing facilities will depend on various factors (which factors will vary
depending on how the Company implements its expansion strategy), including, the
availability of a manufacturing plant and equipment, the negotiation of
acceptable lease terms, licensing and regulatory compliance, the ability to meet
production and construction schedules, the general ability to manage
successfully its anticipated growth (including monitoring its production
facilities, controlling costs, and maintaining effective quality control), and
general economic and business conditions. Not all of the foregoing factors are
in control of the Company. The implementation of the Company's expansion
strategy will increase operating costs which, in turn, could adversely affect
its business, financial condition or results of operations. Having recently
embarked on its expansion strategy, there can be no assurance that the Company
will successfully implement its strategy or that its strategy will result in
profitability. Consistent with its expansion strategy, the Company anticipates
entering into new geographic regions in which it has no previous operating
experience. No assurance can be given that the Company will be successful in new
geographic regions. See "Business-- Expansion Strategy" and
"Business--Suppliers."
LIMITED OPERATING HISTORY, NEW BUSINESS ACTIVITIES
The Company has operated only since 1995. The Company has never engaged in
the manufacturing of food products or sold significant quantities of products
outside the New York area or to institutional customers. The Company will be
required to incur additional fixed costs, which could limit the Company's
ability to reduce expenses in an economic downturn or a slow seasonal period.
Additionally, the Company will need to locate suppliers and other service
products for its manufacturing facility, the availability of which there can be
no assurance. Therefore, the Company's prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by a new small
business in a highly competitive industry. See "Business."
BANKRUPTCY OF PREVIOUS BUSINESS
The Company's management participated in the management of SSRM. In 1992,
SSRM declared bankruptcy and was liquidated. SSRM had experienced financial
problems largely brought on by its outdated manufacturing plant. Competitors
with newer facilities were able to offer products at lower prices and on a more
flexible schedule. SSRM's attempts to upgrade the facility were ineffective and
the debts incurred in connection with the attempted upgrade eventually caused
SSRM to go bankrupt. Although the
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Company will be establishing a new, modern manufacturing facility, the Company
is engaged in the same business operating under the same trade name as SSRM.
Therefore, the Company's prospects for success must be evaluated in light of the
factors which led to the failure of SSRM. See "Business--Historical Background."
COMPETITION
The food industry is highly competitive. Competition for shelf space in
grocery stores and supermarkets is intense and poses great difficulty for
smaller companies. The Company competes with numerous companies in the New York
area, including the Company's two suppliers. The Company will likely encounter
similar competition as it enters new markets. Many of these competitors are
larger and have greater financial and other resources, including production and
distribution facilities, than the Company. The Company's products compete with
frozen food products, other pasta products and all food products in general.
Increased competition could result in price reductions, reduced margins or loss
of market share, any of which could materially adversely affect the Company's
business, prospects, financial condition and results of operations. Further,
there can be no assurance that the Company will be able to compete successfully
against current and future competitors or that competitive pressures faced by
the Company will not have a material adverse effect on its business, prospects,
financial condition and results of operations. See "Business--Competition."
DEPENDENCE ON KEY CUSTOMERS, DEPENDENCE ON KEY SALES REPRESENTATIVES
For the year ended March 31, 1998 and the nine months ended December 31,
1998, the Company's five largest customers accounted for an aggregate of
approximately 97% and 98%% of its total sales, respectively. The Company has no
long term arrangements with any of these customers. While the Company generally
believes its relationships with its customers are good, there can be no
assurance that these or any other customers will continue to purchase the
Company's products. See "Business--Sales and Distribution."
The Company sells its products through sales representatives who are known
in the industry as food brokers. For the year ended March 31, 1998 and the nine
months ended December 31, 1998, approximately 97% and 98%, respectively, of its
sales in the New York market were undertaken by Douglas Sales Associates, Inc.
and their predecessors. See "Business--Sales and Distribution."
The loss of the Company's relationships with these or other key customers or
food brokers could adversely affect the Company's business, prospects, financial
condition and results of operations.
DEPENDENCE ON KEY SUPPLIERS, RISK OF PRICE FLUCTUATIONS, TERMINABLE CONTRACTS
The Company purchases all of its products from two suppliers, Mount Rose and
Savignano. The prices of products purchased from Mount Rose are revised every
six months. The prices of products purchased from Savignano are subject to
increase if the Company fails to order certain minimum amounts of products. The
Company has historically been able to pass significant price increases through
to its customers. However, no assurance can be given that it will be able to do
so in the future. The Company has entered into a 1 year agreement with Mount
Rose, expiring February 2000, and the agreement with Savignano is terminable by
either party upon 120 days notice. Both Mount Rose and Savignano sell products
that compete with the Company's products directly to supermarkets and
distributors. There can be no assurance that such agreements will not be
terminated, particularly since Mount Rose and Savignano are aware of the
Company's plans to establish its own manufacturing facility. The loss of any of
its current suppliers would have a material adverse effect on its business,
financial condition or results of operations until a relationship could be
established with new suppliers or a manufacturing facility could be established.
See "Business--Suppliers" and "Business--Competitors."
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DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL EXECUTIVE OFFICERS
The Company is dependent to a great extent upon the experience, abilities
and continued services of Michael Trotta, the Company's President, Chief
Executive Officer and Chief Financial Officer. The loss of services of Mr.
Michael Trotta could have a material adverse effect on the Company's business,
financial condition or results of operation. The Company has entered into a
three year employment agreement with Michael Trotta, and is purchasing Key man
life insurance on the life of Michael Trotta. The Company intends to purchase
Key man life insurance on Michael Trotta in the amount of $750,000, upon receipt
of the proceeds of this Offering. In order to implement the Company's expansion
strategy, the Company will need to hire additional executive officers, including
an experienced chief financial officer. There can be no assurance that the
Company will be able to identify the proper individuals or that such individuals
would be willing to be employed by the Company on terms acceptable to the
Company. See "Management."
ABSENCE OF TRADEMARK REGISTRATION, ABSENCE OF PATENT PROTECTION
The Company acquired the Silver Star trademark from Vincent Trotta in 1997.
Mr. Trotta had acquired the trademark from SSRM, who had registered the
trademark with the US Patent and Trademark Office. The Company failed to renew
its registration of the trademark. Although it does maintain certain rights in
the trademark, it currently does not have the protection against infringement
offered by registration. If the Company were required to cease using "Silver
Star", it could have a material adverse effect on the Company. The Company is in
the process of filing its application to register the trademark. There can be no
assurance that the Company's application will be accepted. Although registration
affords the Company the protection of federal trademark laws against the
unauthorized use of the protected mark or a use deemed "confusingly similar"
under federal trademark law, there can be no assurance that third parties will
not infringe on the Company's current or future trademark registrations or that
the Company will have sufficient resources to defend against any such
infringement successfully or at all. See "Business--Proprietary Rights."
The Company does not have any patents on its recipes or production processes
or trademarks on the names of its products. Because it currently uses other
businesses in the industry to manufacture it products, competitors are familiar
with the Company's recipes, production processes and products. There can be no
assurance that these competitors will not be able to utilize this information to
gain a competitive advantage over the Company.
POTENTIAL LIABILITY; AVAILABILITY OF INSURANCE
The Company, from time to time, is subject to lawsuits as a result of its
business and currently maintains insurance relating to personal injury in
amounts that it considers adequate and customary for the food industry. No
assurance can be given that the Company will be able to obtain insurance
policies in the future. In addition, any successful claim against the Company,
in an amount exceeding its insurance coverage, could have a material adverse
effect on its business, financial condition or results of operation.
DEPENDENCE ON EFFECTIVE DELIVERY SYSTEM
The Company's success depends upon an effective system of delivery for its
products for which the Company currently uses common carriers. The dependence on
other companies for delivery of its products poses a risk to the Company,
particularly as the Company increases its delivery to the eastern United States.
There can be no assurance that the Company will continue to be able to negotiate
acceptable freight rates in the future or that delivery will not be disrupted
for reasons including, but not limited to, adverse weather, natural disasters or
labor disputes in the trucking industry. See "Business."
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CONTINUED CONTROL BY MANAGEMENT
Upon completion of the Offering, management of the Company (specifically,
Michael Trotta, the Company's Chairman, President, CEO and CFO) will
beneficially own approximately 79.5% of the Company's outstanding Common Stock.
The Company's stockholders do not have the right to cumulative voting in the
election of directors. Accordingly, Management will be in a position to exert
control over the business and operations of the Company, including the election
of all directors of the Company and approval of significant corporate
transactions. Currently, members of the Trotta family hold two of the four seats
on the Company's Board of Directors. In 1996, due to debts incurred with the
failure of SSRM, Michael Trotta filed for bankruptcy. See "Principal
Stockholders" and "Management."
MANAGEMENT'S BROAD DISCRETION IN APPLICATION OF THE PROCEEDS.
19.6% of the net proceeds of the offering has been allocated to Working
Capital and General Corporate Purposes. An additional 61.0% has been allocated
for the establishment of a manufacturing facility and the acquisition or leasing
of the equipment to be used in the facility. Although the Company has obtained
quotes and investigated establishing such a facility, it has not yet identified
the location of its planned facility. Accordingly, the Company's management and
the board of directors, will have broad discretion as to the allocation and use
of such proceeds. See "Use of Proceeds."
GOVERNMENT REGULATION
The Company is subject to numerous state regulations relating to the
preparation and sale of food. It is also subject to federal and state laws
governing the Company's relationship with its employees, including minimum wage
requirements, overtime, working and safety conditions, and citizenship
requirements. Commencement of manufacturing of food would subject the Company to
numerous other regulations of the U.S. Food and Drug Administration and the U.S.
Department of Agriculture including unannounced on site inspections. The failure
to obtain or retain required food licenses or to be in compliance with
applicable governmental regulations, or any increase in the minimum wage rate,
employee benefits costs (including costs associated with mandated health
insurance coverage) or other costs associated with employees, could adversely
affect the business, results of operations or financial condition of the
Company. Proposals are under consideration at the federal level to introduce a
system of mandated health insurance. This and other initiatives could adversely
affect the Company's operations as well as the food industry in general. A
failure to comply with one or more regulatory requirements could result in a
variety of sanctions, including fines and the withdrawal of the Company's
products from store shelves. The Company is not aware of any currently existing
facts or circumstances that would cause it to fail to comply with any of the
regulations to which it is currently subject.
RISKS INHERENT IN THE FOOD INDUSTRY
The results of operations in the food industry can be affected by, among
other things, changes in consumer tastes, national, regional and local economic
conditions and demographic trends. The Company believes that the pasta market is
a growing market, but there can be no assurance that changes in the market will
not occur which would adversely affect the Company.
The Company faces all of the risks inherent in the production and
distribution of frozen food products, including contamination, adulteration and
spoilage, and the associated risks of product liability litigation. Such risks
will be increased if the Company establishes a manufacturing facility. There can
be no assurance that the Company's procedures will be adequate to prevent the
occurrence of such events. See "Business."
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SHARES ELIGIBLE FOR FUTURE SALE
The Company has outstanding 3,276,000 shares of common stock all of which
were issued and sold by the Company in private transactions in reliance upon
exemptions from registration under the Securities Act. Other than the shares of
common stock included in the 20,000 Selling Security Holder Units such shares
may be sold only pursuant to an effective registration statement filed by the
Company or an applicable exemption, including the exemption contained in Rule
144 promulgated under the Securities Act. Other than the shares of common stock
included in the 20,000 Selling Security Holder Units, each pre-offering
shareholder has entered into a 12 month lock-up agreement with the Underwriter.
In general, under Rule 144 as currently in effect, a shareholder, including an
affiliate of the Company, may sell shares of common stock after at least one
year has elapsed since such shares were acquired from the Company or an
affiliate of the Company. The number of shares of common stock which may be sold
within any three-month period is limited to the greater of one percent of the
then outstanding number of shares of common stock or the average weekly trading
volume in the common stock during the four calendar weeks preceding the date on
which notice of such sale was filed under Rule 144. Certain other requirements
of Rule 144 concerning availability of public information, manner of sale and
notice of sale must also be satisfied. In addition, a shareholder who is not an
affiliate of the Company (and who has not been an affiliate of the Company for
90 days prior to the sale) and who has beneficially owned shares acquired from
the Company or an affiliate of the Company for over two years may resell the
shares without compliance with the foregoing requirements under Rule 144.
The Selling Security Holder Shares are being registered for resale pursuant
to the registration statement of which this Prospectus is a part.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the common stock prevailing from time to time. Nevertheless, sales of
substantial amounts of common stock, or the perception that such sales may
occur, could have a material adverse effect on prevailing market prices. See
"Description of Securities--Shares Eligible for Future Sale."
IMMEDIATE AND SUBSTANTIAL DILUTION OF 91%
The investors in this Offering will suffer immediate dilution of $5.46 per
share or 91%, assuming no value is attributed to the Warrants. See "Dilution."
ADDITIONAL FINANCING
The Company anticipates that the proceeds from the Offering, together with
projected cash flow from operations, will be sufficient to fund its operations,
including its proposed expansion, for at least the next 12 months. Thereafter,
the Company may need to raise additional funds to continue to implement its
expansion strategy. There can be no assurance that additional financing will be
available or if available will be on favorable terms.
ABSENCE OF PUBLIC MARKET; QUARTERLY FLUCTUATIONS; SEASONALITY; POSSIBLE
VOLATILITY OF STOCK PRICE
Prior to this offering there has been no public market for the Securities,
and there can be no assurance that any active trading market therefor will
develop or, if any such market develops, that it will be sustained. The
Company's business is somewhat seasonal. Although there exists a steady market
for the Company's products from September through June, with sales rising during
the Christmas holidays, sales usually decline in July and August. As a result,
the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as any
indication of future performance. In the event the Company's operating results
fall below the expectations of public market analysts and investors, the market
price of the Securities would likely be materially adversely affected.
Additionally, quarterly operating results of the Company or other developments
affecting the
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Company, such as announcements by the Company or its competitors regarding
acquisitions or dispositions, new procedures or technology, changes in general
conditions in the economy, and general market conditions could cause the market
price of the Securities to fluctuate substantially. The equity markets have, on
occasion, experienced significant price and volume fluctuations that have
affected the market prices for many companies' securities and have often been
unrelated to the operating performance of these companies. See "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
ABSENCE OF DIVIDENDS
The Company has never declared or paid any cash dividends on its Common
Stock. The Company intends to retain its earnings, if any, to finance the growth
and development of its business and therefore does not anticipate paying any
cash dividends on its Common Stock in the foreseeable future. Although dividends
are not limited currently by any agreements, it is anticipated that future
agreements, if any, with institutional lenders or others may limit the Company's
ability to pay dividends on the Common Stock. Any future determination to pay
cash dividends will be at the discretion of the Board of Directors and will be
dependent upon the Company's financial condition, results of operations, capital
and legal requirements and such other factors as the Board of Directors deems
relevant. See "Dividend Policy."
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS AND
OPTIONS
At such time as the Shares and Warrants become registered under the
Securities Act, holders of the Warrants will be able to exercise the Warrants
only if (i) a current Prospectus under the Securities Act relating to the Shares
is then in effect and (ii) the Shares are qualified for sale or exempt from
qualification under the applicable securities laws of the state in which the
various holders of Warrants reside. Although the Company has agreed to use its
best efforts to maintain a current registration covering the Shares, there can
be no assurance that the Company will be able to do so. The value of the Shares
may be greatly reduced if a registration statement covering the Shares is not
kept current or if the Shares are not qualified, or exempt from qualification,
in the states in which the holders of warrants reside. Persons holding warrants
who reside in jurisdictions in which the Shares are not qualified and in which
there is no exemption will be unable to exercise their Warrants and would either
have to sell their Warrants or allow them to expire unexercised.
FORWARD LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act, and Section 21E of the Exchange Act. The
actual results of the Company may differ significantly from the results
discussed in such forward-looking statements. Certain factors which may cause
such differences include, but are not limited to, the factors discussed in this
"Risk Factors" section. The safe harbors contained in Section 27A of the
Securities Act and Section 21E of the Exchange Act, which apply to certain
forward-looking statements, are not applicable to this Offering.
OFFERING PRICE ARBITRARILY DETERMINED
The offering price of the Securities has been determined by negotiation
between the Company and the Underwriter and is not necessarily related to the
Company's assets, earnings, book value or any other objective standard of value.
LIMITED LIABILITY OF DIRECTORS
As permitted by the New York Business Corporation Law, the Company's
certificate of incorporation eliminates personal liability of a director to the
Company and its stockholders for monetary damages for
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breach of fiduciary duty as a director, except in certain circumstances.
