<PAGE>2
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT 1 to
FORM 10SB
General Form for Registration of Securities Of Small
Business Issuers
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
REDNECK FOODS, INC.
(Exact name of Small Business Issuer in its charter)
DELAWARE 56-203-5983
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
71 Turtle Creek Drive, Asheville, NC 28803
(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code: (828) 277-5577
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Forward-Looking Statements and Associated Risk. This Registration
Statement, including the information incorporated herein by reference,
contains forward-looking statements including statements regarding, among
other items, the Company's growth strategies, and anticipated trends in the
Company's business and demographics. These forward-looking statements are
based largely on the Company's expectations and are subject to a number of
risks and uncertainties, certain of which are beyond the Company's control.
Actual results could differ materially from these forward-looking statements
as a result of the factors described in this section "Risk Factors,"
including among others, regulatory or economic influences.
<PAGE>3
ITEM 1. DESCRIPTION OF BUSINESS
A. The Company was incorporated in Delaware on January 31, 1997. The
Company is authorized to issue Twenty Million (20,000,000) Common Shares,
$.001 par value. The Company is also authorized to issue Two Million Five
Hundred (2,500,000) Preferred Shares, $.001 par value. Pursuant to a
Special Meeting of the Shareholders held on July 22, 1997, the Company filed
an amendment to the Articles of Incorporation increasing the authorized
Common Shares of the Company to One Hundred Million (100,000,000).
The Company's executive offices are located at 71 Turtle Creek Drive,
Asheville, NC 28803. These offices consist of 1,800 square feet which are
leased on a five year lease basis at the monthly lease price of $1,800 which
is terminable on a sixty day written notice.
There are presently outstanding 11,256,555 Common Shares.
Corporate Operations. The Company is a newly formed company, which currently
intends to acquire and operate barbecue restaurants to be known as
"Foxworthy's Smoke House Grill" or "Foxworthy's Backyard Bar-B-Q," The
Company intends initially to acquire existing barbecue restaurants for
conversion to one of the two restaurant concepts. The Company also intends
to market and distribute barbecue sauces and salsas under trademarks using
the "Foxworthy" name and may also, at a later time, distribute other food
products which are related to the restaurant menu.
License Agreement. On February 4, 1997, the Company entered into a
license agreement with Jeff Foxworthy whereby Mr. Foxworthy licensed the use
of his name and likeness. In consideration for the license agreement, the
Company issued 2,500,000 of its Series A Preferred Stock under the terms of a
Stock Purchase Agreement. The term of the license agreement is 50 years
unless sooner terminated by the occurrence of any of the following:
a. a material breach by the Company of the license agreement,
the Stock Purchase Agreement or any of the transaction documents, if the
breach is not cured within 30 days of receipt from Foxworthy of written
notice thereof.
b. at the option of Foxworthy, upon a material breach by David
Womick of his obligations under Mr. Womick's employment agreement within the
first three years after opening of the first restaurant, which breach has
not been cured within 30 days of receipt from Foxworthy of written notice
thereof.
c. Upon receipt of written notice from Foxworthy in the event
the Company commits any act or omission, is subject to any claim or
occurrence or is involved in any circumstances that would cause the continued
association of the Company with the licensed material to be detrimental to
the value of the licensed material or to Mr. Foxworthy's image or reputation
as determined by Foxworthy in his sole and absolute discretion.
d. The failure of the Company to continually operate the
restaurants and manage the franchise according to the policies, practices and
standards agreed to by the parties pursuant to the terms of the Stock
Purchase Agreement.
e. The failure of the Company and/or Mr. Womick to raise the
Investment Capital, on or before June 30, 1998, and otherwise pursuant to the
terms provided in the Stock Purchase Agreement; or
f. The failure of the Company to comply with any laws and
regulations, the consequences of which are materially adverse to the Company.
As of June 7, 1998, the Investment Capital had been raised and Mr.
Foxworthy's Series A Convertible Preferred Stock was automatically converted
to Common Shares as per the Series A Convertible Stock Purchase Agreement.
Upon termination or expiration of the License Agreement, all license rights
granted to the Company shall terminate and the Company shall immediately
thereafter discontinue all use of the licensed material. Mr. Foxworthy
shall have the right to purchase any inventory of the licensed products in
the Company's possession as of the date of termination. If Mr. Foxworthy
does not purchase all of the Company's existing inventory of the licensed
products, then not withstanding the termination of the license agreement, the
Company shall have the right ot continue to use the licensed material in
connection with the advertisement, distribution, and sale of its existing
inventory of licensed products for a period of 120 days after termination,
provided that such advertisement, distribution and sale is done only by means
of and through then-existing distribution channels and in all other respects
in accordance with all the terms and conditions contained in the license
agreement.
Development of Corporate Owned Restaurants. The Company intends to develop a
chain of corporate owned restaurants under the name of "Foxworthy's Smoke
House Grill" or "Foxworthy's Backyard Bar-B-Q."
Implementation of Restaurant Franchising Program. The Company intends to
build additional corporate owned restaurants and develop and implement a
restaurant franchising program on a nationwide basis.
<PAGE>4
Acquisition of Existing Barbecue Restaurants. The Company intends to
acquire existing barbecue restaurants for conversion to either "Foxworthy's
Smoke House Grill" or Foxworthy's Backyard Dar-B-Q concepts.
In March, 1998, the Company paid an escrow deposit of $25,000 in connection
with negotiations with Woody's Bar-B-Q, a barbecue restaurant chain of seven
company operated and twenty-six franchised barbecue restaurants in
Jacksonville, Florida which the Company was seeking to acquire. The
Company forfeited the escrow deposit when the agreement terminated without
being consummated.
The agreement with Woody's Bar-B-Q is being renegotiated and completed and
the Company continues to seek the requisite financing to consummate the
purchase.
The Company does not have any other plans, agreement, arrangements or
understandings with respect to the acquisition of restaurants.
Products. The Company's sauces will be produced and marketed under the
"Jeff Foxworthy's Backyard Bar-B-Q Sauce" brand. The first three sauces
are:
Original Redneck. An original mild tomato and molasses based sauce.
Redneck Hot. A hot spicier version of "Original Redneck" sauce.
Tangy Mustard. A tangy mustard based sauce that was developed to be
used as a barbecue sauce, salad dressing and a dipping sauce.
The Company has entered into an agreement with PicNik Foods, Inc. located in
Montgomery, Alabama to manufacture these sauces. It is believed that this
manufacturer has sufficient capacity to process, pack and ship the
anticipated sales volume of the sauces. Other manufacturers are available to
manufacture the sauces, if needed.
The Company has determined the retail and wholesale prices of its products,
however, the prices vary from store to store.
The Company has retained food brokers to assist the Company in the
development and distribution of products expected to be developed that are
related to the menu and concept.
Marketing. The Company shall rely primarily on print, television and radio
advertising along with sampling at retail outlets to initially attract
customers to buy its products and, in the future, to eat at its restaurants.
The Company may also use distinctive exterior signage and off-site
billboards.
Promotion Agreement. On February 4, 1997, the Company entered into a
promotion agreement with Jeff Foxworthy whereby the Mr. Foxworthy will
provide the Company with certain promotional appearances and services. For
a period of five years, Mr. Foxworthy agrees to serve, without charge, but
subject to applicable union and guild minimums, as the feature actor in four
commercials per year promoting the restaurants and the franchise. The
commercials may be aired on local or national television or radio or both.
During the term of the agreement, Mr. Foxworthy shall not directly or
indirectly provide promotional appearances or services to any business which
competes with the Company's business of owning and managing restaurants that
feature barbecue style as their primary cuisine and marketing and selling
barbecue-related food products. The promotion agreement has the same
termination features as the License Agreement discussed above.
Consulting Agreement. On February 4, 1997, the Company entered into a
consulting agreement with J.P. Williams to provide the Company with
consulting advice and services with respect to the promotion and
merchandising of the Company's proposed restaurants and the food products of
the Company. The Company pays J. P. Williams an annual consulting fee
of $10,000, as a base fee. In addition to the base fee plus reasonable
expenses, J.P. Williams may be entitled to a potential bonus, the amount of
which, if any, shall be determined by the Board of Directors of the Company,
in its sole and absolute discretion.
Additionally, Mr. Williams has been granted options to acquire 540,000 shares
of common stock of the Company. Mr. William's interest in such options shall
vest in equal monthly installments on the first day of each month over the
three year term of the consulting agreement. The options expire ten years
from the date of the grant.
Distribution. The Company's products are specifically designed for national
distribution through grocery stores, gift shops, discount outlets and
restaurants.
Buyer-Broker Agreement. On April 16, 1997, the Company entered into a
Buyer-Broker agreement with Business Intermediary Services, Ltd., a business
controlled by Mr. Erich Schmid, a director of the Company, to locate
businesses or properties to be purchased by the Company. The term of the
agreement is twenty four (24) months. Pursuant to the Buyer-Broker
Agreement, the Company shall pay an accomplishment fee based on a percentage
of the total purchase price paid by the Company. The accomplishment fee
structure is:
<PAGE>5
5% of total purchase price up to $1,000,000; plus
4% of total purchase price between $1,000,000 and $2,000,000; plus
3% of total purchase price between $2,000,000 and $3,000,000; plus
2% of total purchase price between $3,000,000 and $4,000,000; plus
1% of total purchase price in excess of $4,000,000.
Pursuant to this agreement, the Company paid Business Intermediary Services,
Ltd. $30,000 on February 16, 1998 in connection with the acquisition of the
Asheville, North Carolina restaurant. Additionally, Business Intermediary
Services, Ltd. will be entitled to a fee in the event the acquisition of
Woody's Bar-B-Q, Inc. is consummated.
Stock Purchase Letter Agreement. On September 11, 1998, the Company
obtained an extension relating to its ongoing negotiations to
acquire all of the stock of Woody's Bar-B-Q Holdings, Inc., a 33-
unit chain based in Jacksonville Florida. To obtain this extension,
the Company agreed to release to the selling shareholders of Woody's
$805,630, representing the net funds held in escrow at that time.
The Company expects to pay a total of $1,600,000 in cash plus
approximately $4,000,000 of Convertible Promissory Notes (the
"Notes") bearing interest at 10% and maturing in one year. The
final purchase price is subject to adjustment based upon a closing
balance sheet audit. The Notes are convertible into Common Stock
at the lower of $2.93 per Common Share or the average daily closing
prices for the 30 days prior to conversion. Additionally, the
Company will issue Warrants to the Selling Shareholders to acquire
500,000 shares of the Company's Common Stock at the lower of $1.71
or the Conversion Price identified in the Notes. Mr. David Womick,
President of Redneck Foods, Inc., and his wife have also agreed to
guarantee the Notes and they have agreed to pledge 1,000,000 of
their Redneck Common Shares as additional collateral. The Company
and the Sellers extended the closing 3 times until October 8, 1998
to facilitate the raising of the necessary capital to close the
transaction.
The Company is attempting to raise the required cash through a
private placement of convertible debentures. The Company
authorized up to $3,000,000 in aggregate principal amount of Series
1 Secured Convertible Debentures Due 2001 (the "Debentures"). The
Debentures bear interest at 5% per annum, payable quarterly, and are
redeemable at 125% of the principal amount so redeemed. Subsequent
to June 30, 1998, $1,271,200 in Debentures has been sold.
Joint Venture Agreement. The Company has entered into a joint venture with
Pigs"R"Us, Inc., a Florida corporation to be called Redneck Pigs Joint
Venture 1. The sole purpose of the joint venture is to create a single
barbecue restaurant on property under lease by Pigs"R"Us. The parties
agreed to convert the venture into a limited liability company as soon as
practicable and to jointly plan, operate and own the pilot restaurant. The
Company will sublicense to the venture certain rights under its license
agreement and contribute capital. The Company has contributed $50,000 to
this joint venture. No additional contributions will be made under the
current agreement. The Company will own a 10% interest in the venture. The
Company shall be paid a consulting fee of 3% of gross sales in addition to
its available distributions based on its ownership interest. Certain
options and rights for both parties in the joint venture are established by
the contractual agreement. On September 17, 1998, the joint venture was
terminated. The parties jointly executed a Bill of Sale which transfers and
assigns all property of the Joint Venture to the Company in its individual
proprietary capacity. The consideration payable to Pigs"R"Us is 241,290
Common Shares (based upon a purchase price of $748,000 at $3.10 per share)
with registration rights.
Dependence on One or a Few Major Customers. The Company does not expect
that any single customer will account for more than ten percent of its
business.
The Company is a newly formed company, which currently intends to acquire and
operate barbecue restaurants to be known as "Foxworthy's Smoke House Grill"
or "Foxworthy's Backyard Bar-B-Q," The Company intends initially to acquire
existing barbecue restaurants for conversion to one of the two restaurant
concepts. The Company also intends to market and distribute barbecue
sauces and salsas under trademarks using the "Foxworthy" name and may also,
at a later time, distribute other food products which are related to the
restaurant menu.
In February, 1998, the Company entered into a contract to acquire the real
estate and the business assets of a barbecue restaurant in Asheville, North
Carolina to be connected to a Foxworthy's Smoke House Grill. The Company
issued 223,333 shares of Common Stock valued at $3.00 per Common Share for
the business assets and the leasehold estate and has contracted to acquire
the real estate for $550,000 in cash. A deposit of $42,352 has been paid
against the purchase price and the Company expects to close on the real
estate prior to the end of 1998.
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Research and Development. The Company has expended in excess of $61,700
for research and development activities. These amounts include $35,000 in
consulting expense and $26,700 in contract services. In the future, the
Company anticipates that a portion of the proceeds from this offering will be
used to conduct additional research and development activities.
Competition. The restaurant and food product industries are highly
competitive with respect to price, service, quality and location and, as a
result, has a high failure rate. There are numerous well-established
competitors, including national, regional and local restaurant chains,
possessing substantially greater financial, marketing, personnel and other
resources than the Company. Furthermore, to the extent that barbecue
restaurants are frequently viewed as "local", the Company may experience
intense competition or lack of consumer acceptance if it expands into areas
with existing barbecue restaurants. There can be no assurance that the
Company will be able to respond to various competitive factors affecting the
restaurant industry. The restaurant and food industries are also
generally affected by changes in consumer preferences, national, regional and
local economic conditions and demographic trends. The performance of
restaurant facilities may also be affected by factors such as traffic
patterns, demographic considerations and the type, number and location of
competing facilities. In addition, factors such as inflation, increased
labor and employee benefit costs, and a lack of availability of experience
management and hourly employees may also adversely affect the restaurant and
food industries in general and the Company's restaurants and food products,
in particular. Restaurant operating costs are further affected by increases
in the minimum hourly wage, unemployment tax rates and similar matters over
which the Company has no control. Finally, by the nature of its business,
the Company would be subject to potential liability from serving contaminated
or improperly prepared food.
Employees. The Company employs thirteen full time persons. The Company
shall employ additional individuals as required.
Governmental Regulation. The restaurant and food product business is
subject to various federal, state and local government regulations, including
those relating to sanitation, safety, fire and the sale of food and alcoholic
beverages. The failure to maintain food and liquor licenses would have a
material adverse effect on the Company's operating results. In addition,
restaurant and food production operating costs are affected by increases in
the minimum hourly wage, unemployment tax rates, sales taxes and similar
costs over which the Company has no control. Many of the Company's
personnel will be paid at rates based on the federal minimum wage. Recent
increases in the minimum wage are not expected to materially impact the
Company's labor costs. The Company will be subject to "dram shop" statutes
in certain states which generally allow a person injured by an intoxicated
person to recover damages from an establishment that served alcoholic
beverages to such intoxicated person. As appropriate, the Company shall
seek to obtain liability insurance against such potential liability.
The Federal Americans With Disabilities Act prohibits discrimination on basis
of disability in public accommodations and employment. The Company could be
required to expend funds to modify its restaurants in order to provide
service to or make reasonable accommodations for disabled persons.
The Company will be subject to environmental rules, particularly with respect
to preventing water pollution. The Company plans to recycle cooking grease
to prevent water pollution.
Seasonal Nature of Business Activities. The Company's business activities
are not seasonal.
Item 2. Management's Discussion and Analysis or Plan of Operation
Trends and Uncertainties. Demand for the Company's products, franchises and
success of its restaurants will be dependent on, among other things, market
acceptance of the Company's concept, the quality of its food products and
restaurant operations and general economic conditions which are cyclical in
nature. Inasmuch as a major portion of the Company's activities is the
receipt of revenues from the sales of its products, the Company's business
operations may be adversely affected by the Company's competitors and
prolonged recessionary periods.
Capital and Source of Liquidity. The Company requires substantial capital
in order to meet its ongoing corporate obligations and in order to continue
and expand its current and strategic business plans. Initial working
capital has been obtained from the initial sale of the Company's common
shares in July 1997 for $.75 per share which raised $156,000, an offering
netting approximately $899,000 for 920,000 shares of common stock at $1.00
per share pursuant to Regulation D, Rule 504 and additional capital of
$775,000 from the subsequent sale of common stock.
Additionally, since inception the Company has issued 2,500,000 Series A
Preferred Shares (for promotional services valued at $50,000), founders stock
of 5,100,000 common shares and 1,524,000 common shares for various services
with an aggregate value of approximately $446,000. The 2,500,000 Series A
Convertible Preferred Shares were converted into common stock of the Company
in June 1998 in accordance with the preferred stock agreement upon obtaining
certain capitalization thresholds.
<PAGE>7
For the six months ended June 30, 1998, the Company purchased office and
restaurant equipment totaling $34,326 and received proceeds from disposal of
equipment of $1,200. The Company also invested an additional $15,000 in a
joint venture with Pigs"R"Us and paid expenses of approximately $28,000 which
are to be reimbursed by the joint venture. The Company has also paid an
additional earnest deposit of $50,000 toward a potential restaurant chain
acquisition and a $42,000 deposit on real estate to be acquired under an
asset purchase agreement. As a result these activities, the Company used
cash for investing activities of approximately $207,000 for the six months
ended June 30, 1998.
For the six months ended June 30, 1998, the Company received
proceeds from short-term borrowings of $12,000 which were repaid. The
Company also received net proceeds from the sale of an additional 428,500
shares of common stock of $775,000. As a result, the Company had net cash
provided by financing activities of $775,000 for the six months ended June
30, 1998.
For the six months ended June 30, 1997, the Company had no investing or
financing during its initial period of inception.
The Company did begin selling its sauces through Wal-Mart Supercenters and
other retailers in December, 1997. Capital is needed to finance the
production of inventory and receivables for approximately 30 days of sales.
In March, 1998, the Company, through its joint venture partner, Pigs"R"Us,
opened its first restaurant, a Foxworthy's Backyard Bar-B-Q. As of June 30,
1998, the Company has invested $50,000 in the joint venture. Additionally,
the Company has spent considerable funds in continuing to refine the
products, including the gift shop selections, at this unit. A portion of
such costs incurred directly for the benefit of the joint venture, have been
billed to the joint venture. All other costs have been expensed or have
been capitalized as development costs.
On September 11, 1998, the Company obtained an extension relating to
its ongoing negotiations to acquire all of the stock of Woody's Bar-
B-Q Holdings, Inc., a 33-unit chain based in Jacksonville Florida.
To obtain this extension, the Company agreed to release to the
selling shareholders of Woody's $805,630, representing the net funds
held in escrow at that time. The Company expects to pay a total of
$1,600,000 in cash plus approximately $4,000,000 of Convertible
Promissory Notes ("the Notes") bearing interest at 10% and maturing
in one year. The final purchase price is subject to adjustment
based upon a closing balance sheet audit. The Notes are
convertible into Common Stock at the lower of $2.93 per Common Share
or the average daily closing prices for the 30 days prior to
conversion. Additionally, the Company will issue Warrants to the
Selling Shareholders to acquire 500,000 shares of the Company's
Common Stock at the lower of $1.71 or the Conversion Price
identified in the Notes. Mr. David Womick, President of Redneck
Foods, Inc., and his wife have also agreed to guarantee the Notes
and they have agreed to pledge 1,000,000 of their Redneck Common
Shares as additional collateral. The Company and the Sellers
extended the closing 3 times until October 8, 1998 to facilitate the
raising of the necessary capital to close the transaction.
The Company is attempting to raise the required cash through a
private placement of convertible debentures. The Company
authorized up to $3,000,000 in aggregate principal amount of Series
1 Secured Convertible Debentures Due 2001 (the "Debentures"). The
Debentures bear interest at 5% per annum, payable quarterly, and are
redeemable at 125% of the principal amount so redeemed. Subsequent
to June 30, 1998, $1,271,200 in Debentures has been sold.
The Company also entered into an agreement to acquire the leasehold estate
and equipment of an existing Bar-B-Q restaurant in Asheville, North Carolina
that is being converted to a Foxworthy's Smokehouse Grill and will serve as
the Company's first corporate unit and as its training and product
development center. The Company acquired the leasehold and equipment for
$670,000 and expects to spend approximately $210,000 on the conversion. The
unit will open in the fourth quarter of 1998.
Upon the completion of the financing for the Woody's acquisition, the Company
will have completed its capital requirements for the initial phase of its
operational development. However, additional capital will be required to
fund the ongoing corporate development until such time as other acquisitions
or internal growth can be achieved for future restaurant development
and/or future acquisitions that may become available. The Company intends
to pursue expansion by internal growth or acquisition as capital or business
opportunities become available.
Results of Operations. For the six months ended June 30, 1998, the Company
had a net loss of $1,042,348. This loss results from continued selling,
general and administrative expenses incurred prior to significant revenue
generation from restaurant and franchise operations and product sales. Net
sales during the six months were entirely from the sale of food products and
merchandise through various distribution networks. No significant revenue
from restaurant or franchise operations have been produced as of June 30,
1998.
<PAGE>8
The Company had amortization of services received from stock issuance of
$13,500, expense recognized for stock options granted of $3,751 and
depreciation and amortization of $9,915. The Company issued common stock of
$202,500 for services. Due to the commencement of operations, the Company
experienced a decrease in accounts receivable of $39,389, an increase in
inventories of $102,244, a decrease in prepaid expenses and other assets of
$106,733 and a decrease in accounts payable of $87,986. Additionally, the
Company had a decrease in other accrued expenses of $61,385. As a result,
for the six months ended June 30, 1998, the Company had net cash used by
operating activities of $916,995.
For the six months ended June 30, 1998, the Company had net sales of $111,629
and cost of sales of $74,913. For the six months ended June 30, 1998, the
Company had selling, general and administrative expenses of $1,085,913 which
consisted of compensation and employee benefits ($280,445), consulting
expenses ($297,500), contract services($88,774), insurance ($28,993),
marketing ($48,732), professional fees ($76,520) rent ($18,238) supplies and
postage ($25,295), utilities ($18,937) travel ($81,293) and miscellaneous
($121,186). These expenses continue to be significant as the Company
attempts to attract additional equity capital and debt financing and develop
and implement its initial business plan.
For the six months ended June 30, 1997, the Company had a net loss of
$248,073. The losses occurred during the initial inception period of the
Company. The Company issued common stock of $137,500 for services. Due to
preparation for the commencement of operations, the Company experienced a
decrease in prepaid expenses and other assets of $16,785 and an increase in
accounts payable of $95,158. Additionally, the Company had an increase in
other accrued expenses of $32,100. As a result, for the six months ended
June 30, 1998, the Company had net cash used by operating activities of $0.