Accordingly, stockholders may have limited rights to recover monetary damages
against the Company's directors for breach of fiduciary duty.
AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
1,000,000 shares of "blank check" preferred stock, par value $.001, with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of the Company's Common Stock. In
the event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. Although the Company has no present intention to issue
any shares of its preferred stock, there can be no assurance that the Company
will not do so in the future. See "Description of Securities--Preferred Stock."
EFFECT OF ISSUANCE OF COMMON STOCK UPON EXERCISE OF WARRANTS AND OPTIONS;
POSSIBLE ISSUANCE OF ADDITIONAL COMMON STOCK AND OPTIONS
Immediately after the Offering, assuming the Underwriter's Over-Allotment
Option is not exercised, the Company will have an aggregate of 8,315,500 shares
of Common Stock authorized but unissued and not reserved for specific purposes
and an additional 2,658,500 shares of Common Stock unissued but reserved for
issuance pursuant to (i) the Company's 1998 Stock Option Plan, (ii) outstanding
options and warrants, (iii) exercise of the Warrants, (iv) exercise of the
Over-Allotment Option and the Warrants underlying the Over-Allotment Option, (v)
the Company's Bridge Financing, and (vi) exercise of the Underwriter's Warrants
and the Warrants included therein. All of such shares may be issued without any
action or approval of the Company's stockholders. Although there are no present
plans, agreements, commitments or undertakings with respect to the issuance of
additional shares or securities convertible into any such shares by the Company,
any shares issued would further dilute the percentage ownership of the Company
held by the public stockholders. The Company has agreed with the Underwriter
that, except for the issuances disclosed in or contemplated by this Prospectus
and issuances in connection with any merger or acquisition of another entity by
the Company, it will not issue any securities without the Underwriter's consent,
including but not limited to any shares of Common Stock, for a period of 24
months following the Effective Date, without the prior written consent of the
Underwriter. See "Underwriting."
The exercise of warrants or options and the sale of the underlying shares of
Common Stock (or even the potential of such exercise or sale) may have a
depressive effect on the market price of the Company's securities. Moreover, the
terms upon which the Company will be able to obtain additional equity capital
may be adversely affected since the holders of outstanding warrants and options
can be expected to exercise them, to the extent they are able, at a time when
the Company would, in all likelihood, be able to obtain any needed capital on
terms more favorable to the Company than those provided in the warrants and
options. See "Management--Stock Option Plan," "Description of Securities" and
"Underwriting."
DENIAL OF APPLICATION FOR INCLUSION ON NASDAQ: PENNY STOCK; ADDITIONAL
REQUIREMENTS ON BROKER-DEALER SALES OF SECURITIES
The Company's Units, Common Stock and Warrants are not currently listed for
trading on the Nasdaq system. In order for an issuer to be included in the
Nasdaq system, an issuer must meet certain quantitative criteria relating to its
total assets, its capital and the trading prices of its securities. In addition,
the Nasdaq staff may consider other factors, such as the issuer's management and
the circumstances surrounding the issuer's operations, when determining whether
to approve an issuer's application for inclusion in the Nasdaq system. The
Company filed an application for listing on the Nasdaq SmallCap Market, which
was denied by the Nasdaq staff. The Company has requested an appeal of the
staff's denial before the Nasdaq
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Listing Qualifications Panel, which appeal is scheduled for April 22, 1999. It
is anticipated that in the event the appeal is denied, the Company's securities
will be traded on the OTC Bulletin Board or through the "pink sheets." As a
result, an investor may find it more difficult to dispose of, or to obtain
adequate quotations as to, the prices of the Units, Common Stock and Warrants
offered hereby.
The Commission has adopted regulations which generally define a "penny
stock" to be any equity security that has a market price less than $5.00 per
share or an exercise price less than $5.00 per share, subject to certain
exceptions, including that the Company have net tangible assets of a minimum of
$2,000,000. Thus, the Units, Common Stock and Warrants may become subject to
rules that impose additional sales practice requirements on broker-dealers who
sell such securities to persons other than established customers and accredited
investors (generally institutions with assets in excess of $5,000,000 or
individuals with net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 jointly with their spouse). For transactions covered by the
rule, the broker-dealer must make a special suitability determination for the
purchaser and receive the purchaser's written agreement to the transaction prior
to the sale. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the transaction, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. The above-described rules may adversely effect
the liquidity of the market for the Company's Units, Common Stock and Warrants
and may also adversely effect the ability of the Company's shareholders to sell
the Units, Common Stock and Warrants in the secondary market.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS
The Warrants offered hereby are redeemable, in whole or in part, at a price
of $.01 per Warrant (the "Redemption Price"), commencing one year after the date
of this Prospectus and prior to their expiration on the fourth anniversary of
the date of this Prospectus provided that (i) prior notice of not less than 30
days is given to the Warrant holders, (ii) the closing bid price of the
Company's Common Stock shall have exceeded $8.50 per share for a period of not
less than 10 consecutive trading days in any 30 day trading period ending not
more than 10 days prior to the date on which the notice of redemption is given.
Warrant holders shall have exercise rights until the close of the business day
preceding the date fixed for redemption. Notice of redemption of the Warrants
could force the holders to exercise the Warrants and pay the Exercise Price at a
time when it may be disadvantageous for them to do so, or to sell the Warrants
at the current market price when they might otherwise wish to hold them, or to
accept the Redemption Price, which may be substantially less than the market
value of the Warrants at the time of redemption. The Warrants may not be
exercised unless the registration statement pursuant to the Securities Act,
covering the underlying shares of Common Stock is current and such shares have
been qualified for sale, or there is an exemption from applicable qualification
requirements, under the securities laws of the state of residence of the Warrant
holder. Although the Company does not presently intend to do so, the Company
reserves the right to call the Warrants for redemption whether or not a current
prospectus is in effect or such underlying shares are not, or cannot be,
registered in the applicable states. Such restrictions could have the effect of
preventing certain Warrant holders from liquidating their Warrants. See
"Description of Securities--Warrants."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE WARRANTS
Warrant holders have the right to exercise the Warrants for the purchase of
shares of Common Stock only if a current prospectus which will permit the
purchase and sale of the Common Stock underlying the Warrants is then effective,
but there can be no assurance that the Company will be able to keep effective
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such a Prospectus. Although the Company intends to seek to qualify for sale the
shares of Common Stock underlying the Warrants in those states in which the
Securities are to be offered, no assurance can be given that such qualification
will occur. In addition, purchasers may buy Warrants in the aftermarket or may
move to jurisdictions in which the shares of Common Stock issuable upon exercise
of the Warrants are not so registered or qualified during the period that the
Warrants are exercisable. In such event, the Company would be unable to issue
shares of Common Stock to those persons desiring to exercise their Warrants
unless and until the shares of Common Stock could be registered or qualified for
sale in the jurisdictions in which such purchasers reside, or an exemption to
such qualification exists or is granted in such jurisdiction. The Warrants may
lose or be of no value if a prospectus covering the shares of Common Stock
issuable upon the exercise thereof is not kept current or if such underlying
shares of Common Stock are not, or cannot be, registered in the applicable
states. See "Description of Securities--Warrants."
RELATIONSHIP OF UNDERWRITER TO TRADING, INFLUENCE OF UNDERWRITER ON THE COMPANY
The Underwriter may act as a broker or dealer with respect to the purchase
or sale of the Common Stock and the Warrants in the over-the-counter market
where each is expected to trade. The Underwriter also has the right to act as
the Company's exclusive agent in connection with any future solicitation of
Warrant holders to exercise their Warrants. Regulation M, which was recently
adopted to replace Rule 10b-6, under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), may prohibit the Underwriter from engaging in any
market-making activities with regard to the Company's securities for a period of
up to five business days (or such other applicable period as Regulation M may
provide) prior to any solicitation by the Underwriter of the exercise of
Warrants until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right that the Underwriter may have
to receive a fee for the exercise of Warrants following such solicitation. As a
result, the Underwriter and any soliciting broker/dealer may be unable to
provide a market for the Company's securities during certain periods while the
Warrants are exercisable. Any temporary cessation of such market-making
activities could have an adverse effect on the market price of the Company's
securities.
The Underwriter has the right to designate a director to be one of
management's nominees to the board of directors and also has the right to
designate an observer to attend meetings of the board. The Company also agreed,
subject to certain exceptions, not to issue common stock or preferred stock for
a period of two years without the consent of the Underwriter. Additionally, the
Underwriter and the Company have entered into a consulting agreement whereby the
Underwriter will provide strategic business and merger and acquisition
consulting. Therefore, the Underwriter may be able to exert influence over the
operation of the Company. See "Underwriting."
UNDERWRITER'S WARRANTS AND REGISTRATION RIGHTS
In connection with this Offering, the Company has agreed to sell to the
Underwriter, for nominal consideration, the Underwriter's Warrants which entitle
the Underwriter to purchase up to 75,000 Units. The securities issuable upon
exercise of the Underwriter's Warrants are identical to those offered pursuant
to this Prospectus. The Underwriter's Warrants are exercisable at a price of
$9.90 per Unit, or 165% of the per Unit offering price, for a period of four
years commencing one year from the date of this Prospectus. The exercise of the
Underwriter's Warrants and the Warrants contained in the Underwriter's Warrants
may (i) dilute the value of the shares of Common Stock to be acquired by holders
of the Warrants, (ii) adversely affect the Company's ability to obtain equity
capital and (iii) adversely affect the market price of the Common Stock if the
Common Stock issuable upon the exercise of the Underwriter's Warrants and the
Warrants contained in the Underwriter's Warrants are sold in the public market.
The Underwriter has been granted certain "piggyback" and demand registration
rights for a period of five years from the date of this Prospectus with respect
to the registration under the Securities Act of the securities directly or
indirectly issuable upon exercise of the Underwriter's Warrants. The exercise of
such rights could result in substantial expense to the Company. See
"Underwriting."
15
<PAGE>
USE OF PROCEEDS
Assuming the sale of the securities offered hereby (based on an assumed
offering price of $6.00 per unit, the net proceeds to the Company, after
deducting estimated underwriting discounts and commissions and expenses payable
by the Company in connection with the Offering, including a $108,000 financial
consulting fee to be paid to the Underwriter, are estimated to be approximately
$3,607,000 ($4,194,250 if the Underwriter's Over-Allotment Option is exercised
in full). The Company expects to use the net proceeds as follows:
<TABLE>
<CAPTION>
PERCENTAGE
OF NET
PURPOSE AMOUNT PROCEEDS
- --------------------------------------------------------------- ------------ --------------
<S> <C> <C>
Purchase and/or Renting of a Manufacturing Facility(1)......... $ 1,000,000 27.7%
Buying and/or Leasing of Equipment(2).......................... $ 1,200,000 33.3%
Repayment of Bridge Loan Promissory Note(4).................... $ 700,000 19.4%
Working Capital and General Corporate Purposes(3).............. $ 707,000 19.6%
------------ -------
Total.................................................... $ 3,607,000 100.0%
------------ -------
------------ -------
</TABLE>
- ------------------------
(1) Includes purchase of production equipment for the Manufacturing Facility.
The Company intends to either: (i) acquire land in the New York metropolitan
area and construct and equip a new facility; or (ii) lease an existing
facility, which is likely to require an investment to update or improve the
facility.
(2) The Company intends to lease its equipment. Such leases generally require a
fifty percent (50%) down payment based on the purchase price and include an
option to purchase at the end of the lease term for a nominal amount. The
Company requires certain equipment which shall include, but not be limited
to, the following: filling and processing machine, dough extruders, assorted
ravioli machines, mechanical spiral freezers, general conveyor work,
vertical form and fill machines, blanchers (pre-cook products), other
miscellaneous machinery, trucks for delivery (which shall include a 24 foot
reefer and a tractor-trailer).
(3) Included as part of this category, the Company shall purchase a new computer
system and a new telephone system and intends to increase its marketing
efforts to supermarkets through circulars and slotting fees.
(4) The Bridge Financing in the amount of $700,000 consisted in part of twenty
eight $25,000 Promissory Notes. Such Promissory Notes bear no interest. The
principal of such Notes is due on the earlier of: (a) the consummation of an
initial public offering by the Company; or (b) June 23, 1999. The net
proceeds of the Bridge Financing were $613,000 after deducting sales
commissions of $84,000 and non-commission offering expenses of approximately
$3,000. The use of proceeds of the $613,000 were as follows: $400,000 to
repay two investors and $213,000 for working capital and general corporate
purposes.
Pending application of the proceeds of this Offering, the Company intends to
invest the net proceeds in certificates of deposit, money market accounts,
United States government obligations or other short-term interest bearing
obligations of investment grade. Any proceeds received upon exercise of the
Over-Allotment Option or exercise of outstanding options and warrants will be
used for working capital.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of the sale of the units based upon the Company's currently
contemplated operations, the Company's business plan and current economic and
industry conditions and is subject to reapportionment among the categories
listed above in response to, among other things, changes in its plans,
regulations, industry conditions and future revenues and expenditures. Any such
reapportionment will be made based upon the recommendations of the Company's
Board of Directors. The amount and timing of expenditures will vary depending on
16
<PAGE>
a number of factors, including changes in the Company's contemplated operations
or business plan and changes in economic and industry conditions.
Based on the Company's operating and expansion plans, the Company believes
that the net proceeds of this offering, together with available cash and
anticipated revenues from operations, will be sufficient to satisfy its capital
and legal requirements and finance its plans for expansion for at least the next
12 months. Such beliefs are based upon assumptions and there can be no assurance
that the assumptions underlying the Company's plans will prove to be correct.
After such 12-month period, or sooner if the Company's assumptions prove to be
incorrect, the Company may require additional capital in order to meet its then
current plans for expansion and capital requirements. Such financing may take
the form of ordinary or preferred equity securities or debt securities, or may
involve bank financing. There can be no assurance that the Company will be able
to obtain additional capital on a timely basis, on favorable terms, or at all.
In any of such events, the Company may be unable to implement its current plans
for expansion. See "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company will receive no proceeds from the sale of the Selling Security
Holder Shares.
DIVIDEND POLICY
The Company has never paid dividends on its Common Stock and does not
anticipate paying such dividends in the foreseeable future. The payment of
future cash dividends by the Company on its Common Stock will be at the
discretion of the Board of Directors and will depend on its earnings, financial
condition, cash flows, capital requirements and other considerations as the
Board of Directors may consider relevant. Although dividends are not limited
currently by any agreements, it is anticipated that future agreements, if any,
with institutional lenders or others may limit the Company's ability to pay
dividends on the Common Stock.
17
<PAGE>
DILUTION
As of December 31, 1998, the pro forma net tangible book value of the
Company's Common Stock was ($1,197,787) or ($.37) per share of Common Stock
outstanding. The net tangible book value of the Company's Common Stock is the
tangible assets less total liabilities. The Company has net intangible assets
amounting to $585,654 at December 31, 1998. Dilution per share represents the
difference between the amount paid per share by purchasers in this Offering and
the pro-forma net tangible book value per share after the Offering.
After giving effect to the sale by the Company of 750,000 shares of Common
Stock included in the Units offered hereby and the application of the net
proceeds thereof, the pro-forma net tangible book value of the Company's Common
Stock at December 31, 1998 would have been approximately $2,185,308 or $.54 per
share. This represents an increase in the net tangible book value per share of
$.91 to the Company's existing shareholders and an immediate dilution of $5.46
or 91% per share to the purchasers of Units in this Offering.
The following table illustrates this dilution on a per share basis (assuming
no value is attributed to the Warrants included in the Units):
<TABLE>
<S> <C> <C>
Assumed public offering price per share...................... $ 6.00
Pro forma net tangible book value per share before
Offering............................................... $ (.37)
Increase per share attributable to payments by new
stockholders........................................... $ .91
---------
Pro forma net tangible book value per share after Offering... $ .54
---------
Dilution per share........................................... $ 5.46
---------
---------
</TABLE>
The following table summarizes as of December 31, 1998 the total
consideration paid and the average price per share paid by existing stockholders
and by purchasers of Units in this Offering:
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
OUTSTANDING PERCENT OF PRICE PER
SHARES OF SHARES OF TOTAL TOTAL SHARE OF
COMMON COMMON CONSIDERATION CONSIDERATION COMMON
STOCK STOCK PAID PAID STOCK
--------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders............................. 3,276,000 81.4% $ 320 0.0% $0.01
New Investors..................................... 750,000 18.6% $4,500,000 100.0% $6.00
--------- ----- ------------- ----- ---------
4,026,000(1) 100.0% $4,500,320 100.0% $1.12
--------- ----- ------------- ----- ---------
--------- ----- ------------- ----- ---------
</TABLE>
- ------------------------
(1) Does not include: (i) 1,500,000 shares of Common Stock issuable upon
exercise of the Warrants offered hereby; (ii) up to an additional 337,500
shares of Common Stock issuable upon exercise of the Underwriter's
Over-Allotment Option and the underlying Warrants; (iii) 225,000 shares of
Common Stock issuable upon exercise of the Underwriter's Warrants and the
Warrants included therein; (iv) 500,000 shares of Common Stock issuable upon
exercise of options available for grant under the 1998 Stock Option Plan;
and (v) 56,000 shares of Common Stock reserved for issuance pursuant to
options and warrants issued in connection with the Company's Bridge
Financing.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1998 and as adjusted to give effect to the sale by the Company of
750,000 Units offered hereby. The table should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1998
ACTUAL AS ADJUSTED(1),(2)
------------------ -------------------------
(UNAUDITED)
<S> <C> <C>
Total current liabilities:........ $1,230,754 $ 530,754(3)
------------------ -----------
Long-term debt:................... -- --
------------------ -----------
Stockholder's equity:
Common Stock $.0001 par value,
15,000,000 shares authorized;
4,876,000 shares issued;
5,626,000 shares issued as
adjusted...................... 488 563
Additional paid-in capital...... 678,432 4,303,606
Deficit......................... (891,053) (1,033,207)(4)
Treasury Stock; 1,600,000
shares-at cost................ (400,000) (400,000)
------------------ -----------
Total Stockholders Equity
(Deficiency).................... (612,133) 2,870,962
------------------ -----------
Total Capitalization.............. $ 618,621 $3,401,716
------------------ -----------
------------------ -----------
</TABLE>
- ------------------------
(1) Assumes sale of 750,000 Units for gross proceeds of $4,500,000, less the
Underwriters Discount of $450,000 and other expenses estimated to aggregate
$424,751.
(2) Does not assume exercise of the Underwriter's Over-Allotment Option, the
Underwriter's Warrant, any of the Warrants or any of the Bridge Warrants.
(3) Assumes repayment of the bridge notes of $700,000.
(4) Assumes amortization of deferred financing costs of $142,154 resulting from
the bridge financing.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Silver Star Foods, Inc. ("the Company") is a manufacturer and wholesaler of
stuffed and other frozen pasta products which it markets under the "Silver Star"
trade name. The Company commenced operations in May, 1995.
A substantial portion of the Company's sales to supermarkets are made during
promotions or "specials" during which the Company advertises in the chain's
store circular. These specials are typically booked by the Company's food
brokers eight weeks in advance of the scheduled sale. The Company can typically
expect to generate greater volume from the supermarkets in periods in which they
are participating in the store circulars. During the year ended March 31, 1998
("fiscal 1997"), the Company changed food brokers due to the departure of their
primary contact at the broker. During the transition period between brokers,
which spanned August and September 1997, the Company had a lapse of promotion
sales which resulted in a decline in overall sales volume. The Company is
dependent on its food brokers to promote sales of its products to supermarkets,
however, the Company has no obligation to use food brokers other than existing
contractual agreements and has, in fact, established many relationships in the
industry based on the industry experience of its principal.
The Company does not presently have its own manufacturing facility, but
plans to construct one from a portion of the proceeds of the Offering.
Management believes that manufacturing its own products would enable the Company
to increase its profit margins and participate more fully in "price competitive"
marketing which is common in the retail market. The Company also hopes to pursue
other distribution channels for its product as a result of its own manufacturing
capabilities. Concurrent with the establishment of a facility, the Company
anticipates that both its direct costs and operating costs will increase as the
Company adds a full-time workforce, increases insurance coverage and increases
marketing efforts. However, there are no assurances that the Company will be
able to increase revenue, increase its gross profit or attain and sustain
profitability as a result of these expenditures.
The Company's independent accountants have issued a going concern opinion in
their report as of March 31, 1998, citing the Company's working capital
deficiency and stockholders' deficiency of $316,443 and $67,503, respectively.
The Company has a working capital deficiency and stockholders' deficiency at
December 31, 1998 of $1,203,042 and $612,133, respectively. Those conditions
raise substantial doubts about the Company's ability to continue as a going
concern. Management's plans with respect to these issues include and are
primarily based upon the Offering contemplated herein.
RESULTS OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 1998 AS COMPARED TO DECEMBER 31, 1997
The Company had net sales of $857,000 for the nine months ended December 31,
1998 as compared to $962,000 for the nine months ended December 31, 1997, a
decrease of $105,000 (11%). The decrease is attributable to the Company's
inability to participate in store promotions dues to its working capital
deficiencies.
Costs of sales decreased during the nine months ended December 31, 1998 to
$735,000 from $818,000 for the nine months ended December 31, 1997, a decrease
of $83,000 (10%). The decrease corresponds to the Company's decrease in sales
for the comparative periods. As a percentage of net sales, costs of sales were
approximately 86% and 85% for the nine months ended December 31, 1998 and 1997,
respectively.
Operating expenses increased to $415,000 from $317,000 for the nine months
ended December 31, 1998 as compared to 1997, an increase of $98,000 (31%).
Approximately $34,000 of such increase is
20
<PAGE>
attributable to additional expenditures for slotting fees for more shelf space
for the Company's products. The Company also incurred approximately $46,000 in
additional salaries and wages.
Amortization expense for the comparative periods were $10,250 in each of the
nine months ended December 31, 1998 and 1997. The Company incurred approximately
$118,000 in amortized finance costs for the nine months ended December 31, 1998,
relating to the bridge financing which was completed in August 1998.
The Company had a net loss for the nine months ended December 31, 1998 of
$423,000 as compared to a net loss of $184,000 for the nine months ended
December 31, 1997, an increase of $239,000 (130%). Of the increased loss,
$118,000 is attributable to the aforementioned of finance costs.
YEAR ENDED MARCH 31, 1998 AS COMPARED TO MARCH 31, 1997
The Company had net sales of $1,343,000 for fiscal 1997 as compared to
$1,450,000 for fiscal 1996, a decrease of $107,000 (7%). The decrease is
attributed to the Company's lack of working capital. Additionally, the Company
was unable to participate in many store promotions due to the temporary loss of
its food broker during fiscal 1997.
Costs of sales increased $227,000 or 23% to $1,199,000 from $972,000 for
fiscal 1996. As a percentage of net sales, costs of sales increased to 89% for
fiscal 1997 from 67% from fiscal 1996. These increases are attributed to price
promotions by the Company to offset some of its inability to participate in the
store promotions in an attempt to maintain its market share during fiscal 1997.
Operating expenses were $485,000 for fiscal 1997 as compared to $480,000 for
fiscal 1996, an increase of $5,000 (1%). Amortization expense was approximately
$14,000 for each of fiscal 1997 and 1996, respectively.
The Company had a net loss of $355,000 in fiscal 1997 as compared to a net
loss of $19,000 for fiscal 1996, an increase of $336,000 (1768%).
LIQUIDITY AND CAPITAL RESOURCES
DECEMBER 31, 1998 TO MARCH 31, 1998
At December 31, 1998, the Company had cash of $8,000, as compared to a cash
overdraft of $21,000 at March 31, 1998. The Company raised gross proceeds of
$700,000 (net proceeds of $613,000) from a bridge financing which was completed
in August 1998. From the proceeds, the Company purchased shares of its Common
Stock for $400,000, used $130,000 for operations, $43,000 for registration costs
and repaid stockholder loans of $37,000.
MARCH 31, 1998 TO MARCH 31, 1997
The Company had a cash overdraft of $21,000 at the end of fiscal 1997 as
compared to cash of $2,000 at the end of fiscal 1996. In July 1997, the Company
sold 1,600,000 shares of its Common Stock for $400,000 cash in two private
transactions. The Company also received $55,000 in loans from its principal
shareholder. The Company used funds for operations ($321,000), for note payments
relating to the purchase of the Company's tradename ($77,000) and for
registration costs ($80,000).
MARCH 31, 1997 TO MARCH 31, 1996
Cash at the end of the fiscal 1996 was $2,000, a decrease of $3,000 from the
end of fiscal 1995. Operations generated cash flows of $114,000. Proceeds from
the sale of marketable securities amounted to $21,000. These proceeds were
primarily offset by expenditures for debt service ($127,000) and repayments of
shareholder loans ($11,000).
21
<PAGE>
In August 1998, the Company completed a bridge financing whereby it received
net proceeds of approximately $613,000. The bridge financing consisted of 28
units, each unit comprised of a promissory note in the principle amount of
$25,000, 2,000 shares of the Company's Common Stock and warrants to purchase an
additional 2,000 shares of the Company's Common Stock. The Company used $400,000
of the proceeds to repurchase 1,600,000 shares of the Company's Common Stock
which were sold in a private placement in July 1997. The repurchase of these
shares will reduce the dilution to potential future investors in the Company.
The balance of the proceeds have been used to pay some Offering costs and for
general working capital purposes.
Management believes the bridge financing in conjunction with the Company's
planned initial Offering would give the Company sufficient working capital to
fund its operations and expansion plans for at least the next twelve months,
although there can be no assurance of the Company's successful stock offering or
future profitability.
YEAR 2000
Many computer systems and software products currently employed by businesses
and individuals worldwide will not function properly as the year 2000 approaches
unless changes are incorporated to a once common programming standard which
refers to date sensitive fields using only two digits. Therefore, for example,
by entering a date which is in the year 2000, a program might inadvertently read
it as the year 1900, causing inaccurate data or system failures. The Company
currently employs software programs which are readily available in the
marketplace, known as "canned" software applications. The Company has examined
the costs to upgrade its systems with systems which are year 2000 compliant, and
determined that the cost to do so is immaterial in relation to the Company's
operations. The Company believes that its computer hardware currently meets
compliance standards. However, the proliferation of sub $1,000 personal
computers on the market today would make an upgrade, if necessary also
immaterial.
22
<PAGE>
BUSINESS
THE COMPANY
Silver Star Foods, Inc. (the "Company") is a distributor of a wide range of
pre-packaged frozen pasta products in the New York metropolitan area. The
Company sells its products such as ravioli and tortellini, primarily to
supermarkets. The Company intends to raise additional equity in order to
establish a manufacturing facility. The Company believes, although there can be
no assurance, that acquiring manufacturing capacity and entering into agreements
with additional sales representatives will enable it to expand its customer base
to supermarket chains and small distributors in other regional markets and to
large volume customers such as club stores, restaurant chains and customers
requiring private label manufacturer.
HISTORICAL BACKGROUND
In 1930, the grandfather of the Company's President opened a pasta shop in
Brooklyn, New York under the name Silver Star Ravioli & Macaroni Co., Inc.,
("SSRM"). During the next twenty years, SSRM developed an excellent reputation
for its hand-made pasta around New York. In the early 1950's, SSRM expanded by
opening a 25,000 square foot factory with one of the first mechanized ravioli
machines. With increased production capabilities, SSRM was able to supply large
supermarket chains with its food products. During this time, SSRM distributed
its food products to a number of grocery chains and numerous independent stores
in the five boroughs of New York and Long Island. In addition to retail outlet
stores, SSRM opened institutional accounts that included airlines and cruise
ships. SSRM also expanded its geographic area and, with a select network of
brokers, began to distribute its food products to the tri-state area, in
addition to upstate New York, Philadelphia, Baltimore, Florida, Arizona and
California. During this time, SSRM was owned and operated by members of the
Trotta family, including Michael Trotta, the Company's President, Louis Trotta,
the Company's Vice-President, and Vincent Trotta, who serves as an advisor to
the Company.
By the late 1980's, SSRM's manufacturing equipment was outdated. Competitors
with newer factories and equipment were able to produce products at lower cost
and on a more flexible schedule. As a result, sales margins suffered. SSRM's
attempts to upgrade the facility, which was over thirty years old, were
ineffective. Debts incurred in connection with the attempted upgrade eventually
led to the bankruptcy of SSRM.
In 1995, Michael Trotta formed the Company under the name Silver Star
Ravioli. The Company changed its name to Silver Star Foods, Inc. in July 1997.
The Company, which had been using the Silver Star trademark since it was formed,
acquired the trademark from Vincent Trotta in 1997 for $205,000 and acquired the
right to use Vincent Trotta's name in connection with its promotions in April
1998.
INDUSTRY OVERVIEW
Today, retail pasta products sales in the United States total over $500
million, as published in the trade magazine, Modern Grocer. Management believes
that the appeal of frozen pasta products to American consumers has increased
since the 1980's and shows no sign of abating.
The Company believes that the U.S. retail market for frozen pasta is growing
and fragmented. The Company believes that the growth in the frozen pasta
category has been aided by several factors including both the growth in
popularity of frozen foods and the changing consumer taste preferences to favor
distinctive, high quality, healthy foods. The Company further believes that
consumers are demanding more healthful food products as they learn more about
the importance of one's diet in a healthy lifestyle. For example, the U.S.
Surgeon General has recommended that consumers lower the percentage of calories
from fat in their diets at no more than 30% (from the existing 37% average) and
the U.S. Department of Agriculture recommends that 60-70% of Americans' daily
caloric intake come from complex carbohydrates. Consequently, much of consumers'
demand for more healthful food products is focused on lowering the fat content
of their diets and increasing their intake of complex carbohydrates. The Company
23
<PAGE>
believes that the sale of pasta, which is generally low in fat and high in
complex carbohydrates, is benefitting from the trend towards healthier eating.
No assurance can be given that the frozen pasta market will continue to
expand. Nor can there be any assurance that current levels of public attention
to personal health, fitness and diet or current perceptions of healthfulness
associated with pasta and pasta sauces will continue in the future. In
particular, the public perception of the healthfulness associated with
pasta-based meals may decline due to a recent study by the Center for Science in
the Public Interest finding high fat content in cheese and cream-based pastas
and pasta sauces. Similarly, sales of beef ravioli will not be aided by the
increased demand for healthy foods.
Additionally, as the Company expands to different regions of the United
States, the Company may encounter differing public perceptions and concerns
about health and diet. This may adversely impact the Company's marketing and
expansion strategy and cause it to incur greater expenses in promoting its
products.
SALES AND DISTRIBUTION
The Company primarily sells it products through sales representatives, known
in the industry as food brokers. The Company currently has representative
agreements with four food brokers. The Company pays its food brokers a
commission which ranges from 3-5% of the net amount received from customers on
all sales in the respective brokers territory. The Company's brokers service the
New York City metropolitan area, New Jersey/Eastern Pennsylvania/Maryland and
Florida. The broker for the New York area served as broker on 97% of the
Company's sales. The agreement with the New York broker can be terminated by
either party at any time. The other agreements contain termination provisions as
well. Although the Company believes it could replace its food brokers, the loss
of a food broker could have a material adverse effect on the Company,
particularly in the short term.
The primary function of the food broker is to act as a liaison between the
manufacturer and the Company's customers. Working with Company management, the
broker will place advertisements in the supermarket circular and arrange
"specials" or discounts on the Company's products. If the Company determines
that it desires to place its product in a supermarket chain, the broker will
negotiate for the payment by the Company of a "slotting fee," which is a fee
that a potential supplier must pay to obtain shelf space for a product in the
supermarket chain. The Company believes that such "slotting fee" has a
beneficial life of three (3) years. However, payment of a slotting fee does not
ensure continued shelf space availability for the Company's product. The Company
intends, although there can be no assurance it will be able to, to establish
relationships with additional food brokers in order to expand into other
regions. Food brokers are particularly helpful when expanding into new
geographic markets because a single broker may have existing relationships with
numerous supermarkets.
The Company recently entered into an agreement with Kelly Clarke, Inc., a
food broker that works with club stores such as Costco and Price Club. The
Company plans to package its products in a manner that would be suitable to club
stores. However, the Company believes that it will not be able to effectively
service club store customers until it has established a manufacturing facility.
The Company has no plans to make any sales to club store customers at this time,
and there can be no assurance that the Company will be able to sell its products
to club store customers in the future, even if it established a manufacturing
facility.
The food brokers generally arrange sales to supermarket chains. These
supermarkets then either place an order with the broker or with distributors,
who then immediately place orders with the Company. There is not a significant
difference in pricing or delivery procedures based on whether the supermarket
uses a distributor.
According to a report by A.C. Nielson & Co., 1997 sales of the Company's
products accounted for approximately 7.5% of the frozen pasta market among
supermarkets in the New York Metropolitan area. Sales to these supermarket
chains (directly or through distributors) account for virtually all of the
Company's revenue. For the nine months ended December 31, 1998, the Company's
five largest customers
24
<PAGE>
accounted for approximately 98% of its sales. These customers consist of two
supermarket chains and three distributors who resell the Company's products
primarily to other supermarket chains. During 1997, one of the two supermarkets,
Pathmark Stores, Inc. changed the way they place orders and are now utilizing
one of the three distributors. The Company's management does not anticipate that
this change will affect the price or quantity of the Company's products
purchased by Pathmark supermarkets. The Company has no long term agreements with
any of its customers, and the loss of any of these large customers could have a
material adverse affect on the Company.