For the six months ended June 30, 1997, the Company had selling, general and
administrative expenses of $248,073 which consisted of compensation and
employee benefits ($29,819), consulting expenses ($35,000), contract
services($159,540), directors fees ($10,000) supplies and postage ($1,967),
travel ($6,870) and miscellaneous ($4,877). The expenses were incurred
toward raising the initial capital and development the Company's operating
concepts. The Company generated no revenue during this initial period.
Plan of Operation. The Company is not delinquent on any of its obligations
even though the Company has had limited operating revenues. The Company
intends to market its products utilizing cash made available from the private
and public sale of its securities. The Company is of the opinion that
revenues from the sales of its products along with proceeds
of the sales of its securities will be sufficient to pay its expenses.
Year 2000 Compliance. The Company has established a plan to address Year
2000 issues. Successful implementation of this plan will eliminate any
extraordinary expenses related to the Year 2000 issue. The Company has a
reasonable basis to conclude that the Year 2000 issue will not materially
affect future financial results, or cause reported financial information not
to be necessarily indicative of future operating results or future financial
condition.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company's executive offices are located at 71 Turtle Creek Drive,
Asheville, NC 28803. These offices consist of 1,800 square feet which are
leased on a month to month basis at the monthly lease price of $1,800.
In June 1998, the Company acquired the leasehold interest in an operating
barbecue restaurant in Asheville, North Carolina for conversion to a
Foxworthy's Smokehouse Grill.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tabulates holdings of shares of the Company by each person who,
subject to the above, at the date of this prospectus, holds of record or is
known by Management to own beneficially more than 5.0% of the Common Shares
and, in addition, by all directors and officers of the Company individually
and as a group. Each named beneficial owner has sole voting and investment
power with respect to the shares set forth opposite his name.
Shareholdings at Date of
This Prospectus
<TABLE>
<CAPTION>
Percentage of
Number & Class(1) Outstanding
Name and Address of Shares Common Shares
<S> <C> <C>
David Womick(1)(2) 5,100,000 45.30%
7 Stuyvesant
Asheville, NC 28803
<PAGE>9
Therese R. Womick(1)(2) 4,111,660 36.52%
7 Stuyvesant
Asheville, NC 28803
John P. Williams(3) 0 0%
c/o Parallel Entertainment
8380 Melrose Avenue, Suite 310
Los Angeles, CA 90069
Erich K. and Marilyn Schmid 200,000 1.76%
40 Spring Hollow Lane
Fairview, NC 28730
James E. Scheifley 100,000 .88%
5299 DTC Boulevard #300
Englewood, CO 80111
Samuel J. Fox 0 0%
c/o Blanc Williams
Johnston & Kronstadt, LLP
1900 Avenue of the Stars,
17th Floor
Los Angeles, CA 90067-4403
Jeffrey Foxworthy(4) 2,904,722 25.80%
c/o Robert H. Bertstein
Bernstein & Bernstein
23901 Calabasas Road, Suite 1065
Calabasas, CA 91302
All Directors & Officers 5,400,000 47.90%
as a group (5 persons)
</TABLE>
(1)Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared voting
power (including the power to vote or direct the voting) and/or sole or
shared investment power (including the power to dispose or direct the
disposition) with respect to a security whether through a contract,
arrangement, understanding, relationship or otherwise. Unless otherwise
indicated, each person indicated above has sole power to vote, or dispose or
direct the disposition of all shares beneficially owned, subject to
applicable unity property laws.
(2)Theresa R. Womick is married to David Womick, President and Director of
the Company. Mr. Womick would be deemed to be the beneficial owner of the
Common Shares held by Theresa R. Womick. Mr. Womick has given all of his
Common Shares received pursuant to his employment contract to his wife. He
further intends to give her additional shares as they become non-forfeitable
up to the 5.1 million shares. Mr. Womick further disclaims any interest in
the shares held by Teresa R. Womick
(3)As further described below, Mr. Williams has 540,000 options to purchase
540,000 Common Shares of the Company. If the options are exercised, Mr.
Williams would own, on a fully diluted basis, 4.49% of the Company's Common
Shares.
(4)The 2,500,000 Class A Convertible Preferred Shares originally issued to
Jeffrey M. Foxworthy have been converted to Common Shares. As of June 30,
1998, 726,181 Common Shares remained forfeitable pursuant to the Stock
Purchase Agreement.
There are currently 1,687,500 options granted and outstanding. Except as
noted below, all options are 100% vested.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name and address Stock options Exercise Price Expiration Date
John P. Williams(1) 540,000 $.50 July 2007
c/o Parallel Entertainment
8380 Melrose Avenue, Suite 310
Los Angeles, CA 90069
Gary Nuell 5,000 $1.00 July 13, 1999
c/o AirPlay
5055 Wilshire Blvd.
6th Floor
Los Angeles, CA 90036
Becky Grier 30,000 $1.00 September, 2000
PLS, Inc.
P.O. Box 6065
Greenville, SC 29606
Bob Bernstein 50,000 $1.00 July 1999
23901 Calabasas Road
Suite 1065
Calabasas, CA 91302
<PAGE>10
Samuel J. Fox(1) 250,000 $.85 December 2002
c/o Blanc Williams
Johnston & Kronstadt, LLP
1900 Avenue of the Stars,
17th Floor
Los Angeles, CA 90067-4403
The Wall Street Group 50,000 $2.50 June 2003
32 E. 57th Street
New York, NY 10022
OTC Communications Corp. 100,000 $3.00 May 2002
1040 Great Plan Avenue
Needham, MA 02192
Jay Foxworthy 125,000 $1.93(3) February 2003
High Cotton
808-B Pickens Industrial Drive
Marietta, GA 30062
Children of the Night 10,000 $1.96(3) February 2003
c/o Blanc Williams
Johnston & Kronstadt, LLP
1900 Avenue of the Stars,
17th Floor
Los Angeles, CA 90067-4403
Duke University 100,000 $1.96(3) February 2003
Durham, NC 27708
Diabetes Research Institute 40,000 $1.96(3) February 2003
Foundation, Inc.
3440 Hollywood Boulevard, Suite 100
Hollywood, FL 33021
Bob Baydale 160,000 $2.65 March 31, 2001
841 Little Leaf Court
Orlando, FL 32835
John R. Geise 10,000 $2.55 May 27, 2001
Highway 61 N.E.
Lancaster, WI 53813
Fred Glaser 40,000 $2.65 March 31, 2001
5715 Major Boulevard
Orlando, FL 32819
Ray E. Justice, Sr. 160,000 $2.65 May 5, 2001
3421 Dogwood Drive
Hapeville, GA 30354
Jim Kemps 5,000 $2.55 May 27, 2001
417 Golf View Lane
Lancaster, WI 53813
Charlotte Lagman 2,500 $2.55 May 27, 2001
1380 Country Club Court
Platville, WI 53818
Les Mack 10,000 $2.55 May 27, 2001
617 Carleton Drive
Lancaster, WI 53813
(1)The options issued to Mr. Williams vest at the rate of 15,000 per month.
At June 30, 1998, 180,000 options were vested.
(2)The options granted to Mr. Fox were at a discount of the then market price
of $1.00 per Common Share. The difference is being expensed over the term
of Mr. Fox's services as a director.
(3)Granted at 85% of the then market price of $2.31 per Common Share.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Board of Directors. The following persons listed below have been retained to
provide services as director until the qualification and election of his
successor. All holders of Common Stock will have the right to vote for
Directors of the Company. The Board of Directors has primary responsibility
for adopting and reviewing implementation of the business plan of the
Company, supervising the development business plan, review of the officers'
performance of specific business functions. The Board is responsible for
monitoring management, and from time to time, to revise the strategic and
operational plans of the Company. Directors receive no cash compensation
or fees for their services rendered in such capacity, however, the Board of
Directors, in June 1997, gave Mr. Eskew and Mr. Scheifley 100,000 Common
Shares each, valued at $.10 per Common Shares for their services as
directors.
<PAGE>11
Pursuant to the Company's charter and By-Laws, Mr. Womick, Mr. Williams and
Mr. Fox were elected for a two year term on July 9, 1998. Mr. Schmid and Mr.
Scheifley were elected for a one year term on July 9, 1998.
The Executive Officers and Directors are:
Name Position Term(s) of Office
David A. Womick, age 43 President Inception to
and Director present
John P. Williams, age 32 Director Inception
to present
Erich K. Schmid, age 52 Director Inception to
present
Samuel J. Fox, age 53 Director December 5, 1997
to present
James E. Scheifley, age 49 Secretary April 11, 1998
Treasurer Feb., 1997
Director to present
Resumes:
David A. Womick. Mr. Womick has been President of the Company since
inception. Mr. Womick intends to dedicate at least 90% of his work time to
the affairs of the Company. Mr. Womick was a Director of Restaurant Services
by Arby's International from 1978 to 1982. From 1982 to 1988, Mr. Womick
has been a franchise area developer owning thirteen Arby's, six Denny's and
three Del Taco restaurants. From 1988 to 1995, Mr. Womick pursued his
personal investments including, but not limited to, reviewing a wide variety
of restaurant concepts that could be developed into a chain format. From 1995
to October, 1997, Mr. Womick was President of KRR Nashonooga, Inc., KRR
Knoxville, Inc., KRR Tri-cities, Inc. and Atlanta Foodquest, Inc.,
franchisees of Kenny Rogers Roasters restaurants. Mr. Womick earned a
Bachelor of Applied Science in social science from Elon College in 1976.
John P. Williams. From 1991 to present, Mr. Williams has been Chief
Executive Officer of Parallel Entertainment, a personal management company.
In addition to Jeff Foxworthy, Mr. Williams manages Bill Engvall, Megan
Cavanagh and Chris Spencer. Mr. Williams has been involved in the
entertainment industry since 1983 and has represented talent such as Jay
Leno, Jerry Seinfeld, Damon Wayans, David Alan Grier, Dennis Miller, Jamie
Foxx and others.
Erich K. Schmid. From 1994 to present, Mr. Schmid has been President of
Business Intermediary Services, Ltd., a business brokerage firm he co-founded
specializing in middle-market transactions. From 1985 to 1994, Mr. Schmid
was a Vice President with New South Business Ventures, Inc. and its
predecessor T.C. Wilkinson, Jr. & Associates, Inc., general business
brokerage firms. He is a member of the International Business Brokers
Association, Inc. and is a Certified Business Intermediary. Mr. Schmid
earned a Bachelor of Science in industrial management and a Master of Science
in management from the University of Akron in 1971 and 1996, respectively.
James E. Scheifley. Mr. Scheifley has over 25 years experience in
corporate and public accounting. He is the president and majority
shareholder of Winter, Scheifley & Associates, P.C. an Englewood, Colorado
CPA firm which specializes in auditing and financial reporting for emerging
companies that are required to file information with the US Securities &
Exchange Commission. Mr. Scheifley co-founded the firm in 1982. He is a
member of the American Institute of Certified Public Accountants and the
Colorado Society of Certified Public Accountants. Mr. Scheifley received a
Bachelor of Science degree in accounting from La Salle University,
Philadelphia, Pennsylvania in 1969. He was formerly employed as an audit
manager with Coopers & Lybrand and has served as controller or vice-president
of finance for three public companies.
Samuel Fox. Mr. Fox is of counsel to the law firm of Blanc Williams
Johnston & Kronstradt, a Los Angeles law firm representing companies and
individuals in the entertainment, business and intellectual property areas.
His specialization includes entertainment law and licensing and he has been
personal counsel to Jeff Foxworthy for several years. He is a member of the
California and New York bars. Mr. Fox received a Bachelor of Arts degree
from Cornell University School of Law in 1969.
ITEM 6. EXECUTIVE COMPENSATION
Remuneration. The Company has entered into an employment agreement with
David Womick for a term of five years. Pursuant to the agreement, Mr.