The Company sells to a number of supermarkets chains that have stores
(operating under the same name or through affiliated companies) in other
regions. These supermarkets have buying departments in each region. The Company
would have to establish relationships with different buyers to sell its products
in these regions. However, Company management believes that its relationships in
the New York region with these supermarket chains will aide it in establishing
relationships with supermarket buyers in other regions.
Generally, competition for shelf space in supermarkets is intense. Companies
that supply to supermarkets, are often required to pay large slotting fees in
order to commence business with a supermarket chain. The Company believes that
such slotting fees have a beneficial life of three (3) years. Food suppliers may
attempt to use their relationship with the supermarket or pricing arrangements
to obtain the optimum shelf space. This usually creates an advantage for larger
companies who are able to obtain the most visible shelf space. The Company's
management believes that this advantage is reduced in frozen products, all of
which must be stored in a freezer section. Additionally, the Company believes
that its use of coupons and store circulars, along with customer loyalty, will
enable it to overcome the advantage of the larger companies in obtaining optimum
shelf space.
The Company also sells its products to distributors who resell the frozen
pasta to delicatessens, grocery stores and restaurants. Currently, these
customers make up approximately 2% of the Company's business. In the past year,
the Company has sold frozen pasta to four different small distributors, located
in California, New York, Nevada, Arizona and Florida. The Company intends,
although there can be no assurance that it will be able to do so, to establish
relationships with additional distributors in order to expand into other regions
and markets.
If the Company is able to acquire a manufacturing facility, it intends to
pursue institutional customers, such as hotels, restaurants, schools, nursing
homes, hospitals and prisons. These institutional customers buy products in
large volumes. Without a manufacturing facility, the Company does not have the
flexibility or the cost structure to pursue such customers.
Initially, the company intends to rely primarily on food brokers to
establish relationships with these institutional customers. Upon obtaining
additional financing, the Company intends to employ a marketing and sales
director. This individual will be in charge of establishing relationships with
additional food brokers and distributors, and for pursuing institutional
customers and other retail customers.
The Company's success depends upon an effective system of distribution for
its products. The Company utilizes central warehouse delivery for all its
supermarket customers. In central warehouse delivery, the products are delivered
to a warehouse for a chain of supermarkets for later delivery by the chain to
its stores. To distribute its products to other parts of the country (which is a
small part of the Company's business at the present time), the Company uses
local and regional distributors. In any event, the Company uses common carriers
to deliver its products to these distributors. The dependence on other companies
for delivery of its products poses a risk to the Company. While this method of
delivery has been reliable and available at acceptable rates thus far, there can
be no assurance that the Company will continue to be able to negotiate
acceptable freight rates in the future and that delivery will not be disrupted
for reasons including, but not limited to, adverse weather, natural disasters or
labor disputes in the trucking industry.
25
<PAGE>
MARKETING
An emphasis of the Company's marketing to both its customers and consumers
is on the association of the Silver Star name with a quality pasta product
produced by a family operated business. The Company's promotional materials and
packaging for some of its products contain a short statement from Vincent
Trotta, Sr. which, among other things, offers a personal guarantee of quality,
thanks customers for loyalty, and explains the Silver Star's products are "true
to a family tradition." On all products, the Company has begun to use the name
"Aversa Silver Star" after the founder of SSRM and the grandfather of the
Company's President. The Company expects to continue to use the Aversa Silver
Star name as it enters new markets because management believes that customers
are more likely to associate that name with Italian food products from a family
operated business.
The Company hopes to use advertising, primarily in supermarket circulars, to
familiarize customers with the Silver Star name. The Company hopes positive
experiences with the Company's product will create customer loyalty and promote
repeat business.
The Company also intends to capitalize on the nutritional value of its
products. As is now required by law, the Company discloses the nutritional
information about its products on the packaging. The Company believes that the
nutritional value of some of its frozen pasta compares favorably with many other
alternatives among frozen foods.
The Company's most effective advertising to consumers is by placing
advertisements in supermarket circulars, which are available to customers of a
supermarket upon entering a store. Occasionally, supermarkets distribute the
circular via direct mail or as in enclosure in newspapers. The advertisements in
the circular inform the consumer of any specials or discounts that are available
on the Company's products and may contain coupons. The advertisement in the
circular is arranged by the food broker and generally are placed approximately
eight weeks in advance.
THE COMPANY'S PRODUCTS
The Company specializes in stuffed pasta, a form of pasta that includes
stuffing such as ricotta, eggs and cheese, among others. The products that the
Company currently distributes are: jumbo cheese round 13 oz. ravioli; mini
cheese round 16 oz. ravioli; mini square cheese 16 oz. ravioli; mini square meat
16 oz. ravioli; tortellini, including meat and cheese, 16 oz.; cavatelli, 16
oz.; gnocchi 16 oz.; six count manicotti, 19 oz.; and twelve count stuffed
shells, 21 oz. The Company's most popular product, mini square cheese ravioli
should provide a meal for 5 people and is sold at a suggested retail price of
$3.19.
Like plain pasta, the Company's products must be boiled before they should
be eaten. The Company does not sell its products with ready-made pasta sauce,
although it may do so in the future.
The Company's products are packaged in polyethylene bags. The Company may in
the future market its ravioli in a box, which was the packaging method utilized
by SSRM for its most popular ravioli products. The current packaging includes
the nutritional information, ingredients and cooking directions. Also
prominently featured is the Silver Star trademark. The packaging for some of the
Company's products contains a statement from Vincent Trotta Sr. guaranteeing the
quality of the Company's products. The packaging design is based on SSRM's
packaging. The manufacturer of the polyethylene bags ships them directly to the
Company's suppliers.
The Company has no current plans to introduce new products, and is unlikely
to do so in the near future. If the Company is able establish a manufacturing
facility, it intends to introduce new products and new packaging of existing
products. For example, the Company intends to create packaging aimed at club
stores, including a "bulk pack," which will be a single oversize pack weighing
approximately 3 lbs. Additionally, the Company may sell its products with a
ready made sauce. The sauce could be produced by a private manufacturer to the
Company's specifications, or the Company could enter into a joint venture
arrangement with an existing pasta sauce manufacturer.
26
<PAGE>
PRINCIPAL SUPPLIERS AND INGREDIENTS
Currently, the Company uses two private label manufacturers to prepare and
package all of its products. The Company provides these manufacturers with
recipes for its products. Each of the Company's manufacturers use a quick freeze
process to ensure that the product is frozen while it is still fresh. The
Company believes that it could replace its suppliers on similar terms, however
the loss of any supplier could have a material adverse affect on the Company,
particularly in the short term.
The ingredients used by the Company's suppliers are primarily flour, eggs
and water. Depending on the type of stuffed pasta the Company is producing, the
ingredients may include whole milk ricotta, eggs, Romano cheese, mozzarella,
parsley, salt, pepper, meat filling chopped meat, onions and spices. The
Company's suppliers buys flour from Congra and Ricotta from either Pollyo or
Sorrento. Other ingredients come from local distributors and manufactures. If
the Company establishes a manufacturing facility, it intends to purchase
directly from these suppliers.
The Company's two production agreements are with Mount Rose Ravioli and
Macaroni Co. and Savignano Foods Corporation. Each supplier is able to fill the
Company's product orders in approximately seven days.
MOUNT ROSE RAVIOLI AND MACARONI CO. On June 13, 1995, the Company executed
an agreement which provides that Mount Rose will manufacture and package the
following "Silver Star" products:
<TABLE>
<S> <C>
Square Meat and Cheese Ravioli--bag
Square Meat and Cheese Ravioli--box
Round Cheese Ravioli
Cavatelli
Cheese and Meat Tortellini
Gnocchi
Six Count Manicotti
Twelve Count Stuffed Shells
</TABLE>
The agreement is terminable at any time by either party. The agreement
provides that the product is to be paid for by either cashiers or certified
check at the time the order is placed. The above prices, in accordance with the
agreement, are to be reviewed every six months with respect to raw material and
packaging costs. An increase or decrease in such costs will be passed on to the
Company. The agreement further provides that in the event that the agreement is
terminated the Company gives Mount Rose permission to use any packaging left on
hand at the time of termination in any way it chooses.
SAVIGNANO FOOD CORPORATION. Savignano has agreed to manufacture the
following "Silver Star" products for the Company:
<TABLE>
<S> <C>
Large Round Cheese Ravioli
Cavatelli
Mini Round Cheese Ravioli
</TABLE>
The agreement, executed on June 12, 1995, provides that these prices are
contingent with the Company having monthly sales of 7,000 cases of Ravioli and
3,000 cases of Cavatelli. In accordance with the agreement, if the Company fails
to purchase from Savignano the above-mentioned volume over a 52-week period,
Savignano has the right to raise prices relative to the Company's lack of
demand. As per the agreement, the Company cannot order less than 250 cases of
each of the above products.
The agreement also provides that Savignano is responsible for all bags,
labels and corrugated boxes needed to manufacture and package the product at
Savignano sole expense. However, Savignano is not responsible for art work,
plates, or dyes of any kind needed for product packaging. The agreement further
provides that either party may terminate the agreement upon 120 days notice. The
Company agreed that Savignano was to be the exclusive producer for the above
products. The agreement's prices are to be reviewed every three months.
27
<PAGE>
MANUFACTURING
Currently, the Company does not have any manufacturing ability. The Company
intends to establish a manufacturing facility. The Company has no present plans
for the establishment of a facility but is considering either (i) acquiring
through merger or acquisition a company with an existing facility, which may
require an investment to update the facility, (ii) constructing and equipping a
new facility or (iii) leasing an existing facility, which is likely to require
an investment to update or improve the facility.
The Company's intends to establish a facility that would be 20,000-25,000
square feet. The Company requires a facility with capability for drainage and
refrigeration. The facility will be built with the intent on receiving a USDA
plant number with the capability of processing meat and chicken, in addition to
cheese. Only after USDA inspection and approval will it be able to process meat
and chicken. However, it does not require USDA approval to process cheese. The
Company would like to locate the facility in the New York area to be near the
majority of its customers. The Company intends to equip the facility with new
equipment that has the capacity to produce its specialized products quickly and
efficiently.
Management believes that manufacturing capacity will allow the Company to
produce its goods at a lower cost, particularly if it is able to increase
volume. Furthermore, manufacturing capacity is likely to allow the Company
greater flexibility in its product mix and enable it to require less advance
notice of its orders.
COMPETITION
In the pasta market, the Company competes with national, regional, and local
pasta manufacturers and specialty stores. Many of these competitors are larger,
more established and have greater financial and other resources than the
Company. Competition in the pasta industry is based on product quality, brand
name awareness, brand loyalty and price. Non-frozen, non-stuffed pasta, such as
spaghetti is significantly less expensive then the Company's products and is
less expensive to ship and to store. The Company also faces competition from
fresh, refrigerated pasta, which is sold by, among others, Contadina, produced
by Nestle Fresh Foods, Co., and DiGorno, produced by Kraft General Foods, Inc.
Such companies have significantly more resources than the Company. Refrigerated
pasta is significantly more expensive than frozen pasta.
The Company competes directly with a number of regional and national frozen
pasta producers, including Celentano and Italian Village, who are in most
markets nationwide. In the New York market, the Company competes with these
national and several regional pasta makers. The following table, which is based
on reports prepared by A.C. Nielson and Co., sets forth the market share in the
New York retail frozen pasta market based on sales in supermarkets.
<TABLE>
<CAPTION>
MARKET SHARE PERCENTAGE OF
COMPANY(1) (%)(2) CHAINS(3) ITEMS(4)
- -------------------------------------------------------------------------- --------------- --------------- -------------
<S> <C> <C> <C>
Italian Village........................................................... 26.0 100 12
Celantano................................................................. 24.0 100 15
Andrea (Savignano)........................................................ 8.5 100 8
SILVER STAR............................................................... 7.5 80 3
Severoli.................................................................. 5.0 100 6
Mount Rose................................................................ 4.5 50 6
</TABLE>
(1) Among the Company's competitors are Mount Rose and Savignano
(Savignano's products are sold under the trade name "Andrea's"), who are the
Company's two suppliers.
(2) Market share is based on sales of frozen pasta products in the New
York City metropolitan area, which includes Long Island, parts of New
Jersey, and other surrounding counties.
(3) This is the percentage of the supermarket chains in the New York
area that carry each listed company's products. Currently, King Cullen, Shop
Rite, Pathmark, Grand Union and Key Food, all of the five chains with over
fifty stores, carry the Company's products.
28
<PAGE>
(4) Items are the number of items that each company has on sale in the
supermarkets.
Competition for shelf space in grocery stores is intense and poses great
difficulty for smaller food companies. Other Competitors with significant
economic and other resources could, at any time, enter the frozen pasta
industry. Supermarkets could choose to carry such companies products in addition
to or instead of the Company's products due to existing relationships with the
makers of such products.
TRADEMARK
The Company purchased the "Silver Star" trademark from Vincent Trotta in
1997 for $205,000. Mr. Trotta had acquired the trademark from SSRM. SSRM had
registered the trademark with the U.S. Patent and Trademark Office, however, the
Company failed to renew the application and the trademark protection has lapsed.
The Company has filed a new application for registration. Even if the
application is approved, there can be no assurance as to the degree of
protection its registered trademark may afford the Company.
EXPANSION STRATEGY
The Company's expansion strategy is dependant on obtaining additional
financing to establish a manufacturing facility. The Company's management
believes that it will be able to produce its products at a lower cost, which
will allow it more flexibility in pricing. Management believes that discount
pricing is often necessary to gain customers and establish market share.
Management believes that the manufacturing facility will also allow the
Company greater flexibility in adjusting its product mix or packaging because
the Company has direct control of the allocation of labor and machinery at its
facilities. Similarly, the management expects to be able to respond to customer
orders more quickly. There can be no assurance that establishing a facility will
be a more cost effective, efficient or quicker way for the Company to acquire
its products.
Management believes that the advantages of the manufacturing facility will
allow the Company to pursue institutional customers such as hotels, nursing
homes, schools and hospitals, and discount buyers such as club stores. The
Company may also offer to manufacture pasta products for other companies on a
private label basis. There can be no assurance that institutional or private
label markets for the Company's products will develop.
The Company intends to establish relationships with additional food brokers
and small distributors. Food brokers are particularly helpful when expanding
into new geographic markets because a single broker may have existing
relationships with numerous supermarkets. The Company intends to expand into
areas where pasta products are popular. Initially, the Company intends to focus
expansion in the Northeast, in markets such as Philadelphia and Boston, where it
already has some customers, and then expand into cities such as Washington,
Baltimore and Chicago.
Presently, the Company has no plans or intentions to make acquisitions.
However, the Company believes that a number of opportunities exist for the
Company to accelerate growth by acquiring a complementary or competitive
business. The Company could acquire an entity that has (i) a manufacturing
facility suitable for the Company's products, (ii) sells complementary products,
or (iii) has established name recognition or distribution lines in regional
markets where the Company does not currently operate.
The Company believes that the frozen pasta market is a growing market, and
that the market for stuffed pasta is likely to grow as well. The Company
believes, although there can be no assurance, that its marketing will put it in
position to take advantage of this growth.
EMPLOYEES
As of February 28, 1999, the Company had 2 full-time employees.
LEGAL PROCEEDINGS
The Company is not currently subject to any material legal proceedings.
29
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------------------------------------- --- -------------------------------------
<S> <C> <C>
Michael Trotta....................................................... 33 President/CEO/CFO/Secretary/ Director
Vincent Trotta....................................................... 70 Director
Barry Sherman........................................................ 53 Director
Dennis Lore.......................................................... 48 Director
</TABLE>
Each director is elected for a period of one (1) year at the Company's
annual meeting of shareholders and serves until the next such meeting and until
his or her successor is duly elected and qualified. Directors may be re-elected
annually without limitation. Officers are appointed by, and serve at the
discretion of, the Board of Directors. The Company's directors do not presently
receive any compensation for their services as directors' but it is contemplated
that directors will be granted options pursuant to the Plan. In addition, for a
period of three years following the date of this Prospectus, the Underwriter
shall have the right, at its option, to designate one director or observer to
the Board of Directors, which director shall be reasonably acceptable to the
Board of Directors.
Set forth below is a biographical description of each director and executive
officer of the Company based on information supplied by each of them.