Womick serves as Chief Executive Officer. Mr. Womick shall receive an
annualized base salary of $150,000 and may be entitled to a potential bonus
of up to $100,000, the exact amount of which, if any, shall be determined by
the Board of Directors in its sole and absolute discretion. Mr. Womick was
not entitled to receive any salary or bonus until such time as the Company
has successfully obtained all of the $2,500,000 investment capital discussed
in Section 5.1(a) of the Stock Purchase Agreement. Mr. Womick's salary began
to accrue effective July 22, 1997.
<PAGE>12
Pursuant to the Employment Agreement, Mr. Womick agreed that 1,700,000 of the
5,100,000 Common Shares currently beneficially owned by Mr. Womick are
subject to forfeiture only upon an early termination of the Employment
Agreement that is caused by a breach of such agreement by Mr. Womick. The
number of shares subject to forfeiture shall be reduced 47,444 shares
monthly, on the first day of each month, over the first 3 years of the
Employment Agreement. Mr. Womick's interest in the Common Shares shall
fully vest and no longer be subject to forfeiture upon an change of control
of the Company.
The Company had entered into an employment agreement with prior vice
president, Al Sneeden for a term of three years. Pursuant to the agreement,
Mr. Sneeden received 108,000 Common Shares and was paid $68,536.92 prior to
termination. The agreement was terminated by the Company on April 10, 1998.
The Company had entered into an employment agreement with prior secretary and
chief counsel, E. Joseph Fitzpatrick, Jr. for a term of three years beginning
June 1, 1997. Pursuant to the agreement, Mr. Fitzpatrick received 108,000
Common Shares and was paid $57,461.59 prior to termination. The
agreement was terminated by the Company on April 10, 1998.
All salaries have been expensed in the appropriate financial statements.
Board of Directors Compensation. Members of the Board of Directors may
receive an amount yet to be determined annually for their participation and
will be required to attend a minimum of four meetings per fiscal year. To
date, the Company has paid $15,001 in directors' expenses. Additionally, Mr.
Scheifley and Mr. Eskew each received 100,000 Common Shares. Pursuant to a
Board of Directors vote on March 23, 1998, Mr. Samuel Fox was granted an
option to purchase 250,000 Common Shares at a price of $.85 per Common Share,
a discount from the $1.00 per Common Share value used for the other directors.
The discount is being expensed over his term as a director. All expenses for
meeting attendance or out of pocket expenses connected directly with their
Board representation will be reimbursed by the Company. Director liability
insurance may be provided to all members of the Board of Directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stock Purchase Agreement. On February 4, 1997, the Company and David
Womick, an officer and director of the Company entered into a Stock Purchase
Agreement with Jeff Foxworthy. Pursuant to the Stock Purchase Agreement, Mr.
Foxworthy purchased 2,500,000 Series A Convertible Preferred Shares valued at
$50,000 for the consideration of entering into the License Agreement and
Promotion Agreement. The 2,500,000 Series A Convertible Preferred Shares
(and underlying Common Shares) have registration rights.
Pursuant to the Stock Purchase Agreement, Mr. Foxworthy agreed that 833,333
of the Series A Convertible Preferred Shares were subject to forfeiture only
upon an early termination of the Promotion Agreement that is caused by a
breach of such agreement by Mr. Foxworthy. The number of shares subject to
forfeiture shall be reduced 13,889 monthly, on the first day of each month,
over the 5 year term of the Promotion Agreement. Mr. Foxworthy's interest
in the Series A Convertible Preferred Shares shall fully vest and no longer
be subject to forfeiture upon a change of control of the Company.
Pursuant to the Stock Purchase Agreement, as a condition subsequent to the
obligations of Mr. Foxworthy, the Company and Mr. Womick are obligated to
obtain equity investments in the Company totaling at least $2,500,000 in
gross capital less applicable, reasonable commissions from third party
investors by November 1, 1997. This date was verbally extended until
March 1, 1998 and subsequently verbally extended June 30, 1998. As of June
7, 1998, the Investment Capital has been raised and the Company elected to
automatically convert the Series A Convertible Preferred Shares into Common
Shares in accordance with the terms of the Stock Purchase Agreement.
Accordingly, 2,904,722 Common Shares were issued to Mr. Foxworthy. As with
the Series A Convertible Preferred Shares, 725,181 Common Shares are subject
to forfeiture, which number will be reduced by 16,137 Common Shares monthly
on the first day of the month over the five year term of the Promotion
Agreement. Mr. Foxworthy's interest in the Common Shares shall fully vest
and no longer be subject to forfeiture upon a change of control of the
Company.
Contractual Obligations. The Company has entered into a consulting contract
with Shannon/Rosenblum (an unaffiliated entity) to provide services relating
to the capitalization and promotion of the Company. Shannon/Rosenblum was
issued 500,000 Common Shares as payment for these services.
The Company has entered into a consulting agreement with Little Pond
Enterprises, Inc. ("Little Pond") to assist the Company in its capitalization
and the obtainment of additional financing. As partial payment for
consulting services, the Company issued Little Pond 300,000 Common Shares.
Additionally pursuant to the consulting agreement, 200,000 Common Shares were
issued Erich Schmid, who subsequently became a director of the Company. In
addition, Little Pond received cash compensation of $20,000.
<PAGE>13
ITEM 8. DESCRIPTION OF SECURITIES
Qualification. The following statements constitute brief summaries of the
Company's Certificate of Incorporation and Bylaws, as amended. Such
summaries do not purport to be complete and are qualified in their entirety
by reference to the full text of the Certificate of Incorporation and Bylaws.
The Company's articles of incorporation authorize it to issue up to
100,000,000 Common Shares, $.001 par value per Common Share. The Common
Shares purchased in this Offering will be fully paid and non-assessable. The
Corporation is authorized to issue Two Million Five Hundred Thousand
(2,500,000) Series A Convertible Preferred Shares, par value $.001 per share.
Common Stock. The Company's articles of incorporation authorize it to issue
up to 100,000,000 Common Shares, $.001 par value per Common Share. All
outstanding Common Shares are legally issued, fully paid and non-assessable.
Liquidation Rights. Upon liquidation or dissolution, each outstanding
Common Share will be entitled to share equally in the assets of the Company
legally available for distribution to shareholders after the payment of all
debts and other liabilities.
Dividend Rights. There are no limitations or restrictions upon the
rights of the Board of Directors to declare dividends out of any funds
legally available therefor. The Company has not paid dividends to date and
it is not anticipated that any dividends will be paid in the foreseeable
future. The Board of Directors initially may follow a policy of retaining
earnings, if any, to finance the future growth of the Company. Accordingly,
future dividends, if any, will depend upon, among other considerations, the
Company's need for working capital and its financial conditions at the time.
Voting Rights. Holders of Common Shares of the Company are entitled to
cast one vote for each share held at all shareholders meetings for all
purposes.
Other Rights. Common Shares are not redeemable, have no conversion
rights and carry no preemptive or other rights to subscribe to or purchase
additional Common Shares in the event of a subsequent offering.
Preferred Stock. The Corporation is authorized to issue Two Million Five
Hundred Thousand (2,500,000) Series A Convertible Preferred Shares, par value
$.001 per share. The rights, preferences, privileges and restrictions
granted to and imposed on the Common Shares and the Preferred Shares are
identical in all respects, except that the holders of the Preferred Shares
have certain conversion rights and a liquidation preference as set forth
below.
A. Liquidation Preference.
1. In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, the holders of Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets of the Company to the holders of Common
Stock b y reason of their ownership thereof, an amount per share equal to the
price for which such share was originally issued, as adjusted for any stock
dividends, combination or splits with respect to such shares. If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of Series A Preferred Shares shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amount, then the
entire assets and funds of this corporation legally available for
distribution shall be distributed ratably among the holders of Series A
Convertible Preferred Shares in proportion to the number of shares of Series
A Convertible Preferred Stock owned by such holder.
2. After payment has been made to the holders of the Series A
Preferred Shares of the full amounts to which they shall be entitled, then
the entire remaining assets and funds of the corporation legally available
for distribution, if any, shall be distributed as follows: Two thirds (2/3)
to the holders of the Common Shares and one third (1/3) to the holders of the
Series A Convertible Preferred Shares.
B. Conversion. The Series A Preferred Shares shall be automatically
convertible upon the effective date (the date on which the amount of
additional capital first equals or exceeds $2,500,000) into the number of
converted shares that shall constitute thirty-three and one third percent of
the outstanding shares of Common Stock on an as-converted basis (that is,
assuming the concurrent conversion into Common Stock of all outstanding
Shares (excluding the Series A Preferred Shares). The Series A Preferred
Shares are convertible into classes or series of stock based on what classes
or series of stock are outstanding at the time of conversion.
Transfer Agent. Florida Atlantic Stock Transfer shall act as the Company's
transfer agent.
<PAGE>14
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock is traded in the over-the-counter market and
listed on the NASDAQ Bulletin Board under the symbol "RDNK.
The following table sets forth the range of high and low bid quotations
for the Company's common stock for each quarter since commencement of
trading (December 1997, as reported by the OTC Bulletin Board. The
Company's market makers are Olsen Payne, Hill, Thompson, Magib & Co.;
Paragon; Sharpe Capital, Inc.; GZR Company; Security Investment Company of
Kansas City; Herzog, Heine, Geduld; J. Alexander Securities; North American
Institutional Brokers; William V. Frankel & Company. The quotations represent
inter-dealer prices without retail markup, markdown or commission, and may
not necessarily represent actual transactions.
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended High Bid Low Bid
<S> <C> <C>
12/31/97 3.25 1.18
3/31/98 2.63 2.44
6/30/98 3.00 2.56
</TABLE>
The Company has never paid any cash dividends nor does it intend, at this
time, to make any cash distributions to its shareholders as dividends in
the near future.
As of August 31, 1998, the number of holders of Company's common stock is 76.
.
ITEM 2. LEGAL PROCEEDINGS
The Company had retained Harland Adams Spice Company to assist the Company in
the development and distribution of products expected to be developed that
are related to the menu and concept. This relationship has been canceled and
may need to be settled or arbitrated.
The Company has become aware that its use of the term "Backyard" BBQ may be
restricted or terminated due to the potential confusion with other businesses
containing the term "Backyard." The Company does not believe the possibility
of removing "Backyard" from its trademark will materially effect its business
or appeal to customers.
The Company is not a party to any legal proceedings nor is the Company aware
of any other disputes which may result in legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
During the Company's two most recent fiscal years or any later interim
period, there have been no changes in or disagreements with the Company's
principal independent accountant or a significant subsidiary's independent
accountant.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In February 1997, the Company entered into an agreement for the use of Jeff
Foxworthy's name and character. In consideration for this agreement, the
Company issued 2,500,000 Series A Preferred Shares at $.02 per Series A
Preferred Share to Mr. Foxworthy. This issuance was made in reliance on
Section 4(2) by Registrant's management to a sophisticated investor who had
access to information on the Company necessary to make an informed investment
decision.
In February 1997, the Company entered into an agreement to sell 5,100,000
shares of founders stock to David Womick, president of the Company which was
assigned a value of $.02 per share. This issuance was made in reliance on
Section 4(2) by Registrant's management to a sophisticated investor who had
access to information on the Company necessary to make an informed investment
decision.
In June 1997, the Company entered into two consulting contracts that provided
for the issuance of 1,000,000 shares of common stock (Shannon/Rosenbloom
Marketing, Inc.(500,000) and Little Pond Enterprises, Inc.(300,000).in lieu
of cash for consulting services at the price of $.10 per share. Of these
1,000,000 Common Shares,
In June 1997, the Company also issued 416,000 restricted stock valued at $.10
per Common Share pursuant to the Act in consideration for directors fees and
services in accordance with various employment contracts. This issuances were
made in reliance on Section 4(2) by Registrant's management to sophisticated
investors who had access to information on the Company necessary to make an
informed investment decision.
<PAGE>15
In July 1997, the Company sold 156,000 Common Shares to various individuals
for cash at $.75 per Common Share to raise start-up capital. This issuances
were made in reliance on Section 4(2) by Registrant's management to
sophisticated investors who had access to information on the Company
necessary to make an informed investment
decision.
In October 1997, the Company completed an offering of 920,000 under Rule 504
of Regulation D of the Securities Act of 1933 at $1.00 per Common Share to
the following:
Name # of Common Shares
Charles R. Caraway 55,000
Herman R. Loeb
for further credit Charles R. Caraway 55,000
David Adams 5,000
Karen M. Adams 10,000
Valerie I. Moore 10,000
William G. Osler 5,000
Kevin Robinson 6,500
Robert L. Watson II 15,000
Dale R. & Karen F. Benson 5,000
Hal Morrison 24,000
John D. McDonald 15,000
John D. King 7,500
Wilhelm Sumser 10,000
Louise & Allen Jensen 35,000
William Wolfe 5,000
Judith Gottschalk 50,000
Norbert H. Sumser 45,000
Robert Gottschalk 140,000
Jeffrey L. Hutchinson 10,000
Robert Ichikaw 7,000
Ofelia Albarran & Maurilio Serrano 10,000
Jeff Knepp 30,000
Timothy John Cecconi & Kelly Cecconi 20,000
Dennis Knepp 5,000
Donald Anthony 25,000
Maurice Bledsoe 5,000
Timothy A. Leugers 33,000
Jeff E. Fuqu 5,000
Thomas Demid 5,000
Robert Amodeo 5,000
William F & Elene D. Boyd 20,000
Monica N. Galea 10,000
Brian Gentile 6,000
Francesco Di Marco 10,000
Harry Faddis 15,000
Scott A. Artz 20,000
Fred Glazer 20,000
Robert A. Baydale 10,000
Ginger Tracey 5,000
Stuart Kordonowy 20,000
Ali Steinbach 20,000
Randall K. Kopelman 10,000
Robert L. Kazaros 10,000
Timothy B. Shannon 10,000
Patrick V. Casey 10,000
Deborah N. Fischbach 10,000
Mary Ann Lang 61,000
Thomas V.N. Bass 5,000
These sales were made pursuant to an exemption from registration pursuant to
Section 504 of Regulation D. The offering was approved and/or exempted by
the required states and the appropriate Form D was filed with the Securities
and Exchange Commission.
In February, 1998, the Company entered into a contract to acquire the real
estate and the business assets of a barbecue restaurant in Asheville, North
Carolina to be converted to a Foxworthy's Smokehouse Grill. The Company
issued 223,333 shares of Common Stock valued at $3.00 per Common Share for
the business assets and the leasehold estate. This issuance was made in
reliance on Section 4(2) by Registrant's management to sophisticated
investors who had access to information on the Company necessary to make an
informed investment decision.
In the second quarter of 1998, the Company issued Common Shares to the
following individuals in cash.
# of shares Amount per Share Amount Paid
Ray E. Justice, Sr. 25,000 $2.00 $50,000
160,000 $1.875 $300,000
Timothy Miles 16,000 $1.875 $30,000
Fred Glaser 40,000 $1.875 $75,000
Robert A. Baydale 160,000 $1.875 $300,000
John R Geise 27,500 $2.00 $55,000
<PAGE>16
This issuance was made in reliance on Section 4(2) by Registrant's management
to sophisticated investors who had access to information on the Company
necessary to make an informed investment decision.
During the third quarter of 1998, the Company issued Series 1 Secured
Convertible Debentures to the following:
Name Principal amount of Debentures
Sergio Boneeti $99,985
Aldo Nenzi $199,985
Correllus International Ltd. $100,000
Arab Commerce Bank Ltd. $125,000
Robert Rabin $50,000
Sandro Grimaldi $150,000
Oscar Brito $150,000
Galapaco Holdings Ltd. $246,250
Aliouros Ltd. $50,000
Muzzolon Piermarlo $100,000
These sales were made pursuant to an exemption from registration pursuant to
Section 506 of Regulation D. Based on representations made by the investors
in their subscription agreements, all of the investors were accredited. The
offering was approved and/or exempted by the required states and the
appropriate Form D was filed with the Securities and Exchange Commission.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Indemnification. The Company shall indemnify to the fullest extent permitted
by, and in the manner permissible under the laws of the State of Delaware,
any person made, or threatened to be made, a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that he is or was a director or officer of the Company, or
served any other enterprise as director, officer or employee at the request
of the Company. The Board of Directors, in its discretion, shall have the
power on behalf of the Company to indemnify any person, other than a director
or officer, made a party to any action, suit or proceeding by reason of the
fact that he/she is or was an employee of the Company.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company, 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. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceedings) is asserted by such director, officer, or controlling person in
connection with any securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issues.
INDEMNIFICATION OF OFFICERS OR PERSONS CONTROLLING THE CORPORATION FOR
LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, IS HELD TO BE AGAINST
PUBLIC POLICY BY THE SECURITIES AND EXCHANGE COMMISSION AND IS THEREFORE
UNENFORCEABLE.
GENERAL - YEAR 2000 ISSUES
The Company has conducted a comprehensive review of its computer systems to
identify any business functions that could be affected by the "Year 2000"
issue. As the millennium ("Year 2000") approaches, businesses may experience
problems as the result of computer programs being written using two digits
rather than four to define the applicable year. The Company has conducted a
comprehensive review of its computer systems to identify those areas that
could be affected by the "Year 2000" issue. Any of the Company's programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. If not corrected, this could result in
extensive miscalculations or a major system failure.
The Company relies on industry standard software. Certain manufacturers
have already provided the Company with upgraded software to address the "Year
2000" issue and the Company believes that its remaining software manufactures
will modify their programs accordingly. In the event the remaining
manufacturers do not upgrade their software packages, the Company will
replace such software with programs that address the "Year 2000" issue. The
Company believes that by modifying existing software and converting to new
software, the "Year 2000" issue will not pose significant operational
problems and is not anticipated to require additional expenditures that would
materially impact its financial position or results of operations in any
given year.
<PAGE>17
PART F/S
The following financial statements required by Item 310 of Regulation S-B are
furnished below
Balance Sheet as of June 30, 1998
Statement of Operations for the Period ended June 30, 1998.
Statement of Cash Flows for the Period ended June 30, 1998.
Notes to Financial Statements
Independent Auditor's Report
Balance Sheet as of December 31, 1997
Statement of Operations for the Period from Inception to December 31, 1997.
Statement of Cash Flows for the Period from Inception to December 31, 1997.
Statement of Changes in Stockholder's Equity for the Period
From Inception to December 31, 1997.
Notes to Financial Statements
<PAGE>18
Crisp
Hughes
Evans Certified Public Accountants and Consultants
Independent Auditors' Report
Board of Directors
Redneck Foods, Inc.
Asheville. North Carolina
We have audited the balance sheet of Redneck Foods. Inc. (A Development
Stage Company) as of December 31, 1997, and the related statements of
operations changes in stockholders' equity and cash flows for the period
from inception (January 31, l997) through December 31, 1997. These
financial statements are the responsibility of the Company's management.
Our responsibility is to issue an opinion on these financial statements
based on our audit.
We conducted our audit 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 from 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 the significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audit provides 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 Redneck
Foods, Inc. (A Development Stage Company) as of December 31. 1997 and
the results of its operations and its cash flows for the period from
inception (January 31, 1997) through December 31. 1997, in conformity
with generally accepted accounting principles.
Crisp Hughes Evans LLP
Asheville. North Carolina
March 24, 1998
<PAGE>19
REDNECK FOODS. INC
(A Development Stage Company)
Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets:
Cash and cash equivalents $ 397,124
Accounts receivable 98,857
Inventories 1,680
Prepaid expenses 67,122
Total current assets 564,783
Office equipment,
net of accumulated depreciation of $l.004 34,107
Other assets:
Investment in joint venture 35,000
Prepaid expenses and other assets 183,957
Total other assets 218,957
Total assets $ 817,847
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payables $ 149,992
Accrued expenses and other liabilities 72,087
Total Current Liability $ 222,079
Stockholders' equity:
Convertible Preferred stock ($.00l par value,
2,500,000 shares authorized; 2,500,000 outstanding
at December 31, 1997) 2,500
Common stock ($.001 par value, 100,000,000 shares
authorized; 7,592,000 shares issued and outstanding
at December 31.1997) 7,592
Paid-in capital 1,299,768
Deficit accumulated during development stage (655,592)
Unearned services (58,500)
Total stockholders equity 595,768
Total liabilities and stockholders' equity $ 817,847
</TABLE>
See accompanying notes to financial statements.
<PAGE>20
REDNECK FOODS, INC.
(A Development Stage Company)
Statement of Operations
<TABLE>
<CAPTION>
For the Period from Inception (January 31, 1997) through
December 31. 1997
<S> <C>
Net Sales $ 98,857
Cost of goods sold 67,153
Gross profit 31,7O4
Expenses:
General and administrative 692,808
Loss from Operations (661,104)
Other income (expenses:):
Interest income, net 5,512
Loss before income tax benefit (655,592)
Income tax benefit --
Net loss (655,592)
Basic net loss per common share $.12
Weighted average common shares outstanding 5,693,000
</TABLE>
See accompanying notes to financial statements.
<PAGE>21
REDNECK FOOD, INC.
(A Developmental State Company
Statement of Changes in Stockholders' Equity
For the Period from Inception (January 31, 1997 through December 31,
1997
<TABLE>
<CAPTION>
Convertible Preferred Stock
Number of
Shares Amount
<S> <C> <C>
Issuance of convertible preferred $
Stock for services, February 1997
At $.02 per share 2,500,000 2,500
Balance at December 31, 1997 2,500,000 2,500
</TABLE>
<TABLE>
<CAPTION>
Common Stock
Number of Paid-in
Shares Amount Capital
<S> <C> <C> <C>
Issuance of common stock $ l
For services, February
1997 at $.02 per share 5,100,000 5,100 96,900
Issuance of common stock
For services, June 1997
at $.10 per share 1,000,000 1,000 99,000
Issuance of common stock
For services, June 1997
at $.10 per share 416,000 416 41,184
Proceeds from sale of
Common stock, July 1997
At $.75 per share 156,000 156 116,844
Net proceeds from sale of
common stock, October 1997
at $1.00 per share 920,000 920 897,715
Services earned for stock
Options granted at below
Market value -- - 625
Balance at December 31,
1997 7,592,000 7,592 1,229,768
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
during
Development Unearned
Stage Services Total
<S> <C> <C> <C>
Issuance of convertible $ $ $
Preferred Stock for
services, February 1997
At $.02 per share (50,000)
Issuance of common stock
For services, February
1997 at $.02 per share (102,000)
Issuance of common stock
For services, June 1997
at $.10 per share (100,000)
Issuance of common stock
For services, June 1997
at $.10 per share (41,600)
Proceeds from sale of
Common stock, July 1997
At $.75 per share 117,000
Net proceeds from sale of
common stock, October 1997
at $1.00 per share 898,635
Services earned for stock
Options granted at below
Market value 625
<PAGE>22
Net Loss (655,592) - (655,592)
Amortization of unearned
Services 235,100 235,100
Balance at December 31,
1997 (655,592) (58,500) 595,768
</TABLE>
<PAGE>23
REDNECK FOODS. INC.