MICHAEL TROTTA has served as the Company's Chairman, Chief Executive
Officer, President, Chief Financial Officer, Secretary and Director since its
formation in 1995. Prior to founding the Company, Mr. Trotta served as
Vice-President--Manufacturing of Little Italy Frozen Foods, Inc. from 1993 to
1994. Mr. Trotta worked for SSRM from 1987 to 1992 in various positions
including Plant Manager and Vice President. Initially, Mr. Trotta was employed
in the Shipping and Receiving department. Shortly thereafter, Mr. Trotta was
named Plant Manager where he supervised over 30 employees and was responsible
for all the plant's daily operations. Mr. Trotta was Vice-President of SSRM when
it filed bankruptcy and was subsequently liquidated in 1992. In December 1996,
Mr. Trotta filed for personal bankruptcy, primarily as a result of debts
incurred personally in connection with SSRM. Mr. Trotta emerged from bankruptcy
protection in March 1997. Mr. Trotta is Vincent Trotta's son.
VINCENT TROTTA has served as a director of the Company since September 1998.
He has been involved in the food business since 1949 when he became SSRM's
production manager. Mr. Trotta has also served as SSRM's Plant Manager and
President. He retired from SSRM in 1979. Mr. Trotta is the father of Michael
Trotta.
BARRY SHERMAN has served as a director of the Company since September 1998.
Mr. Sherman has been involved in the retail sales and brokerage business for
nearly fifty years. For 32 years, Mr. Sherman was employed by Waldbaum's, where
he served as Vice President of Merchandising for 15 years. Mr. Sherman is
currently Vice President of Red Apple Supermarkets. He commenced employment with
Red Apple Supermarkets in July, 1997. From 1993 until his employment with Red
Apple Supermarkets, he was a principal of RDI/Enterprise Marketing, which was
involved in the food brokerage industry.
DENNIS LORE has served as a director of the Company since September 1998.
Presently, Mr. Lore is the owner and operator of Pineview Development Company, a
developer of real estate in Upstate New York. Mr. Lore was the principal owner
of RDO Brokerage from 1987 to 1993. RDO Brokerage specializes in frozen food
sales and marketing in the New York metropolitan area. From 1985 to 1987, he was
a partner
30
<PAGE>
in Norlen Futuran Brokerage Co., specializing in dairy and fast food accounts in
the New York metropolitan area. Prior to such time, he worked for M.W. Houck
food brokers in such capacities as Director of Sales and Marketing, Liaison
between manufacturers, brokers and customers and account manager.
COMMITTEES OF THE BOARD
In November 1998, the Board of Directors created the Compensation Committee,
which is comprised of Barry Sherman and Dennis Lore. The Compensation Committee
has (i) full power and authority to interpret the provisions of, and supervise
the administration of, the Plan and (ii) the authority to review all
compensation matters relating to the Company. The Compensation Committee has not
yet formulated compensation policies for senior management and executive
officers. However, it is anticipated that the Compensation Committee will
develop a company-wide program covering all employees and that the goals of such
program will be to attract, maintain, and motivate the Company's employees. It
is further anticipated that one of the aspects of the program will be to link an
employee's compensation to his or her performance, and that the grant of stock
options or other awards related to the price of the Common Shares will be used
in order to make an employee's compensation consistent with shareholders' gains.
It is expected that salaries will be set competitively relative to the frozen
food industry and that individual experience and performance will be considered
in setting salaries.
In November 1998, the Board of Directors created an Audit Committee, which
is comprised of Barry Sherman and Dennis Lore. The Audit Committee is charged
with reviewing the following matters and advising and consulting with the entire
Board of Directors with respect thereto: (i) the preparation of the Company's
annual financial statements in collaboration with the Company's independent
accountants; (ii) annual review of the financial statements and annual report of
the Company; and (iii) all contracts between the Company and the officers,
directors and other affiliates thereof. The Audit Committee, like most
independent committees of public companies, does not have explicit authority to
veto any actions of the entire Board of Directors relating to the foregoing or
other matters; however, the Company's senior management, recognizing their own
fiduciary duty to the Company and its stockholders, is committed not to take any
action contrary to the recommendation of the Audit Committee in any matter
within the scope of its review.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for
services in all capabilities to the Company.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR SALARY OTHER COMPENSATION
- -------------------------------------------------------- --------- ---------- --------------------------------
<S> <C> <C> <C>
Michael Trotta, Chief Executive Officer, 44,658(1)
President, Chief Financial Officer, and Secretary..... 1998 $ -0 -
</TABLE>
- ------------------------
(1) For the fiscal year ended March 31, 1998
The Company has no retirement, pension or profit sharing program for the
benefit of its directors, officers or other employees but the Board of Directors
may recommend one or more such programs for adoption in the future.
DIRECTOR COMPENSATION
Directors of the Company who are not salaried officers will receive no fee
for attending each Board meeting or meeting of a committee of the Board. All
directors will be reimbursed for their reasonable out-of-pocket expenses
incurred in connection with attending Board and committee meetings. In the
future, the Company reserves the right to issue shares of the Company's common
stock to non-officer Board members for their agreement to become a Board member.
31
<PAGE>
EMPLOYMENT AGREEMENTS
Michael Trotta entered into a three (3) year employment agreement with the
Company on September 15, 1998. Mr. Trotta's compensation under the Agreement is
$104,000 during the initial annual term with increases in the succeeding two (2)
years of the term equal to the greater of 10% from the previous year's salary or
the cost of living adjustment recognized in the area where Mr. Trotta resides.
Mr. Trotta is also entitled to reimbursement of substantiated expenses, a
monthly car expense equal to $750 per month and options to acquire 100,000
shares of Common Stock at $6.00 per share.
1998 STOCK OPTION PLAN
The Plan will be administered by the Compensation Committee or the Board of
Directors, which will determine among other things, those individuals who shall
receive options, the time period during which the options may be partially or
fully exercised, the number of Common Shares issuable upon the exercise of the
options and the option exercise price.
The Plan is effective for a period for ten years, expiring in 2008. Options
to acquire 500,000 Common Shares may be granted to officers, directors,
consultants, key employees, advisors and similar parties who provide their
skills and expertise to the Company. The Plan is designed to enable management
to attract and retain qualified and competent directors, employees, consultants
and independent contractors. Options granted under the Plan may be exercisable
for up to ten years, generally require a minimum two year vesting period, and
shall be at an exercise price all as determined by the Board of Directors
provided that, pursuant to the terms of the Underwriting Agreement between the
Company and the Underwriters, the exercise price of any options may not be less
than the fair market value of the Common Shares on the date of the grant.
Options are non-transferable, and are exercisable only be the participant (or by
his or her guardian or legal representative) during his or her lifetime or by
his or her legal representatives following death. Upon a change in control of
the Company, the acceleration date of any options that were granted but not
otherwise exercisable accelerates to the date of the Change in Control. Change
in control includes (i) the sale of substantially all of the assets of the
Company and merger or consolidation with another Company, or (ii) a majority of
the members of the Board of Directors changes other than by, election by the
Shareholders pursuant to Board of Directors solicitation or by vacancies filled
by the Board of Directors caused by death or resignation of such person.
If a participant ceases affiliation with the Company, by reason of death,
permanent disability or retirement at or after age 65, the option remains
exercisable for one year from such occurrence but not beyond the option's
expiration date. Other types of termination allow the participant 90 days to
exercise the option, except for termination for cause which results in immediate
termination of the option.
The Company has agreed with the Representative not to grant any options
under the Plan at less than 100% of the fair market value of the Common Shares
at the date of the grant of the option.
Any unexercised options that expire or that terminate upon an employee's
ceasing to be employed by the Company become available again for issuance under
the Plan, subject to applicable securities regulation.
The Plan may be terminated or amended at any time by the Board of Directors,
except that the number of Common Shares reserved for issuance upon the exercise
of options granted under the Plan may not be exercised without the consent of
the shareholders of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1997, two unaffiliated investors each invested $200,000 in the
Company. In consideration of their investment, each received a sixteen and two
thirds (16 2/3%) percent share of the Company at the time of such investments.
In April 1998 and May, 1998, respectively, the Company repurchased such shares
32
<PAGE>
and agreed to repay such investors a total of $400,000 within six (6) months of
the date of each repurchase. Such $400,000 amount has been paid from the
proceeds of the bridge financing.
In July 1997, the Company purchased the Silver Star trademark from Vincent
Trotta, the father of the Company's President and majority shareholder. The
purchase price was $205,000. Of such amount, it included a payment of $55,000 to
Michael Trotta, an officer, director and majority shareholder of the Company;
and an assignment of accounts receivable of the Company equaling $82,000 to
Louis Trotta, (an officer and director of the Company) and his brother, Vincent
Trotta Jr.
As of September 1998, the Company raised $700,000 pursuant to a Confidential
Private Offering Memorandum. There were twenty (20) investors in such Private
Placement. The Offering consisted of twenty-eight (28) units, with each Unit
consisting of a $25,000 Promissory Note, 2,000 shares of Common Stock (56,000
shares in the aggregate) and 2,000 Redeemable Common Stock Purchase Warrants
(56,000 Warrants in the aggregate). Each Unit sold for $25,000. The terms of the
warrants are identical to the terms of the Warrants being offered herein. The
Offering was made solely to persons who qualified as accredited investors as
defined under Regulation D Rule 501 under the Act. The Shares and Warrants
offered in the Confidential Private Placement Memorandum are not to be
registered under this Registration Statement.
In the future, the Company will present all proposed transactions between
the Company and its officers, directors or 5% stockholders, and their affiliates
to the Board of Directors for its consideration and approval. Any such
transaction will require approval by a majority of the disinterested directors
and such transactions will be on terms no less favorable than those available to
disinterested third parties.
LIMITATIONS ON PERSONAL LIABILITY OF DIRECTORS AND OFFICERS
The New York Business Corporation Law, in general, allows corporations to
indemnify their directors and officers against expenses (including attorney's
fees), judgments, fines and settlement amounts actually and reasonably incurred
by such person in connection with suits or proceedings, if the person acted in
good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation. In the case of a criminal
action, the director or officer must have had no reasonable cause to believe
that person's conduct was unlawful. Under current law, no indemnification may be
made if in connection with a proceeding or in the right of the corporation in
which the director or officer was adjudged to be liable to the corporation or
that person derived an improper personal benefit.
The Company's Certificate of Incorporation and By-Laws provided that the
Company shall indemnify its directors and officers to the fullest extent
permitted by New York Law. The Company will enter into an indemnification
agreement with each of its directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the date of this Prospectus by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock, (ii) by each officer and director of the Company,
and (iii) by all officers and directors of the Company as a group. Unless
otherwise indicated,
33
<PAGE>
each of the following persons has sole voting and investment power with respect
to the shares of Common Stock set forth opposite his name.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF PERCENT OF
BENEFICIAL CLASS BEFORE CLASS AFTER
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OFFERING OFFERING
- --------------------------------------------------------------- ---------------------- --------------- -------------
<S> <C> <C> <C>
Michael Trotta (2)............................................. 3,200,000 97.7% 79.5%
All Officers and Directors as a Group.......................... 3,200,000 97.7% 79.5%
</TABLE>
- ------------------------
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock.
(2) The address for Michael Trotta is 7520 Avenue V, Brooklyn, New York 11234.
DESCRIPTION OF SECURITIES
The following summary description of the Securities is qualified in its
entirety by reference to the Company's Certificate of Incorporation, as amended,
and its By-laws, copies of which have been filed as Exhibits to the Registration
Statement of which this Prospectus is a part.
The Company is authorized to issue 15,000,000 shares of Common Stock, $.0001
par value per share and 1,000,000 shares of blank check preferred stock, $.001
par value per share (the "Preferred Stock"). As of the date of this Prospectus,
prior to giving effect to the securities to be issued in the Offering, there are
3,276,000 shares of Common Stock outstanding and no shares of Preferred Stock
outstanding. An additional 96,000 shares of Common Stock are reserved for
issuance upon the exercise of various options and warrants outstanding as of the
date of this Prospectus.
UNITS
Each Unit consists of one share of Common Stock and two Redeemable Common
Stock Purchase Warrants. The shares of Common Stock and the Redeemable Common
Stock Purchase Warrants will be detachable and separately transferable ninety
(90) days after the Effective Date, or earlier with the consent of the
Underwriter.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share of
Common Stock on all matters submitted to a vote of stockholders of the Company
and to receive dividends when declared by the Board of Directors from funds
legally available therefor. Upon the liquidation, dissolution or winding up of
the Company, holders of shares of Common Stock are entitled to share ratably in
any assets available for distribution to stockholders after payment of all
obligations of the Company and after provision has been made with respect to
each class of stock, if any, having preference over the Common Stock. Holders of
shares of Common Stock do not have cumulative voting rights or preemptive,
subscription or conversion rights. See "Risk Factors--Dividend Policy."
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
1,000,000 shares of "blank check" preferred stock, par value $.001, with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of the Company's Common Stock. In
the event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. Although the Company has no present intention to issue
any shares of its preferred stock, there can be no assurance that the Company
will not do so in the future.
34
<PAGE>
WARRANTS
The following is a brief summary of certain provisions of the Warrants, but
such summary does not purport to be complete and is qualified in all respects by
reference to the actual text of the form of Warrant.
WARRANT. The Company is issuing 1,500,000 Warrants as part of this initial
public offering. The Company intends to apply to the OTC Bulletin Board for
listing of the Warrants, although there can be no assurance that the OTC
Bulletin Board will allow the Warrant to be listed.
EXERCISE PRICE AND TERMS. Each Warrant entitles the holder thereof to
purchase, at any time commencing one year after the Effective Date and for a
period of four years from the Effective Date as set forth above, one share of
Common Stock at a price of $6.00 per share, subject to adjustment in accordance
with the anti-dilution and other provisions referred to below. The Warrants
expire on the fourth anniversary of the Effective Date unless extended at the
sole option of the Board of Directors of the Company. The holder of any Warrant
may exercise such Warrant by surrendering the certificate representing the
Warrant to the Warrant Agent, with the subscription form on the reverse side of
such certificate properly completed and executed, together with payment of the
exercise price. The Warrants may be exercised at any time in whole or in part at
the applicable exercise price until the date of expiration of the Warrants. No
fractional shares will be issued upon the exercise of the Warrants.
Commencing on a date which shall be twelve months from the Effective Date,
the Warrants are subject to redemption at $0.01 per Warrant upon prior written
notice of not less than thirty (30) days; provided, that in order for the
Company to call the Warrants for early redemption, the average of the closing
bid price of the Company's Common Stock, over the ten (10) consecutive trading
days ending within ten (10) days of the notice of redemption, must equal or
exceed $8.50. In the event the Company exercises the right to redeem the
Warrants, such Warrants will be exercisable until the close of business on the
date of redemption fixed in such notice. If any Warrant called for redemption is
not exercised by such time, it will cease to be exercisable and the holder will
be entitled only to the redemption price.
The exercise price of the Warrants bears no relation to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of the securities offered hereby.
ADJUSTMENTS. The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassification of the Common Stock, or sale by the Company of
shares of its Common Stock (or other securities convertible into or exercisable
for Common Stock) at a price per share or share equivalent below the
then-applicable exercise price of the Warrants or the then-current market price
of the Common Stock. Additionally, an adjustment would be made in the case of a
reclassification or exchange of Common Stock, consolidation or merger of the
Company with or into another corporation, or sale of all or substantially all of
the assets of the Company, in order to enable Warrant holders to acquire the
kind and number of shares of stock or other securities or property receivable in
such event by a holder of that number of shares of Common Stock that would have
been issued upon exercise of the Warrant immediately prior to such event. No
adjustments will be made until the cumulative adjustments in the exercise price
per share amount to $1.00 or more. No adjustment to the exercise price of the
shares subject to the Warrants will be made for dividends (other than stock
dividends), if any, paid on the Common Stock or upon exercise of the Warrants,
the Underwriter's Warrants or any other warrants outstanding as of the date of
this Prospectus.
TRANSFER, EXCHANGE AND EXERCISE. The Warrants are in registered form and
may be presented to the Transfer and Warrant Agent for transfer, exchange or
exercise at any time after the Effective Date and prior to their expiration date
four years from the date of this Prospectus, at which time the Warrants become
wholly void and of no value. If a market for the Warrants develops, the holder
may sell the Warrants instead of exercising them. There can be no assurance,
however, that a market for the Warrants
35
<PAGE>
will develop or continue. If the Company is unable to qualify for sale in
particular states the Common Stock underlying the Warrants, holders of the
Warrants residing in such states and desiring to exercise the Warrants will have
no choice but to sell such Warrants or allow them to expire. See "Description of
Securities--Transfer and Warrant Agent."