(A Development Stage Company)
Statement of Cash Flows
<TABLE>
<CAPTION>
For the Period from Inception (January 31,1997) through December 31, 997
<S> <C>
Operating activities;
Net loss $ (655,592)
Adjustments to reconcile net loss to net cash
used by operating activities:
Amortization of services received from
stock issuance 235,l00
Expense recognized for stock options granted 625
Depreciation l,004
Changes in operating assets and liabilities:
(Increase) in accounts receivable (98,857)
(Increase) in inventories (1,680)
(Increase) in prepaid expenses (67,122)
(Increase) in other assets (149,957)
Increase in accounts payable 149,992
Increase in accrued expenses and
other liabilities 72,087
Net cash used by operating activities (514,400)
Investing activities:
Purchase of office equipment (35,111)
Investment in joint venture (35,000)
Increase in other assets, escrow deposit (25,000)
Net cash used by investing activities (95,111)
Financing activities:
Proceeds from short-term borrowings 50,000
Repayment of short-term borrowings (50,000)
Prepayment of secondary offering expenses (9,000)
Proceeds from sale of common stock, net 1,015,635
Net cash provided by financing activities 1,006,635
Increase in cash and cash equivalents 397,124
Cash and cash equivalents at inception -
Cash and cash equivalents at end of period $ 397,124
Noncash investing and financing transactions:
Stock issued for services $ 58,500
</TABLE>
See accompanying notes to financial statements.
<PAGE>24
REDNECK FOODS, INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1997
1. Organization
Nature of Operations - Redneck Foods. Inc. (the "Company") is a development
stage company that was incorporated on January 31, 1997 in the state of
Delaware. The Company currently intends to acquire and operate barbecue
restaurants to be known as "Foxworthy's Smoke House Grill" or "Foxworthy's
Backyard Bar-B-Q". It plans to initially acquire existing barbecue
restaurants for conversion to one of the two restaurant concepts. The Company
also intends to produce, market, and distribute food products using the
"Foxworthy" name. Operations to date have consisted of the efforts to
negotiate agreements with Jeff Foxworthy and raise the initial capital
necessary to fund sales and marketing efforts, research and development of
food products, inventory and initial start-up expenses. The Company has
elected to end its fiscal year on December 31.
2. Summary of Significant Accounting Policies
The following is a summary of the more significant accounting policies used
in the preparation of the accompanying financial statements.
Basis of Presentation - The accounting principles followed by the Company and
the methods of applying these principles conform with the generally accepted
accounting principles (GAAP) and with general industry practices.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements. Estimates also affect the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Cash and Cash Equivalents - Cash includes cash on hand and deposits at
financial institutions with an initial maturity of three months or less. At
time the Company has cash and cash equivalents which are not covered by
federal deposit insurance. The Company believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Inventories - Inventories are stated at cost determined by the first-in
first-out (FIFO) method.
Office equipment - Office equipment is carried at cost less accumulated
depreciation. Depreciation is provided for financial reporting purposes
principally on the straight-line basis over the estimated useful lives of the
respective assets.
Repairs and maintenance are charged to earnings as incurred. Expenditures
for renewals and betterments are capitalized. The assets and accumulated
depreciation accounts are relieved of the gross amounts with respect to items
replaced, retired or disposed of otherwise. Gains and losses from disposals
are reflected in operations.
Organizational Cost- The organizational cost will be amortized on a straight-
line basis over five years after the first store commences Operations.
Income Taxes - The Company utilizes the liability method of computing income
taxes in accordance with Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" (SFAS 109). Under the liability method,
deferred tax liabilities and assets are established for future 'ax return
effects of temporary differences between the stated value of assets and
liabilities for reporting purposes and their tax basis adjusted for tax rate
changes. The focus is on accruing the appropriate balance sheet deferred tax
amount, with the statement of operations effect being the result of changes
in balance sheet amounts from period to period. Current income tax expense is
provided upon actual tax liability incurred for tax return purposes.
Stock-Based Compensation - Transactions in which goods or services are the
consideration received for the issuance of equity instruments have been
accounted for based on the fair value of the consideration received or the
fair value of the equity instruments issued, whichever is more reliably
measurable. Transactions with employees and non-employee directors have been
accounted for within the scope of APB Opinion 25.
Net loss per Common Share - Basic net loss per common share was computed by
dividing the net loss by the weighted average number of common shares
outstanding during the period in accordance with Statement of Financial
Accounting Standards No. 128. "Earnings Per Share" (SFAS 128). Net loss
available to the common stockholders for the basic loss per share computation
is the net loss report in the statement of operations. The conversion of the
convertible preferred stock and stock equivalents for the stock options would
have no dilutive effect, therefore only the basic net loss per share has been
presented.
<PAGE>25
Impact of New Accounting Pronouncement - During 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 provides
accounting and reporting standards for displaying comprehensive income and
components of comprehensive income n a complete set of financial statements.
SFAS 130 addresses reporting and display only and is effective for fiscal
years beginning after December 15, 1997. The adoption of SEAS 130 is not
expected to have a material impact on the Company's financial statements.
3. Prepaid Expenses
Prepaid expenses consist of the following:
Prepaid insurance $ 17,122
Prepaid consulting 50,000
Total 67,122
Prepaid consulting is cash payments on two consulting agreements for which
services are anticipated to be provided during the next twelve months. The
portion of these prepayments for services which will be fulfilled after that
time have been classified as other assets.
4. Investment in Joint Venture
The Company has entered into a joint venture with Pigs "R" Us, Inc. (A
Florida Corporation) to be called 'Redneck Pigs Joint Venture l". The sole
purpose of the joint venture is create a single barbecue restaurant on
property under lease by Pigs "R" Us. The parties agreed to convert the
venture into a limited liability company as soon as practicable and to
jointly plan, operate and own the pilot restaurant. The Company will
sublicense to the venture certain rights under its license agreement and
contribute capital. The Company has contributed $35,000 to this joint
venture. The Company will own a 10% interest in the venture and therefore
the investment will be accounted for using the cost method. The Company
shall be paid a consulting fee of 3% of gross sales in addition to its
available distributions based on its ownership interest. Certain options and
rights for both parities in the joint venture are established by the
contractual agreement.
5. Other Assets
Included in other assets are prepaid expenses and other assets consist of the
following:
Escrow deposit $ 25,000
Organization cost 3,000
Product/Restaurant design expenses 99,853
Prepaid offering expense 9,000
Prepaid consulting 45,000
Deposits and other prepaid expenses 2,104
Total 183,957
The escrow deposit was made in connection with negotiations with a barbecue
restaurant chain which the Company is currently seeking to acquire.
6. Accrued expenses and other liabilities
Salaries and wages have been accrued for certain executives of the Company
under their employment agreements. These accrued salaries and wages will be
paid upon the acquisition of $2.5 million in initial capital. Currently, the
Company has included in accrued expenses and other liabilities approximately
$59,000 in unpaid salaries and related payroll taxes under these agreements.
7. Income Taxes
The Company plans to file its federal and State income tax returns on a
calendar year basis. No provision for income tax benefit has been provided
for in the accompanying statement of operations because of the Company's
uncertainty regarding the utilization of its operating losses. Accordingly,
a valuation allowance for the deferred tax asset has been recognized at
December 31, 1997.
The difference between actual income tax benefit and the amount computed by
applying the federal statutory income tax rate of 34% to loss before income
tax benefit is reconciled as follows:
Computed income tax benefit $ (223,000)
(Increase) decrease resulting from:
Nondeductible compensation cost recognized for
financial statement purposes 36,000
Valuation allowance for net operating losses 187,000
Actual income tax benefit $ -
At December 31, 1997, deferred tax assets consist primarily of net operating
losses accumulated since inception. The following summarizes the expected
tax consequences of future taxable events due to differences in bases of
assets and liabilities for financial reporting and income tax purposes as of
December 31, 1997.
Gross deferred tax asset $ (187,000)
Less valuation allowance 187,000
Net deferred tax asset $ -
<PAGE>26
At December 31, 1997, the Company has net operating losses of approximately
$545,000 which will expire 2012.
8. Stockholder' Equity
During the periods covered by these financial statements the Company issued
securities in reliance upon an exemption from registration with the
Securities and Exchange Commission. Although the Company believes that the
sales did not involve a public offering and that it did comply with the
exemptions from registration, it could be liable for rescission of said sales
if such exemption was found not to apply. The Company has not received a
request for rescission of shares nor does it believe that is probable that
its stockholders would pursue rescission nor prevail if such action were
undertaken.
Convertible Preferred Stock - In February 1997, the Company entered into an
agreement which was contractually valued at $50,000 for the use of Jeff
Foxworthy's name and character. The agreement contains a license agreement
as well as a promotional agreement. The license agreement allows the Company
to use his character and name in its marketing efforts. This agreement has a
term of fifty (50) years. The promotional agreement states that Mr.
Foxworthy will provide a certain number of promotional appearance over a five
year period. The entire value of the contract has been assigned to the
promotional agreement and is currently reflected as unearned services in
stockholders equity on the accompanying balance sheet and will be expensed as
promotional services are provided.
In consideration for this agreement, the Company issued 2,500,000 shares of
Class A convertible preferred stock to Mr. Foxworthy. These shares are
convertible into common stock once initial capitalization of $2.5 million is
reached. The conversion ratio is equal to twenty-five percent of the
outstanding shares of common stock on an as converted basis. Upon the
execution of the agreement 1,666,667 shares of the preferred stock were non-
forfeitable by Mr. Foxworthy and the residual 833,333 shares shall become
non-forfeitable ratably over the next five years as the promotional agreement
is satisfied. The convertible preferred stock issued was valued at S.02 per
share.
Common Stock - In February 1997, the Company entered into an agreement to
sell 5,100,000 shares of founders stock to David Womick which was assigned a
value of $.02 per share. In lieu of cash payment and in consideration for
the stock purchased by him from the Company, Mr. Womick agreed to be the
Company's Chief Executive Officer for a period of five years. The employment
services to be rendered have been valued at $102,000 and will be recognized
as compensation in the accompanying statement of operations as earned. Of
the total 5.1 million shares issued, 3.4 million shares are not subject to
forfeiture and the remaining 1.7 million shares subject to forfeiture are
reduced ratably on the first day of each month over a three year period.
In June 1997, the Company entered into two consulting contacts that provided
for the issuance of 1,000,000 shares of common stock in lieu of cash for
consulting services to be rendered. The consulting contracts established a
fair market value conversion rate for the services at $.10 per share. One of
the parties to the consulting contracts subsequently became a director of the
Company. The 200,000 shares issued to this director have been earned and is
restricted common stock pursuant to Rule 144 of the Securities and Exchange
Act of 1933 (the "Act").
In June 1997, the Company also issued restricted stock pursuant to the Act in
consideration for directors fees and services in accordance with various
employment contracts. The aggregate shares issued under these agreements
constituted 416,000 shares of common stock and were valued at $.10 per share
commensurate with the external consulting contracts. Shares issued to
officers have been expensed as services were provided.
In July 1997, the Company sold 156,000 shares of stock to various individuals
for cash at $.75 per share to raise start-up capital. All of the shares of
stock sold have been classified as restricted stock. There was no cost
associated with raising this start-up capital.
The Company has issued in aggregate 772,000 shares of common stock which are
restricted for two years pursuant to Rule 144 of the Act. These restricted
shares allowed the Company to qualify for an exemption from the registration
requirements of the Act and thus file an offering under Rule 504 of
Regulation D as noted below.
In October 1997, the Company completed an offering under Rule 504 of
Regulation D of the Act and sold 920,000 shares of common stock at $1.00 per
share. The costs associated with raising this capital was approximately
$21,000.
9. Stock Options
The Board of Directors has from time to time decided at its discretion to
issue stock options to various individuals who are not employees or non-
employee directors of the Company. As of the balance sheet date, the Company
has granted and outstanding 875,000 options to purchase stock with various
expiration dates ranging from two to ten years. These Options to purchase
stock can be exercised at various prices ranging from $.50 to $1.00 per share
<PAGE>27
and can be exercise at any time before the expiration date No options to
purchase shares were exercised in 1997. The following table details the
composition of the Options to purchase shares at December 31, 1997.
<TABLE>
<CAPTION>
Stock options granted and outstanding Exercise price Date Granted Exp. date
<S> <C> <C> <C>
55,000 shares $1.00 July 1997 July 1999
30,000 shares 1.00 September 1997 September 1999
250,000 shares .85 December 1997 December 2002
540,000 shares .50 July 1997 July 2007
</TABLE>
All of the above options were granted at fair market value except the 250,000
shares which were granted at a 15% discount. The discount is being expensed
over the term of the options.
The Company has not adopted any plans as of December 31, 1997 to grant
options to employees or non-employee directors. In accordance with Statement
of Financial Accounting Standard No. 123 (SFAS 123) "Accounting for Stock-
Based Compensation", the Company has elected to continue to measure employee
compensation cost for the accompanying statement of operations using APB
Opinion No. 25, "Accounting for Stock Issued to Employees". See Note 7 for
discussion of common shares issued to employees and non-employee directors
for services in 1997.
10. Commitments and Contingencies
The Company has entered into employment contracts with certain of its key
employees as well as a license and promotional agreement with Mr. Foxworthy.
These contacts vary in length from three to fifty years in duration.
All contracts with the key employees are considered void if the $2.5 million
of initial capital is not obtained. In the event full initial capital has
not been raised by June 30, 1998, Mr. Foxworthy has the right to withdraw the
use of his name and likeness. Should this event happen, the Company would be
required to discontinue the use of all licensed material. This would require
changing the name of the any restaurants and products. The Company has
limited operating history and the sales of its products and revenues from its
proposed restaurants are currently dependent on the use of the licensed
material.
The Company's operations is also dependent on its ability to raise additional
capital through an anticipated SB-2 registration offering. This additional
capital will be necessary for restaurant acquisitions, marketing and product
development, and general operations.
The Company leases its administrative office facilities under a short-term
operating lease. Rent expense for the period ending December 31, 1997 was
approximately $8,900.
<PAGE>28
REDNECK FOODS. INC
(A Development Stage Company)
Balance Sheet
(Unaudited)
June 30, 1998
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets:
Cash and cash equivalents $ 47,934
Accounts receivable 87,245
Inventories 103,924
Prepaid expenses 9,859
---------
Total current assets 248,962
Office and restaurant equipment,
net of accumulated depreciation of $5,943 160,845
Other assets:
Investment in joint venture 50,000
Goodwill 500,000
Noncompete agreement, net of accumulated
amortization of $4,667 65,333
Prepaid expenses and other assets 265,739
-----------
Total assets $ 1,290,879
===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payables $ 62,006
Accrued expenses and other liabilities 10,702
----------
Total Current Liabilities $ 72,708
Stockholders' equity:
Convertible Preferred stock ($.00l par value,
2,500,000 shares authorized; -0- outstanding) -
Common stock ($.001 par value, 100,000,000 shares
authorized; 11,265,555 shares
issued and outstanding) 11,257
Paid-in capital 2,949,854
Deficit accumulated during development stage (1,697,940)
Unearned services (45,000)
---------
Total stockholders equity 1,218,171
----------
Total liabilities and stockholders' equity $ 1,290,879
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>29
REDNECK FOODS, INC.
(A Development Stage Company)
Statement of Operations
For the Six Months Ending June 30, 1998 and 1997
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
<S> <C> <C>
Net Sales $ 111,629 $ -
Cost of goods sold 74,913 -
--------- --------
Gross profit 36,716 -
Expenses:
Selling, General and administrative 1,085,913 248,073
--------- --------
Loss from Operations (1,049,197) (248,073)
Other income (expenses:):
Interest income, net 2,244 -
Royalty income 5,746 -
Loss on equipment disposal (1,141) -
--------- -------
Other income (expenses), net 6,849 -
--------- -------
Loss before income tax benefit (1,042,348) (248,073)
Income tax benefit - -
--------- -------
Net loss (1,042,348) (248,073)
========= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>30
REDNECK FOODS. INC.
(A Development Stage Company)
Statement of Cash Flows
For the Six Months Ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Operating activities;
Net loss $ (1,042,348) $(248,073)
Adjustments to reconcile net loss to net cash
used by operating activities:
Recognition of unearned services
received from stock issuance 13,500 -
Expense recognized for stock options granted 3,750 -
Depreciation and amortization 9,915 -
Loss on equipment disposal 1,141 -
Common Stock issued for services 202,500 137,600
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 39,389 -
(Increase) decrease in prepaid expenses
and other assets 106,773 (16,785)
(Increase) decrease in inventories (102,244) -
Increase (decrease) in accounts payable (87,986) 95,158
Increase (decrease) in accrued expenses (61,385) 32,100
-------- --------
Net cash used by operating activities (916,995) -
-------- --------
Investing activities:
Proceeds from disposal of office equipment 1,200 -
Purchase of equipment (34,326) -
Investment in joint venture (15,000) -
Advances to joint venture (27,777) -
Increase in other assets (131,292) -
-------- --------
Net cash used by investing activities (207,195) -
-------- --------
Financing activities:
Net Proceeds from sale of common stock 775,000 -
Proceeds from short-term borrowings 12,000 -
Repayment of short-term borrowings (12,000) -
-------- --------
Net cash provided by financing activities 775,000 -
-------- --------
Decrease in cash and cash equivalents (349,190) -
Cash and cash equivalents at beginning of period 397,124 -
-------- --------
Cash and cash equivalents at end of period $47,934 $ -
======= ========
Noncash investing and financing activities:
Preferred stock converted to common stock $2,500 -
Common stock issued for equipment,
goodwill and noncompete agreement $670,000 $ -
</TABLE>
See accompanying notes to financial statements.
<PAGE>31
REDNECK FOODS, INC.
(A Development Stage Company)
Notes to Unaudited Interim Financial Statements
June 30, 1998 and 1997
1. Organization
Nature of Operations - Redneck Foods. Inc. (the "Company") is a development
stage company that was incorporated on January 31, 1997 in the state of
Delaware. The Company currently intends to acquire and operate barbecue
restaurants to be known as "Foxworthy's Smoke House Grill" or "Foxworthy's
Backyard Bar-B-Q". The Company intends to initially acquire existing
barbecue restaurants for conversion to one of the two restaurant concepts.
The Company also intends to market and distribute food products using the
"Foxworthy" name.
2. Basis of Presentation
The accompanying unaudited financial statements were prepared in accordance
with instructions for Form 10-QSB and, therefore, do not include all
disclosures necessary for a complete presentation of the balance sheets,
statements of operations, and statements of cash flows in conformity with
generally accepted accounting principles. However, all adjustments which
are, in the opinion of management, necessary for the fair presentation of the
interim financial statements have been included. All such adjustments are
of a normal recurring nature. The statements of operations for the interim
periods are not necessarily indicative of the results which may be expected
for the entire year.
It is suggested that these unaudited financial statements be read in
conjunction with the audited financial statements and notes thereto for the
Company for the year ended December 31, 1997.
3. Income Taxes
The Company plans to file its federal and State income tax returns on a
calendar year basis. No provision for income tax benefit has been provided
for in the accompanying statement of operations because of the Company's
uncertainty regarding the utilization of its operating losses. Accordingly,
a valuation allowance for the deferred tax asset has been recognized at
June 30, 1998.
4. Joint Venture
The Company has entered into a joint venture with "Pigs-R-Us" (A Florida
corporation) to form a joint venture called "Redneck Pigs, LLC" (A Florida
corporation). Redneck Pigs owns and operates a barbecue restaurant under
the "Foxworthy's Backyard B-B-Q" concept. The Company has contributed
$50,000 to this joint venture as of June 30, 1998 and has not yet begun
receiving any significant royalty income from the joint venture.
5. Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist of the following at June 30, 1998:
Deposits $ 6,594
Real estate deposit 42,352
Restaurant design and architectural fees 138,793
Organizational cost 3,000
Earnest deposit for business acquisition 75,000
---------
$265,739
=========
The Company has deposited earnest monies of $75,000 with the owner of a
barbecue restaurant chain for the opportunity to negotiate a potential
acquisition. As of June 30, 1998, Company management and the owner were
still negotiating a potential deal and upon a successful acquisition the
earnest monies will be applied toward the purchase price.
6. Stockholders' Equity
In June 1998, the 2,500,000 shares of convertible preferred stock were
converted into 2,904,722 shares of common stock in accordance with the
preferred stock agreement.
During the six months ending June 30, 1998, the Company also issued 223,333
shares of common stock under an asset purchase agreement with an assigned
value of $670,000 to the owners of a barbecue restaurant in Asheville, North
Carolina. The stock issued was in consideration for a five year noncompete
agreement valued at $70,000, goodwill valued at $500,000 and various
restaurant equipment valued at $100,000. The Company anticipates completing
the acquisition of the land, building and improvements sometime in the third
or fourth quarter of 1998. As of June 30, 1998, the Company had deposited
with the sellers $42,352 toward the purchase price of the real property.
This deposit is presented in other assets on the accompanying balance sheet.
<PAGE>32
7. New Accounting Pronouncement
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Cost of Start-up
Activities". The SOP requires that the cost of start-up activities, or one-
time activities that relate to the opening of a new facility and
organizational cost be expensed as incurred instead of being capitalized.
This SOP must be implemented by no later than the first quarter of 1999 at
which time the write-off of any unamortized pre-opening costs or organization
cost will be reported as a cumulative effect of a change in accounting
principle in the statement of operations.
<PAGE>33
PART III
ITEM 1. INDEX TO EXHIBITS
(2) Charter and By-Laws
(3) Instruments defining the rights of security holders
(5) Voting Trust Agreement - Not Applicable
(6) Material Contracts
(7) Material Foreign Patents - Not Applicable
(12) Additional Exhibits
ITEM 2. DESCRIPTION OF EXHIBITS
(2.1) Articles of Incorporation incorporated by reference for Form 10SB
filed April 27, 1998, File Number 0-24093
(2.2) Bylaws incorporated by reference for Form 10SB filed April 27, 1998,
File Number 0-24093
(3.1) Common Stock Certificate incorporated by reference for Form 10SB
filed April 27, 1998, File Number 0-24093
(3.2) Preferred Stock Certificate
(6.1) License Agreement with Jeff Foxworthy incorporated by reference for
Form 10SB filed April 27, 1998, File Number 0-24093
(6.2) Stock Purchase Agreement with Jeff Foxworthy incorporated by
reference for Form 10SB filed April 27, 1998, File Number 0-24093
(6.3) Promotion Agreement with Jeff Foxworthy incorporated by reference
for Form 10SB filed April 27, 1998, File Number 0-24093
(6.4) Extension with Jeff Foxworthy incorporated by reference for Form
10SB filed April 27, 1998, File Number 0-24093
(6.5) Consulting Agreement with J.P. Williams incorporated by reference
for Form 10SB filed April 27, 1998, File Number 0-24093
(6.6) Consulting Agreement with Little Pond Enterprises, Inc. incorporated
by reference for Form 10SB filed April 27, 1998, File Number 0-
24093
(6.7) Joint Venture Agreement with Pigs"R"Us incorporated by reference for
Form 10SB filed April 27, 1998, File Number 0-24093
(6.8) Marketing Agreement with Shannon/Rosenbloom Marketing, Inc.
incorporated by reference for Form 10SB filed April 27, 1998,
File Number 0-24093
(6.9) Buyer-Broker Agreement with Business Intermediary Services
incorporated by reference for Form 10SB filed April 27, 1998,
File Number 0-24093
(6.10) Arbitration Agreement incorporated by reference for Form 10SB filed
April 27, 1998, File Number 0-24093
(6.11) Berstein Employment Agreement incorporated by reference for Form
10SB filed April 27, 1998, File Number 0-24093
(6.12) Proprietary Rights and Confidentiality Agreement incorporated by
reference for Form 10SB filed April 27, 1998, File Number 0-
24093
(6.13) Registration Rights Agreement incorporated by reference for Form
10SB filed April 27, 1998, File Number 0-24093
(6.14) OTC Communications Corp. Consulting Agreement
(6.15) Letter of Understanding with The Wall Street Group, Inc.