WARRANTHOLDER NOT A SHAREHOLDER. The Warrants do not confer upon holders
any voting or any other rights as stockholders of the Company.
SHARES ELIGIBLE FOR FUTURE SALE
All Shares of common stock included in the Units being offered hereby will
be immediately tradable without restriction or further registration under the
Securities Act. The outstanding Shares of common stock include 3,256,000 Shares
of common stock outstanding deemed to be "restricted securities," as that term
is defined under Rule 144 promulgated under the Securities Act, in that such
Shares were purchased or acquired by such stockholders of the Company in
transactions not involving a public offering, and, as such, may only be sold
pursuant to a registration statement under the Securities Act, in compliance
with the exemption provisions of Rule 144, or pursuant to another exemption
under the Securities Act. Substantially all of such restricted Shares of common
stock are eligible for sale under Rule 144, subject to the volume limitations
prescribed by the Rule. The outstanding shares also include 20,000 shares of
Common Stock held by the Selling Security Holder. Such shares have been
registered for resale pursuant to the registration statement to which this
prospectus is a part. Other than shares underlying the 20,000 Selling Security
Holder Units, each pre-offering shareholder has entered into a 12 month lock-up
agreement with the Underwriter.
In general, under Rule 144 as currently in effect, a shareholder, including
an affiliate of the Company, may sell shares of Common Stock after at least one
year has elapsed since such shares were acquired from the Company or an
affiliate of the Company. The number of shares of Common Stock which may be sold
within any three-month period is limited to the greater of one percent of the
then outstanding Common Stock or the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the date on which notice of such
sale was filed under Rule 144. Certain other requirements of Rule 144 concerning
availability of public information, manner of sale and notice of sale must also
be satisfied. In addition, a shareholder who is not an affiliate of the Company
(and who has not been an affiliate of the Company for 90 days prior to the sale)
and who has beneficially owned shares acquired from the Company or an affiliate
of the Company for over two years may resell the shares of Common Stock without
compliance with the foregoing requirements under Rule 144.
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock, or the perception that such sales may
occur, could have a material adverse effect on prevailing market prices and
could impair the Company's ability to raise capital through the sale of its
equity securities.
TRANSFER, REGISTRAR AND WARRANT AGENT
The Transfer agent and registrar for the Common Stock and the Warrant agent
for the Warrants is American Stock Transfer & Trust Company, 40 Wall Street, New
York, NY 10005.
SELLING SECURITY HOLDER
The sole Selling Security Holder is Richard I. Anslow, counsel to the
Company. The Selling Security Holder Units were issued to Mr. Anslow as
compensation for services rendered in connection with this Offering. The company
will not receive any proceeds from sales of the Selling Security Holder Units.
36
<PAGE>
UNDERWRITING
The Underwriter has agreed, subject to the terms of the Underwriting
agreement, to purchase from the Company, 750,000 Units, each Unit consisting of
one share of Common Stock and two Redeemable Common Stock Purchase Warrants. The
Underwriting Agreement provides that the obligations of the Underwriter are
subject to certain conditions precedent.
The Company has been advised by the Underwriter that the Underwriter
proposes initially to offer the Units to the public at the public offering price
per Unit set forth on the cover of this Prospectus and to certain dealers, who
are members of the National Association of Securities Dealers, Inc. ("NASD").
The Underwriting Agreement provides further that the Underwriter will
receive a non-accountable expense allowance of 3% of the aggregate public
offering price of the Units sold hereunder, including any Units sold pursuant to
the Over-allotment Option (which allowance amounts to $135,000 or $155,250 if
the Over-allotment Option is exercised in full). The Company has also agreed to
pay all expenses in connection with qualifying the Securities offered hereby for
sale under the laws of such states the Underwriter may designate, including
expenses of counsel retained for such purpose by the Underwriter.
The Company has also granted the Over-allotment Option to the Underwriter,
exercisable during the 45-day period commencing on the Effective Date, to
purchase up to a maximum of 112,500 Units at the public offering price less the
underwriting discounts, commissions and expense allowance. The Underwriter may
exercise this option only to cover over-allotments in the sale of the Common
Stock and Warrants, if any.
The underwriter does not intend to sell any shares to discretionary
accounts.
The Company has agreed to sell to the Underwriter, for nominal
consideration, the Underwriter's Warrants to purchase an amount equal to 10% of
the number of Units sold to the public. The Underwriter's Warrants shall be
exercisable for a period of four (4) years commencing one year from the
Effective Date at an exercise price equal to $9.90 per Unit, or 165% of the
offering price of the Units sold to the public in the Offering. The
Underwriter's Warrants are not transferable prior to one year from the Effective
Date, except to officers or partners of the Underwriter, members of the selling
group and their officers and partners.
The Selling Security Holder Shares are not part of the underwritten
offering.
The Company has also granted certain registration rights to holders of the
Underwriter's Warrants. These registration rights generally provide that in the
event the Company files a post-effective amendment to the Registration Statement
of which this Prospectus forms a part, or any new registration statement
covering any securities of the Company, the Company will include in such
registration statement such information as may be required to permit a public
offering of the Underwriter's Warrant, the Warrant's issuable upon exercise of
the Underwriter's Warrant, and the Common Stock issuable upon the exercise of
the Underwriter's Warrant and upon exercise of the Warrants underlying the
Underwriter's Warrant (the "Registrable Securities"). If the offering of the
Company securities is underwritten, the number of Registrable Securities to be
included in the offering is subject to limitation by the managing underwriter of
the offering; provided, however, in the event of such limitation, the Company
shall file a new registration statement covering the excluded Registrable
Securities, at the Company's expense, within six months after completion of the
underwritten offering. In addition, the Company is required to file a
post-effective amendment to the Registration Statement of which this Prospectus
forms a part or a new registration statement registering the Registrable
Securities upon the request of the holder(s) of at least 50% of the
Underwriter's Warrant and/or the Common Stock underlying the Underwriter's
Warrants and the Warrants issuable upon exercise of the Underwriter's Warrant.
37
<PAGE>
For the life of the Underwriter's Warrants, the holders thereof are given,
at nominal costs, the opportunity to profit from a rise in the market price of
the Company's securities with a resulting dilution in the interest of other
stockholders. Further, the holders may be expected to exercise the Underwriter's
Warrants at a time when the Company would in all likelihood be able to obtain
equity capital on terms more favorable than those provided in the Underwriter's
Warrants.
The Company has agreed to retain the Underwriter as a financial consultant
to the Company for a period of three (3) years after the Offering for an
aggregate fee of $108,000 ($36,000 per year) payable in full upon consummation
of the Offering.
In addition, the Company has agreed to compensate the Underwriter upon
consummation of certain material transactions initiated by the Underwriter
during the three-year period commencing on the Effective Date. These
transactions include (i) any transaction originated by the Underwriter, other
than in the ordinary course of business, whereby, directly or indirectly,
control of, or a material interest in, the Company or any of its businesses or
assets is transferred for consideration (stock, cash of other property), (ii)
any transaction originated by the Underwriter whereby the Company acquires any
other company or the assets of or interest in any other company, or (iii) any
joint venture or line of credit arranged by the Underwriter for the benefit of
the Company. In the event of the foregoing, the Underwriter will be paid 5% of
the first $4,000,000; 4% of the next $1,000,000; 3% of the next $1,000,000; and
2% of the excess over $6,000,000 of the consideration received by the Company in
any of the above-described transactions. In addition, in the event the
Underwriter originates a line of credit with a lender or a corporate partner, or
the Underwriter introduces the Company to a joint venture partner or customer
and sales develop as a result of the introduction, the Company and the
Underwriter will mutually agree on a satisfactory fee and the terms of payment
of such fee.
In addition, subject to the rules of the NASD, the Company has agreed to
engage the Underwriter as warrant solicitation agent, in connection with which
it would be entitled to a 5% fee upon exercise of the Warrants. In accordance
with the NASD Notice to Members 81-38, no fee shall be paid: (i) upon the
exercise where the market price of the underlying Common Stock is lower than the
exercise price; (ii) for the exercise of the Warrants is held in any
discretionary account; (iii) upon the exercise of Warrants where the disclosure
of compensation arrangements has not been made and where documents have not been
provided to customers not as part of the original Offering and at the time of
exercise; or (iv) upon the exercise of Warrants in unsolicited transactions.
Notwithstanding the foregoing, no fees will be paid to the Underwriter or any
other NASD member upon exercise of the Warrants within the first twelve months
after the Effective Date. Unless granted an exemption by the Commission from
Regulation M under the Securities Exchange Act of 1934, the Underwriter will be
prohibited from engaging in any market-making activities with regard to the
Company's securities for the period from five business days (or other such
applicable periods as Regulation M may provide) prior to any solicitation of the
exercise of the Warrants until the later of the termination of such termination
of such solicitation activity or the termination (by waiver or otherwise) of any
right the Underwriter may have to receive a fee. As a result, the Underwriter
may be unable to continue to provide a market for the Company's securities
during certain periods while the Warrants are exercisable. If the Underwriter
has engaged in any of the activities prohibited by Regulation M during the
periods described above, the Underwriter undertakes to waive unconditionally its
right to receive a commission on the exercise of such warrants.
The Company has agreed, for a period of two years from the Effective Date,
not to issue any shares of Common Stock or Preferred Stock or any warrants,
options or other rights to purchase Common Stock or Preferred Stock without the
prior written consent of the Underwriter. Notwithstanding the foregoing, the
Company may, without the consent of the Underwriter, issue shares of Common
Stock upon exercise of any warrants or options outstanding on the date hereof or
to be outstanding upon completion of the Offering pursuant to the terms hereof.
38
<PAGE>
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against liabilities in connection with the
Offering, including liabilities under the Securities Act. To the extent this
section may purport to provide exculpation from possible liabilities arising
under the federal securities laws, the Company has been advised that it is the
opinion of the Commission that such indemnification is against public policy and
is therefore unenforceable.
The Company has agreed, if requested by the Underwriter at any time within
two years after consummation of the Offering, to nominate and use its best
efforts to elect a designee of the Underwriter as a director of the Company, or,
at the Underwriter's option, as a non-voting advisor to the Company's Board of
Directors. Such designee may be a director, officer, partner, employee or
affiliate of the Underwriter. As of the Effective Date, the Underwriter has not
determined whether to exercise such right to designate a director, nor has it
identified such individual, and the Underwriter has advised the Company that it
does not intend to designate a director immediately following consummation of
the Offering.
The foregoing is a brief summary of certain provisions of the Underwriting
Agreement and related agreements and does not purport to be a complete statement
of terms and conditions. Copies of the Underwriting Agreement and the other
documents described above are on file with the Commission as exhibits to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Richard I. Anslow, Esq., Freehold, New Jersey 07728. Certain legal
matters will be passed upon for the Underwriter by Gersten, Savage & Kaplowitz,
LLP, New York, New York 10022. Mr. Anslow has previously acted as counsel to the
Underwriter. Mr. Anslow owns 20,000 Units of the Company's Securities, all of
which are being registered hereby.
EXPERTS
The audited balance sheets of the Company as at March 31, 1998 and March 31,
1997, and the related Statements of Operations, Statements of Stockholders'
Equity and Statements of Cash Flows have been included herein and in the
Registration Statement in reliance upon the report, appearing elsewhere herein,
of Weinick Sanders Leventhal & Co., LLP, independent certified public
accountants, and upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Act with respect to the Common Shares offered hereby. This Prospectus omits
certain information contained in the Registration Statement and the exhibits
thereto, and references are made to the Registration Statement and the exhibits
thereto for further information with respect to the Company and the Common
Shares offered hereby. Statements contained herein concerning the provisions of
any documents are not necessarily complete, and in each instance reference is
made to the copy of such document filed as an exhibit to the Registration
Statement. Each such statement is qualified in its entirety by such reference.
The Registration Statement, including exhibits and schedules filed therewith,
may be inspected without charge at the public reference facilities maintained by
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and at the regional offices of the Commission located at
7 World Trade Center, Suite 1300, New York, New York 10048, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may be obtained from the Public Reference Section of
the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and its public reference facilities in New York, New York and
Chicago, Illinois upon payment of the prescribed fees. Electronic registration
statements (as well as proxy reports and other information when filed) filed
through the Electronic Data Gathering, Analysis, and Retrieval System are
publicly available through the Commission's Website (http://www.sec.gov). At the
date hereof, the Company was not a reporting company under the Exchange Act.
39
<PAGE>
SILVER STAR FOODS, INC.
DECEMBER 31, 1998
I N D E X
<TABLE>
<CAPTION>
PAGE NO.
-----------
<S> <C>
INDEPENDENT ACCOUNTANTS' REPORT..................................................................... F-2
FINANCIAL STATEMENTS:
Balance Sheets as at December 31, 1998 (Unaudited) and March 31, 1998 and 1997...................... F-3
Statements of Operations
For the Nine Months Ended December 31, 1998 and 1997 (Unaudited) and For the Years Ended March 31,
1998 and 1997..................................................................................... F-4
Statements of Stockholders' Equity (Deficiency) and For the Years Ended March 31, 1998 and 1997..... F-5
Statements of Cash Flows
For the Nine Months Ended December 31, 1998 and 1997 (Unaudited) and For the Years Ended March 31,
1998 and 1997..................................................................................... F-6--F-7
NOTES TO FINANCIAL STATEMENTS....................................................................... F-8--F-13
</TABLE>
F-1
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Silver Star Foods, Inc.
We have audited the accompanying balance sheets of Silver Star Foods, Inc.
(formerly Silver Star Ravioli Co., Inc.) as at March 31, 1998 and 1997, and the
related statements of operations, stockholders' equity (deficiencies) and cash
flows for the years then ended 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 Silver Star Foods, Inc.
(formerly Silver Star Ravioli Co., Inc.), as at March 31, 1998 and 1997 and the
results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has a working capital deficiency of $316,443
and a stockholder's deficiency of $67,503 at March 31, 1998. Those conditions
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ WEINICK SANDERS LEVENTHAL & CO.,
LLP
--------------------------------------
Weinick Sanders Leventhal & Co., LLP
New York, N. Y.
July 29, 1998
(Except for Notes 10 and 11 as to which the
dates are August 31, 1998, November 30, 1998 and March 12, 1999)
F-2
<PAGE>
SILVER STAR FOODS, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, -----------------------
1998 1998 1997
------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash.................................................................... $ 7,788 $ -- $ 2,312
Accounts receivable..................................................... 19,924 103,427 10,043
Other current assets.................................................... -- -- 566
------------ ---------- -----------
Total current assets.................................................. 27,712 103,427 12,921
------------ ---------- -----------
Other assets:
Deferred registration costs............................................. 289,751 79,686 --
Deferred finance costs, less accumulated amortization of $118,461....... 142,154 -- --
Tradename, less accumulated amortization of $51,251, $41,001 and
$27,334, respectively................................................. 153,749 163,999 177,666
Deposits................................................................ 5,255 5,255 5,255
------------ ---------- -----------
Total other assets.................................................... 590,909 248,940 182,921
------------ ---------- -----------
$ 618,621 $ 352,367 $ 195,842
------------ ---------- -----------
------------ ---------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY (CAPITAL DEFICIENCY)
Current liabilities:
Cash overdraft.......................................................... $ -- $ 20,937 $ --
Bridge loan payable..................................................... 700,000 -- --
Notes payable--tradename................................................ 17,092 17,092 93,842
Accounts payable........................................................ 285,853 247,533 206,978
Payroll taxes payable................................................... 65,778 -- --
Loans payable--other.................................................... 26,000 -- --
Accrued expenses........................................................ 117,702 78,771 6,500
Stockholder loan........................................................ 18,329 55,537 912
------------ ---------- -----------
Total current liabilities............................................. 1,230,754 419,870 308,232
------------ ---------- -----------
Commitments and contingencies............................................. -- -- --
Stockholder's equity (capital deficiency):
Preferred stock--$.001 par value Authorized and unissued-- 1,000,000
shares................................................................ -- -- --
Common stock--$.0001 par value Authorized--15,000,000 shares
Issued--4,876,000, 4,800,000 and 3,200,000 shares, respectively....... 488 480 320
Paid-in capital......................................................... 678,432 399,840 --
Deficit................................................................. (891,053) (467,823) (112,710)
------------ ---------- -----------
(212,133) (67,503) (112,390)
Less: Treasury stock at cost--1,600,000 shares 400,000 -- --
------------ ---------- -----------
Total stockholder's equity (capital deficiency) (612,133) (67,503) (112,390)
------------ ---------- -----------
$ 618,621 $ 352,367 $ 195,842
------------ ---------- -----------
------------ ---------- -----------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
SILVER STAR FOODS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED FOR THE YEARS ENDED
DECEMBER 31, MARCH 31,
---------------------- --------------------------
<S> <C> <C> <C> <C>
1997
---------- 1998 1997
------------ ------------
1998 (UNAUDITED)
----------
(UNAUDITED)
Net sales................................................... $ 856,723 $ 961,811 $ 1,343,276 $ 1,450,438
---------- ---------- ------------ ------------
Costs and expenses:
Cost of sales............................................... 735,209 817,836 1,198,755 972,248
Operating expenses.......................................... 415,353 317,353 485,293 479,881
Amortization................................................ 10,250 10,250 13,667 13,667
---------- ---------- ------------ ------------
Total of costs and expenses................................. 1,160,812 1,145,439 1,697,715 1,465,796
---------- ---------- ------------ ------------
Loss from operations........................................ (304,089) (183,628) (354,439) (15,358)
---------- ---------- ------------ ------------
Other income (expense):
Gain on investment in securities............................ -- -- -- 798
Interest expense............................................ -- -- -- (51)
Amortization of deferred finance costs...................... 118,461 -- -- --
---------- ---------- ------------ ------------
Total other income (expense)................................ 118,461 -- -- 747
---------- ---------- ------------ ------------
Loss before provision for income taxes...................... (422,550) (183,628) (354,439) (14,611)
Provision for income taxes.................................. 680 475 674 4,610
---------- ---------- ------------ ------------
Net loss.................................................... $ (423,230) $ (184,103) $ (355,113) $ (19,221)
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Basic earnings (loss) per share............................. $ (.11) $ (.04) $ (.08) $ (.01)
Weighted average number of shares outstanding............... 3,944,320 4,136,72 4,300,274 3,200,000
</TABLE>
See notes to financial statements.
F-4
<PAGE>
SILVER STAR FOODS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED MARCH 31, 1998 AND 1997 AND
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED)
(SEE NOTE 1)
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS'
COMMON STOCK RETAINED EQUITY
--------------------- PAID-IN EARNINGS TREASURY (CAPITAL
SHARES VALUE CAPITAL (DEFICIT) STOCK DEFICIENCY)
---------- --------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 1,]nb]1996 3,200,000 $ 320 $ -- ($ 93,489) $ -- ($ 93,169)
Net income for the year ended March 31, 1997 -- -- -- (19,221) -- (19,221)
---------- --------- ---------- ----------- ----------- ------------
Balance at March 31, 1997 3,200,000 320 -- (112,710) -- (112,390)
Issuance of common stock for cash................ 1,600,000 160 399,840 -- -- 400,000
Net loss for the year ended March 31, 1998 -- -- -- (355,113) -- (355,113)
---------- --------- ---------- ----------- ----------- ------------
Balance at March 31, 1998 4,800,000 480 399,840 (467,823) -- (67,503)
Purchase of treasury stock at cost-- 1,600,000
shares -- -- -- -- (400,000) (400,000)
Issuance of common stock and warrants for
services rendered in connection with public
offering....................................... 20,000 2 104,998 -- -- 105,000
Issuance of common stock and warrants in
connection with bridge financing............... 56,000 6 173,594 -- -- 173,600
Net loss for the nine months ended December 31,
1998 (unaudited) -- -- -- (423,230) -- (423,230)
---------- --------- ---------- ----------- ----------- ------------
Balance at December 31, 1998 (unaudited) 4,876,000 $ 488 $ 678,432 ($ 891,053) ($ 400,000) ($ 612,133)
---------- --------- ---------- ----------- ----------- ------------
---------- --------- ---------- ----------- ----------- ------------
</TABLE>
See notes to financial statements.
F-5
<PAGE>
SILVER STAR FOODS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED FOR THE YEARS ENDED
DECEMBER 31 MARCH 31,
------------------------ -----------------------
<S> <C> <C> <C> <C>
1997
----------- 1998 1997
----------- ----------
1998 (UNAUDITED)
-----------
(UNAUDITED)
Cash flows from operating activities:
Net loss...................................................... ($ 423,230) ($ 184,103) ($ 355,113) ($ 19,221)
----------- ----------- ----------- ----------
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities: Amortization................ 128,711 10,250 13,667 13,667
Gain on sale of securities.................................... -- -- -- (798)
Increase (decrease) in cash flows as a result of changes in
asset and liability account balances:
Accounts receivable........................................... 83,503 (86,229) (93,384) 30,061
Other current assets.......................................... -- 566 566 2,150
Accounts payable.............................................. 38,320 (33,487) 40,555 82,728
Accrued expenses.............................................. (23,569) (5,671) 72,271 5,796
Payroll taxes payable......................................... 65,778 -- -- --
----------- ----------- ----------- ----------
Total adjustments............................................. 292,743 (114,571) 33,675 133,604
----------- ----------- ----------- ----------
Net cash provided by (used in) operating activities........... (130,487) (298,674) (321,438) 114,383
----------- ----------- ----------- ----------
Cash flows provided by investing activities:
Proceeds from the sale of marketable securities............... -- -- -- 20,629
----------- ----------- ----------- ----------
Cash flows from financing activities:
Cash overdraft................................................ (20,937) -- 20,937 --
Payments to brokers for margin purchases...................... -- -- -- (15,579)
Payments of notes payable--tradename.......................... -- (76,750) (76,750) (111,158)
Stockholder loan.............................................. (37,208) (912) 54,625 (10,714)
Proceeds from sale of common stock............................ -- 400,000 400,000 --
Expenditures for registration costs........................... (42,565) (25,500) (79,686) --
Proceeds of loans payable--other.............................. 26,000 -- -- --
Proceeds from bridge loan..................................... 700,000 -- -- --
Purchase of treasury stock.................................... (400,000) -- -- --
Expenditures for financing costs.............................. (87,015) -- -- --
----------- ----------- ----------- ----------
Net cash provided by (used in) financing activities........... 138,275 296,838 319,126 (137,451)
----------- ----------- ----------- ----------
Net increase (decrease) in cash............................... 7,788 (1,836) (2,312) (2,439)
Cash at beginning of period................................... -- 2,312 2,312 4,751
----------- ----------- ----------- ----------
Cash at end of period......................................... $ 7,788 $ 476 $ -- $ 2,312
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
SILVER STAR FOODS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE FOR THE YEARS ENDED
NINE MONTHS ENDED
DECEMBER 31 MARCH 31,
--------------------- ----------------------
<S> <C> <C> <C> <C>
1997
--------- 1998 1997
----- ---------
1998 (UNAUDITED)
----------
(UNAUDITED)
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period:
Income taxes................................................................ $ -- $ -- $ -- $ 814
---------- --------- --- ---------
---------- --------- --- ---------
Interest.................................................................... $ -- $ -- $ -- $ 51
---------- --------- --- ---------
---------- --------- --- ---------
Supplemental Schedule of Non-Cash Financing Transactions:
Expenditures for offering costs resulting in the following:
Deferred registration costs................................................. $ 167,500 $ 36,686 $ -- $ --
---------- --------- --- ---------
---------- --------- --- ---------
Accrued expenses............................................................ $ 62,500 $ -- $ -- $ --
Common stock................................................................ 2 -- -- --
Paid-in capital............................................................. 104,998 -- -- --
---------- --------- --- ---------
............................................................................ $ 167,500 $ -- $ -- $ --
---------- --------- --- ---------
---------- --------- --- ---------
Expenditures for financing costs resulting in the following:
Deferred financing costs.................................................... $ 173,600 $ -- $ -- $ --
---------- --------- --- ---------
---------- --------- --- ---------
Common stock................................................................ $ 6 -- -- --
Paid in capital............................................................. 173,594 -- -- --
---------- --------- --- ---------
$ 173,600 $ -- $ -- $ --
---------- --------- --- ---------
---------- --------- --- ---------
</TABLE>
See notes to financial statements.
F-7
<PAGE>
SILVER STAR FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 (UNAUDITED) AND MARCH 31, 1998 AND 1997
(THE INFORMATION AS AT AND FOR THE NINE
MONTHS ENDED DECEMBER 31, 1998 AND 1997 IS UNAUDITED)
NOTE 1--GOING CONCERN.
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. The Company has a working capital deficiency of
$316,443 at March 31, 1998. At December 31, 1998, the Company has a working
capital deficiency of $1,203,042. Those conditions raise substantial doubt about
the ability of the Company to continue as a going concern.
The Company negotiated a letter of intent with an underwriter for an initial
public offering of its common stock on a "firm commitment" basis and has filed a
preliminary draft of a registration statement for said offering with the
Securities and Exchange Commission. If the Company were to successfully complete
this offering, it would receive in excess of $3,700,000 after all offering
costs.
Based on these events, management believes that the Company has the ability
to continue operations during the subsequent fiscal year. The accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of asset values or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
NOTE 2--DESCRIPTION OF BUSINESS.
The Company was incorporated in the State of New York on March 28, 1995
under the name of Silver Star Ravioli Co., Inc. On July 21, 1997, the Company
filed a Certificate of Amendment of Incorporation authorizing the Company to
issue an aggregate of up to 15,000,000 shares, $.0001 par value.
On July 23, 1997, the Board of Directors resolved to approve a 75,000 to 1
stock split for all outstanding shares of common stock prior to that date. The
common stock presented in the accompanying financial statements have been
retroactively adjusted to reflect this split.
On July 28, 1997, the Board of Directors resolved to change the name of the
Company to Silver Star Foods, Inc. and filed a Certificate of Amendment of the
Certificate of Incorporation to that effect.
The Company is presently a distributor of frozen pasta food products which
it markets under the "Silver Star" name. The Company acquires its prepared
pre-packaged products from two local manufacturers.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
(A) USES OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
(B) CASH:
The Company places its temporary cash investments with high credit quality
financial institutions, which at times may be in excess of the FDIC insurance
limit.
F-8
<PAGE>
SILVER STAR FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 (UNAUDITED) AND MARCH 31, 1998 AND 1997
(THE INFORMATION AS AT AND FOR THE NINE
MONTHS ENDED DECEMBER 31, 1998 AND 1997 IS UNAUDITED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (CONTINUED)
(C) SLOTTING FEES:
The accompanying financial statements reflect slotting fee expenditures as
charges to operations when incurred because (i) none of the slotting fees were
supported by written agreements and (ii) management was unable to forecast the
future economic benefits, if any, of the expenditures primarily due to the
Company's limited operating history. Slotting fees charged to operations for the
years ended March 31, 1998 and 1997 were $91,810 and $101,070, respectively, and
$78,000 in the nine months ended December 31, 1998.
(D) INTANGIBLE ASSET:
The intangible asset, consisting of a tradename is periodically reviewed by
management to evaluate its future economic benefits or potential impairment
which may affect its recorded value to the Company. The tradename is being
amortized on straight-line basis over 15 years.
(E) DEFERRED FINANCING COSTS:
In August 1998, the Company completed a bridge financing (as more fully
described in Note 12) whereby it raised gross proceeds of $700,000. The Company
incurred related costs totalling $260,615, including; underwriters commissions
of $84,000, legal fees of $3,015, and the issuance of 56,000 shares of common
stock and 56,000 common stock purchase warrants valued at $168,000 and $5,600,
respectively. The effective annual interest rate on the notes is approximately
27%. The notes are non-interest bearing.
The Company is amortizing the deferred financing costs over the life of the
related promissory notes which become payable on June 23, 1999. The notes are to
be prepaid out of the anticipated proceeds of the Company's initial public
offering. In such event, the remaining unamortized financing costs will be
simultaneously expensed.
(F) INCOME TAXES:
The Company has adopted Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income Taxes" at its inception. Under SFAS 109,
the deferred tax provision is determined under the liability method. Under this
method, deferred tax assets and liabilities are recognized based on the
differences between the financial statement carrying amount and the tax bases of
assets and liabilities using presently enacted tax rates.
(G) EARNINGS PER SHARE:
The income (loss) per share for the nine months ended December 31, 1998 and
1997 and the years ended March 31, 1998 and 1997 has been calculated based on
the weighted average number of common shares outstanding, giving effect
retroactively for the 75,000 to 1 stock split on July 23, 1997 to the beginning
of all periods presented. During the periods presented the Company had no common
stock equivalents issued or outstanding. Therefore, basic and diluted earnings
per share are the same.
F-9
<PAGE>
SILVER STAR FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 (UNAUDITED) AND MARCH 31, 1998 AND 1997
(THE INFORMATION AS AT AND FOR THE NINE
MONTHS ENDED DECEMBER 31, 1998 AND 1997 IS UNAUDITED)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. (CONTINUED)
(H) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income", No.
131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related
Information", No. 132 (SFAS 132), Employer's Disclosures about Pension and other
Postretirement Benefits and No. 133 (SFAS 133), Accounting for Derivative
Instruments and Hedging Activities. Management does not believe that the effect
of implementing these new standards will be material to the Company's financial
position, results of operations and cash flows.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities",
which the Company immediately adopted. This Statement of Position had no effect
on the Company's financial position, results of operations and cash flows
because the Company had previously expensed its start-up costs, such as slotting
fees, when incurred.
(I) UNAUDITED FINANCIAL STATEMENTS:
The financial statements as at and for the nine months ended December 31,
1998 and 1997 and the information in notes to the financial statements
pertaining thereto are unaudited, but include all adjustments, consisting only
of normal recurring adjustments, and disclosures which management of the Company
considers necessary for a fair presentation of its financial position as at
December 31, 1998 and 1997 and the results of its operations, statement of
stockholders' equity and cash flows for the nine months then ended.
The results of operations for the nine month periods ending December 31,
1998 and 1997 are not necessarily indicative of the results that may be expected
for the full year.
NOTE 4--ACCOUNTS RECEIVABLE.
Accounts receivable consist of trade receivables arising in the ordinary
course of business and are presented net of estimated discounts and allowances
of $22,222, $3,500 and $21,651 as at December 31, 1998 and March 31, 1998 and
1997, respectively. Management continually reviews its trade receivable credit
risk and has adequately allowed for potential losses.
NOTE 5--TRADENAME.
The Company acquired the rights to the "Silver Star" tradename from a
related party of the principle stockholder pursuant to an agreement which was
formalized in July 1997 at a cost of $205,000. The Company has been using the
tradename since it's inception.
NOTE 6--INCOME TAXES.
At March 31, 1998, the Company had a net operating loss carryforward
amounting to approximately $457,000 available to reduce future taxable income
which expire in the years 2010 through 2013, which upon recognition may result
in future tax benefits of approximately $155,000. At March 31, 1998
F-10
<PAGE>
SILVER STAR FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 (UNAUDITED) AND MARCH 31, 1998 AND 1997
(THE INFORMATION AS AT AND FOR THE NINE
MONTHS ENDED DECEMBER 31, 1998 AND 1997 IS UNAUDITED)
NOTE 6--INCOME TAXES. (CONTINUED)
management is unable to determine if the utilization of the future tax benefit
is more likely than not and accordingly, the asset of approximately $155,000 has
been fully reserved.
A reconciliation of the statutory income tax effective rate is as follows:
<TABLE>
<CAPTION>
FOR THE NINE FOR THE
MONTHS ENDED YEARS ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
--------- --------- --------- ---------
(UNAUDITED)
Federal statutory rate................................................... (34.0%) (34.0%) (25.0%) 15.0%
State and local taxes.................................................... 0.2 0.3 0.2 31.6
Creation (utilization) of net operating loss carryforward................ 34.0 34.0 25.0 (15.0)
--------- --------- --------- ---
Effective tax rate....................................................... 0.2% 0.3% 0.2% 31.6%
--------- --------- --------- ---
--------- --------- --------- ---
</TABLE>
NOTE 7--COMMITMENTS AND CONTINGENCIES.
The Company leases office space from its principal shareholder on a month to
month basis at a cost of $1,000 per month and presently has no leasehold
obligations. The Company also leases office space from an unrelated party, on a
month to month basis, at a cost of $550 per month.
The Company has entered into two manufacturing agreements for the
procurement of product. The first agreement calls for price adjustments
semiannually based on cost increases if any, relating to raw materials The
second agreement requires the Company to meet certain minimum annual purchase
quantities. Failure to meet these minimums could result in price increases to
the Company. The Company has never achieved the minimum quantities required.
NOTE 8--TRANSACTIONS WITH MAJOR CUSTOMERS AND SUPPLIERS.
During the nine months ended December 31, 1998 and 1997, the Company had
sales to five customers amounting to approximately 98% and 97%, respectively, of
the Company's net sales for the period. For the year ended March 31, 1998 and
1997, these customers amounted to approximately 97% and 95% respectively of the
Company's net sales. The loss of any of these customers could be expected to
have a material impact on the Company's results of operations in future periods.
Since its inception, the Company has purchased all of its products from two
suppliers. The loss of either of these suppliers could have a material impact on
the Company's ability to obtain product for resale to its customers in future
periods.
NOTE 9--YEAR 2000.
The Company recognizes the need to ensure its operations will not be
adversely affected by year 2000 software failures. The Company is communicating
with suppliers, customers and others with which it does
F-11
<PAGE>
SILVER STAR FOODS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 (UNAUDITED) AND MARCH 31, 1998 AND 1997
(THE INFORMATION AS AT AND FOR THE NINE
MONTHS ENDED DECEMBER 31, 1998 AND 1997 IS UNAUDITED)
NOTE 9--YEAR 2000. (CONTINUED)
business to coordinate year 2000 conversion. The cost of achieving compliance is
estimated to be a minor increase over the cost of normal software upgrades and
replacements.
NOTE 10--BRIDGE LOAN PAYABLE.
In August, 1998 the Company obtained bridge financing, whereby it raised an
aggregate of $700,000 and received net proceeds of $616,000 after underwriter's
commissions and before other related expenses. The Company used $400,000 of the
proceeds to satisfy the notes payable incurred in the purchase of 1,600,000
shares of the Company's common stock in April and May, 1998.
In addition to the promissory note in the principal sum of $25,000, each of
the 28 units sold includes 2,000 shares of the Company's common stock and 2,000
redeemable common stock purchase warrants. The promissory notes bear no interest
and are payable at the earlier of the completion of the Company's planned
initial public offering of its common stock, or June 23, 1999.
NOTE 11--ISSUANCE OF STOCK.
In November 1998, the Company issued 20,000 shares of its common stock
valued at $105,000 to its attorney in payment of services rendered in connection
with the Company's initial public offering. On March 12, 1998, the attorney was
issued 40,000 warrants, the terms of which are identical to the warrants being
offered in the Company's initial public offering.
F-12
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER DELIVERY OF THIS
PROSPECTUS NOR ANY SALE OF SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
The Offering................................... 4
Summary Financial Information.................. 6
Risk Factors................................... 7
Use of Proceeds................................ 16
Dividend Policy................................ 17
Dilution....................................... 18
Capitalization................................. 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 20
Business....................................... 23
Management..................................... 30
Principal Shareholders......................... 34
Description of Securities...................... 34
Shares Eligible for Future Sale................ 36
Selling Security Holders....................... 36
Underwriting................................... 37
Legal Matters.................................. 39
Experts........................................ 39
Additional Information......................... 39
Financial Statements........................... F-1
</TABLE>
------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMPANY'S SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
[LOGO]
750,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND TWO COMMON STOCK PURCHASE
WARRANTS
---------------------
PROSPECTUS
---------------------
ROYAL HUTTON SECURITIES CORP.
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The New York Business Corporation Law, in general, allows corporations to
indemnify their directors and officers against expenses (including attorneys'
fees), judgments, fines and settlement amounts actually and reasonably incurred
by such person in connection with suits or proceedings, if the person acted in
good faith and in a manner the person reasonably believed to be in or not
opposed to the best interests of the corporation. In the case of a criminal
action, the director or officer must have had no reasonable cause to believe
that person's conduct was unlawful. Under current law, no indemnification may be
made if in connection with a proceeding or in the right of the corporation in
which the director or officer was adjudged to be liable to the corporation or
that person derived an improper personal benefit.
The Company's Certificate of Incorporation and By-Laws provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by New York Law. The Company will enter into an indemnification
agreement with each of its directors and officers.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be borne by the
Company (also referred to herein as the Registrant) in connection with the
issuance and distribution of the Securities pursuant to the Offering (other than
underwriting discounts and commissions).
<TABLE>
<S> <C>
SEC registration fee......................................................... $ 2,000.00
NASD filing fee.............................................................. $ 1,500.00
Legal fees and expenses...................................................... $100,000.00
Accounting fees.............................................................. $ 90,000.00
Blue Sky fees and expenses................................................... $ 35,000.00
Printing and engraving expenses.............................................. $ 60,000.00
Miscellaneous................................................................ $ 11,500.00
-----------
Total fees and expenses.................................................. $300,000.00
</TABLE>
* To be completed by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following paragraphs set forth certain information with respect to all
securities sold by the Company within the past three years without registration
under the Securities Act of 1933, as amended (the "Securities Act"). The
information includes the names of the purchasers, the date of issuance, the
title and number of securities sold and the consideration received by the
Company for the issuance of these shares.
The following securities were issued by the Company without registration
under the Securities Act by reason of the exemption from registration afforded
by the provisions of Section 4(2) thereof, as transactions by an issuer not
involving a public offering:
<TABLE>
<CAPTION>
TITLE AND
NAME OF NUMBER OF
PURCHASER DATE OF ISSUANCE SECURITIES SOLD CONSIDERATION
<S> <C> <C> <C>
K & V Investments July 23, 1997 Common Stock $200,000
800,000 Shares
Daniel Kodsi July 23, 1997 Common Stock $200,000
800,000 Shares
</TABLE>
II-1
<PAGE>
In April 1998 and May, 1998, respectively, the Company repurchased such
shares and agreed to repay such investors a total of $400,000 within six (6)
months of the date of each repurchase. Such $400,000 amount has been paid from
the proceeds of the bridge financing. The Common Shares repurchased were
designated as treasury stock and retired after the repurchase. The transaction
for such repurchases were undertaken directly between the Company and the
investors.
In September 1998, the Company completed a private placement of 28 units,
with each unit consisting of a $25,000 Promissory Note, 2,000 shares of Common
Stock and 2,000 Redeemable Common Stock Purchase Warrants. Therefore, an
additional 56,000 shares of Common Stock and 56,000 Redeemable Common Stock
Purchase Warrants were issued. A list of investors in the private placement is
set forth below. The Company believes that the Common Stock and Warrants were
issued in a transaction not involving a public offering in reliance upon an
exemption from registration provided by Section 4 (2) of the Securities Act of
1933, as amended, and Rule 505 of Regulation D promulgated thereunder. Royal
Hutton Securities Corp. acted as placement agent in connection with this private
placement and received $84,000 in commissions and non-accountable expenses.
All investors in the private placement are accredited investors. Daniel
Kodsi is an accredited investor. Charles Koegan, the principal of K&V
Investments is a sophisticated purchaser.
<TABLE>
<CAPTION>
DATE
OF COMMON WARRANTS
INVESTOR ISSUANCE STOCK SOLD SOLD CONSIDERATION(1)
- ------------------------------------------------------------- --------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Richard E. Dwelle............................................ 07/10/98 2,000 2,000 $ 25,000
Thomas P. Hanrahan........................................... 07/10/98 1,000 1,000 $ 12,500
William C. Taylor............................................ 07/15/98 2,000 2,000 $ 25,000
John K. & Sue A. Korpalski (JTROS)........................... 07/20/98 2,000 2,000 $ 25,000
Frank J. Buzolits Trust Dated 08/25/92....................... 08/20/98 2,000 2,000 $ 25,000
Ralph L. Cotton (Denver Orthopedic Specialists 401K)......... 07/15/98 8,000 8,000 $ 100,000
Mary Ellen & Gary Rassel (JTROS)............................. 08/24/98 2,000 2,000 $ 25,000
Curtis L. Smith & Janice A. Smith (JTROS).................... 07/15/98 2,000 2,000 $ 25,000
Lynn J. Bourdon.............................................. 08/10/98 2,000 2,000 $ 25,000
James F. Reiderer............................................ 07/29/98 2,000 2,000 $ 25,000
Dean Briggs.................................................. 08/11/98 2,000 2,000 $ 25,000
Dennis G. Shoff Profit Sharing Plan.......................... 07/27/98 2,000 2,000 $ 25,000
Jack R. Eaton................................................ 07/30/98 2,000 2,000 $ 25,000
F. Evernden.................................................. 08/03/98 8,000 8,000 $ 100,000
Larry E. Morris.............................................. 08/17/98 4,000 4,000 $ 50,000
Walnut Veal Ranch............................................ 08/19/98 1,000 1,000 $ 12,500
Bradley A. & Margaret Lewis (JTROS).......................... 08/19/98 2,000 2,000 $ 25,000
Felicity A. Nellen........................................... 08/05/98 6,000 6,000 $ 75,000
Lou Mauro.................................................... 08/20/98 2,000 2,000 $ 25,000
Steven Lydon................................................. 08/20/98 2,000 2,000 $ 25,000
</TABLE>
(1) Represents the amount of the non-interest bearing promissory note issued to
the Investor.
In November 1998 the Company issued 20,000 shares of its Common Stock to
Richard I. Anslow, Counsel to the Company, in exchange for legal services
rendered. No underwriter was involved in the above transaction. The Company
believes that the Securities were issued in a transaction not involving a public
offering in reliance upon an exemption from registration provided by Section
4(2) of the Securities Act of 1933, as amended.
In March, 1999, the Company issued 40,000 Common Stock purchase warrants to
Richard I. Anslow, Counsel to the Company, in exchange for legal services
rendered. No underwriter was involved in the above transaction. The Company
believes that the Securities were issued in a transaction not involving a
II-2
<PAGE>
public offering in reliance upon an exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended.
ITEM 28. UNDERTAKINGS
1. The Registrant will, during any period in which it offers or sells
securities, 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 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) Include any additional or changed material information on the plan
of distribution.
2. The Registrant will, 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.
3. The Registrant will file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
4. The Registrant will provide to the Underwriter at the closing
certificates in such denominations and registered in such names as required by
the Underwriter to permit prompt delivery to each purchaser.
5. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
6. For purposes of determining any liability under the Act, 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 under Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed
to be part of this registration statement as of the time the Commission declared
it effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act of 1933, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
of filing on Form SB-2 and has duly caused this Amendment No. 3 to Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York on the 15th day of March,
1999.
SILVER STAR FOODS, INC.
By: /s/ MICHAEL TROTTA
-----------------------------------------
Michael Trotta,
CHIEF EXECUTIVE OFFICER,
PRESIDENT AND SECRETARY
POWER OF ATTORNEY
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
We, the undersigned officers and directors of SILVER STAR FOODS, INC. hereby
severally constitute and appoint Michael Trotta, our true and lawful
attorney-in-fact and agent with full power of substitution for us in our stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement and all documents relating
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent in full power and authority to do and perform
each and every act and thing necessary or advisable to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes, any lawfully do or cause to be done by virtue
hereof.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chairman of the Board of
Directors, Chief
/s/ MICHAEL TROTTA Executive Officer,
- ------------------------------ President, Chief March 15, 1999
Michael Trotta Financial Officer,
Principal Accounting
Officer and Secretary
/s/ VINCENT TROTTA Director
- ------------------------------ March 15, 1999
Vincent Trotta
/s/ BARRY SHERMAN Director
- ------------------------------ March 15, 1999
Barry Sherman
/s/ DENNIS LORE Director
- ------------------------------ March 15, 1999
Dennis Lore
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
1.1 Underwriters Agreement***
3.1 Certificate of Incorporation and Certificates of Amendments of the Certificate of
Incorporation*
3.2 By-Laws of the Company*
4.1 Form of Common Stock Certificate***
4.2 Warrant for Purchase of Common Stock of Silver Star Foods, Inc.***
4.3 Form of Public Warrant Agreement between Silver Star Foods, Inc. and American Stock
Transfer & Trust Company***
5. Opinion of Richard I. Anslow, Esq. of Richard I. Anslow & Associates****
10.1 Employment Agreement--Michael Trotta**
10.3 Agreement between Silver Star Foods, Inc. and Mount Rose Ravioli and Mac Co., Inc.****
10.4 Manufacturers Agreement between the Company and Savignano Foods Corporation*
10.5 Repurchase Agreement between the Company and K&V Investments**
10.6 Financial Advisory and Investment Banking Agreement***
10.7 Broker Contract with Douglas Food Brokers, Inc.***
10.8 Form of Promissory Note issued in the Company's September 1998 Private Placement***
23.1 Independent Auditors Consent****
23.2 Consent of Richard I. Anslow & Associates (contained in Exhibit 5)
27 Financial Data Schedule
</TABLE>
- ------------------------
* Filed with initial filing of Form SB-2 on December 16, 1997
** Filed with Amendment Number 1 dated September 25, 1998
*** Filed with Amendment Number 2 dated December 17, 1998
****Filed with Amendment Number 3 dated March 15, 1999
<PAGE>
EXHIBIT 5
RICHARD I. ANSLOW & ASSOCIATES
4255 ROUTE 9 SUITE D
FREEHOLD, NEW JERSEY 07728
March 11, 1999
Silver Star Foods, Inc.
1000 South Avenue
Staten Island, New York 10314
Gentlemen:
You have requested our opinion, as counsel for Silver Star Foods, Inc., a
New York corporation (the "Company"), in connection with the registration
statement on Form SB-2 (the "Registration Statement"), under the Securities Act
of 1933 (the "Act"), being filed by the Company with the Securities and Exchange
Commission.
The Registration Statement relates to an offering of 750,000 units, each
unit consisting of one share of common stock and two common stock purchase
warrants.
We have examined such records and documents and made such examination of law
as we have deemed relevant in connection with this opinion. It is our opinion
that when there has been compliance with the Act, the Units, Common Stock and
Warrants, when issued, delivered, and paid for, will be fully paid validly
issued and non-assessable.
No opinion is expressed herein as to any laws other than the State of New
York of the United States.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In so doing, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the Act
and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
RICHARD I. ANSLOW & ASSOCIATES
By: /s/ Richard I. Anslow
Richard I. Anslow
<PAGE>
Exhibit 99.1
AGREEMENT BETWEEN SILVER STAR FOODS, INC.
AND MOUNT ROSE RAVIOLI AND MAC. CO., INC.
FEBRUARY 17, 1999
Mount Rose Ravioli and Mac. Co., Inc. shall package private label Silver Star
products to be sold to Silver Star Foods, Inc. The prices are as follows:
Square Meat & Cheese Ravioli- Bag 24/16 oz $16.91
Square Meat & Cheese Ravioli Box 18/50 ct $18.85
Round Cheese Ravioli 24/13 oz $14.20
Cavatelli 24/16 oz $ 9.72
Cheese & Meat Tortellini 24/16 oz $19.80
Gnocchi 24/16 oz $12.82
Credit terms are 2% 10, net 21.
The above prices will remain in place for six (6) months from the date hereof.
At the end of six (6) months, prices will be reviewed with respect to raw
material and packaging costs. If these costs have increased or decreased, the
changes will be passed on accordingly. Prices will be reviewed every six (6)
months thereafter, for as long as this Agreement is effective.
In the event that this agreement is terminated, and Mount Rose is left with
unused Silver Star packaging, Silver Star Foods, Inc. does hereby give Mount
Rose Ravioli and Mac. Co., Inc. permission to use the packaging however it
chooses.
This Agreement shall be for a one (1) year self renewing term.
MOUNT ROSE RAVIOLI and MAC CO., INC.
By: /s/ Thomas Minuto
--------------------------------------
Thomas Minuto, Sec. & Treasure
SILVER STAR FOODS, INC.
By: /s/ Michael Trotta
--------------------------------------
Michael Trotta, President
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Amendment No. 3 of the Registration Statement
of Silver Star Foods, Inc. on Form SB-2 of our report dated July 29, 1998,
except for Notes 10 and 11 as to which the dates are August 31, 1998, November
30, 1998 and March 12, 1999, respectively, on our audits of Silver Star Foods,
Inc. as at March 31, 1998 and 1997 and for the years then ended. We also consent
to the reference to our firm under the caption "Experts".
/s/ WEINICK SANDERS LEVENTHAL & CO., LLP
- ---------------------------------------------
Weinick Sanders Leventhal & Co., LLP
New York, N.Y.
March 15, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1998 AND THE STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,788
<SECURITIES> 0
<RECEIVABLES> 42,146
<ALLOWANCES> (22,222)
<INVENTORY> 0
<CURRENT-ASSETS> 27,712
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 618,621
<CURRENT-LIABILITIES> 1,230,754
<BONDS> 0
678,920
0
<COMMON> 0
<OTHER-SE> (1,291,043)
<TOTAL-LIABILITY-AND-EQUITY> 618,621
<SALES> 856,723
<TOTAL-REVENUES> 856,723
<CGS> 735,209
<TOTAL-COSTS> 735,209
<OTHER-EXPENSES> 425,603
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118,461
<INCOME-PRETAX> (422,550)
<INCOME-TAX> 680
<INCOME-CONTINUING> (423,230)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (423,230)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