(6.16) Termination of Pigs "R" Us Joint Venture dated September 17, 1998
(6.17) Amended and Restated Stock Purchase Agreement dated August 20, 1998
by and between the Company and Woody's Bar-B-Q Holdings, Inc.
and extensions incorporated by reference to Form 8-K dated
September 11, 1998
<PAGE>34
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
REDNECK FOODS, INC.
David Womick
Date: September 29, 1998 --------------------------------
By: David Womick, President
<PAGE>35
OTC COMMUNICATIONS CORP. CONSULTING AGREEMENT
AGREEMENT made as of the 15th day of June, 1998 by and between Redneck Foods,
Inc., maintaining its principal offices at 71 Turtle Creed Dr., Asheville, NC
18803 (hereinafter referred to as "Client" and OTC Communications Corp., a
Commonwealth of Massachusetts corporation maintaining its principal offices
at 1040 Great Plain Ave, Needham, MA 02192 (hereinafter referred to as the
"Company").
WITNESSETH:
WHEREAS, Company is engaged in the business of providing and rendering
public relations and communications services and has knowledge, expertise and
personnel to render the requisite services to Client; and
WHEREAS, Client is desirous of retaining Company for the purpose of obtaining
public relations and corporate communications services so as to better, more
fully and more effectively deal and communicate with its shareholders and the
investment banking community.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, it is agreed as follows:
I. Engagement of Company. Client herewith engages Company and Company
agrees to render to Client public relations, communications, advisory and
consulting services.
A. The consulting services to be provided by the Company shall include,
but are not limited to, the development, implementation and maintenance of an
ongoing program to increase the investment community's awareness of Client's
activities and to stimulate the investment community's interest in Client.
Client acknowledges that Company's ability to relate information regarding
Client's activities is directly related to the information provided by Client
to the Company.
B. Client acknowledges that company will devote such time as is
reasonably necessary to perform the services for Client, having due regard
for Company's commitments and obligations to other businesses for which it
performs consulting services.
II. Compensation and Expense Reimbursement.
A. Client will pay the Company, as compensation for the services
provided for in the Agreement and as reimbursement for expenses incurred by
Company on Client's behalf, in the manner set forth in Schedule A annexed to
this Agreement which Schedule is incorporated herein by reference.
B. In addition to the compensation and expense reimbursement referred
to in Section 2(A) above, company shall be entitled to receive from Client a
"Transaction Fee", as a result of any Transaction (as described below)
between Client and any other company, entity, person, group or persons or
other party which is introduced to, or put in contact with, Client by
Company, or by which Client has been introduced to, or has been put in
contact with, by Company. A "Transaction" shall mean merger, sale of stock,
sale of assets, consolidation or other similar transaction or series or
combination of transactions whereby Client or such other party transfer to
the other, or both transfer to a third entity or person, stock, assets, or
any interest in its business in exchange for stock, assets, securities, cash
or other valuable property or rights, or wherein they make a contribution of
capital or services to a joint venture, commonly owned enterprise or business
opportunity with the other for purposes of future business operations and
opportunities. To be a Transaction covered by this section, the transaction
must occur during the term of this Agreement or the one year period following
the expiration of this Agreement.
The calculation of a Transaction Fee shall be based upon the total value of
the consideration, securities, property, business, assets or other value
give, paid, transferred or contributed by, or to, the Client and shall equal
5% of the dollar value of the Transaction. Such fee shall be paid by
certified funds at the closing of the Transaction.
Term and Termination. This Agreement shall be for a period of one year
commencing June 15, 1998 and terminating May, 14, 1999. If the Client does
not cancel the contract during the term, the contract will be automatically
extended for an additional year. Either party hereto shall have the right to
terminate this Agreement upon 30 days prior written notice to the other
party.
Treatment of Confidential Information. Company shall not disclose, without
the consent of Client, any financial and business information concerning the
business, affairs, plans and programs of Client which are delivered by client
to Company in connection with company's services hereunder, provided such
information is plainly and prominently marked in writing by Client as being
confidential (the "Confidential Information"). The Company will not be bound
<PAGE>36
by the foregoing limitation in the event (i) the Confidential Information is
otherwise disseminated and becomes public information or (ii) the company is
required to disclose the Confidential Informational pursuant to a subpoena or
other judicial order.
Representation by Company of other clients. Client acknowledges and consents
to Company rendering public relations, consulting and/or communications
services to other clients of the Company engaged in the same or similar
business as that of Client.
Indemnification by Client as to Information Provided to Company. Client
acknowledges that Company, in the performance of its duties, will be required
to rely upon the accuracy and completeness of information supplied to it by
Client's officers, directors, agents and/or employees. Client agrees to
indemnify, hold harmless and defend Company, its officers, agents and/or
employees from any proceeding or suit which arises out of or is due to the
inaccuracy or incompleteness of any material or information supplies by
Client to Company.
Independent Contractor. It is expressly agreed that company is acting as an
independent contractor in performing its services hereunder. Client shall
carry no workers compensation insurance or any health or accident insurance
on Company or consultant's employees. Client shall not pay any contributions
to social security, unemployment insurance, Federal or state withholding
taxes nor provide any other contributions or benefits which might be
customary in an employer-employee relationship.
Non-Assignment. This agreement shall not be assigned by either party without
the written consent of the other party.
Notices. Any notice to be given by either party to the other hereunder shall
be sufficient if in writing and sent by registered or certified maid, return
receipt requested, addressed to such party at the address specified on the
first page of this Agreement or such other address as either party may have
given to the other in writing.
Entire Agreement. The within agreement contains the entire agreement and
understanding between the parties and supersedes all prior negotiations,
agreements and discussions concerning the subject matter hereof.
Modification and Waiver. This Agreement may not be altered or modified
except by writing signed by each of the respective parties hereof. No breach
or violation of this Agreement shall be waived except in writing executed by
the party granting such waiver.
Law to Govern; Forum for Disputes. This Agreement shall be governed by the
laws of the Commonwealth of Massachusetts without giving effect to the
principle of conflict of laws. Each party acknowledges to the other that
courts within the City of Boston, Massachusetts shall be the sole and
exclusive forum to adjudicate any disputes arising under this agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
OTC Communications, Corp.
By: Geoffrey Eiten, President
Redneck Foods, Inc.
By: David Womick, Authorized Agent
SCHEDULE A - 1 Payment for services and reimbursement of expenses.
SCHEDULE A - 2 Grant of options in advance of services rendered and
reimbursement of expenses
<PAGE>37
SCHEDULE A-1
PAYMENT FOR SERVICES
AND REIMBURSEMENT OF EXPENSES
A. For the services to be rendered and performed by Company during the
term of the Agreement, Client shall pay to Company the sum of $5,000 per
month, payable on the first day of each month.
B. Client shall also reimburse Company for all reasonable and necessary
out-of-pocket expenses incurred in the performance of its duties for Client
upon presentation of statements setting forth in reasonable detail the amount
of such expenses. Company shall not incur any expense for any single item in
excess of $250 either verbally or written except upon the prior approval of
the Client. Company agrees that any travel, entertainment or other expense
which it may incur and which may be referable to more than one of its clients
(including Client) will be prorated among the clients for whom such expense
has been incurred.
OTC Communications, Corp.
By: Geoffrey Eiten, President
Redneck Foods, Inc.
By: David Womick, Authorized Agent.
<PAGE>38
SCHEDULE A-2
GRANT OF OPTIONS TO OTC COMMUNICATIONS CORP. IN ADVANCE OF SERVICES RENDERED
A. Grant of Options and Option Exercise Price. As compensation for the
services to be rendered by Company hereunder, Client herewith issues and
grants to Company stock options (the "Options") to purchase and aggregate of
100,000 shares of Client's Common Stock at an exercise price of $3.00 per
share. The Options are exercisable upon and subject to the terms and
conditions contained herein. The Options are exercisable during the period
commencing on the date hereof and ending three years subsequent to the
termination date of this Agreement.
B. Manner of Exercise. Exercise of any of the Options by Company shall
be by written notice to Client accompanied by company's certified or bank
check for the purchase price of the shares being purchased. Upon receipt of
such notice and payment, Client shall promptly cause to be issued , without
transfer or issue tax to the option holder or other person entitled to
exercise the option, the number of shares for which the Option has been
exercised, registered in the name of Company. Such shares, when issued,
shall be fully paid and non-assessable.
C. Option Shares. Company acknowledges that any shares which it may
acquire from Client pursuant to the exercise of the Options provided for
herein will not have been registered pursuant to the Securities Act of 1933,
as amended (the "Securities Act"), and therefore may not be sold or
transferred by Company except in the event that such shares are the subject
of a registration statement or any future sale or transfer in, in the opinion
of counsel for client, exempt from such registration provisions. Company
acknowledges that any shares which it may acquire pursuant to the exercise of
the Options sill be for its own account and for investment purposes only and
not with a view to the resale or redistribution of same. Company further
consents that the following legend be place upon all certificates for shares
of Common Stock which may be issued to Company upon the exercise of the
Options:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AMENDED (THE "ACT") AND MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED."
Company further consents that no stop transfer instructions being placed
against all certificates may not be issued to it upon the exercise of the
Options.
(i) Upon the written demand of the Company, the Client shall file a
Registration Statement under the Securities Act, covering the Shares issuable
upon exercise of the Options to the extent the Shares qualify for
registration. The Client shall bear all costs and expenses attributable to
such registration, excluding fees and expenses of Company's counsel and any
underwriting or selling commission. Client shall maintain the effectiveness
of such registration throughout the term of this Agreement and for a 120 day
period thereafter.
(ii) Notwithstanding the foregoing, if the Shares issuable upon exercise
of the Options are not otherwise registered under the Securities Act and the
Client shall at any time after the date hereof propose to file a registration
statement under the Securities Act, which registration statement shall
include shares of Common Stock of Client or any selling shareholder, Client
shall give written notice to Company of such proposed registration and will
permit Company to include in such registration all Shares which it has
acquired as of the date of such notice. The Client shall bear all costs and
expenses attributable to such registration, excluding fees and expenses of
Company's counsel and any underwriting or selling commission
D. Adjustment in Option Shares.
(i) In the event that Client shall at any time sub-divide its
outstanding shares of Common Stock into a greater number of shares, the
Option purchase price in effect prior to such sub-division shall be
proportionately reduced and the number of shares of Common Stock purchasable
shall be proportionately increased. In case the outstanding shares of Common
Stock of Client shall be combined into smaller number of shares, the Option
purchase price in effect immediately prior to such combination shall be
proportionately increased and the number of shares of Common Stock
purchasable shall be proportionately reduced.
(ii) In case of any reclassification or change of outstanding shares of
Common Stock issuable upon exercise of this Option(other than change in par
value, or from par value to no par value, or from no par value to par value,
or as a result or a subdivision or combination), or in case of any
consolidation or merger of the client with or into another corporation (other
than a merger in which the Client is the continuing corporation and which
does not result in any reclassification or change of outstanding shares of
Common Stock, other than a change in number of the shares useable upon
exercise of the Option) or in case of any sale or conveyance to another
corporation of the property of the Client as an entirety or substantially as
an entirety, the Holder of this Option shall have the right thereafter to
<PAGE>39
exercise this Option into the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock of the Client for which the Option might have been exercised
immediately prior to such reclassification, change, consolidation, merger,
sale or conveyance. The above provisions shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
OTC Communications Corp.
By: Geoffrey Eiten, President
Redneck Foods, Inc.
By: David Womick, Authorized Agent
* In addition to the compensation mentioned in Schedule A-1, OTC
Communications will receive the options in Schedule A-2. Fifty percent (50%)
of any profits OTC receives through the exercising of options will be
credited to the client's account while this contract is in force. However,
the amount of options exercised will be replaced by the client with the same
number of options, at an exercise price equal to the current market price of
the stock at the time of the exercise. If the contract is canceled by the
client, any credit with the client will become an asset of OTC Communications
and any unexercised options remaining will remain an asset of the OTC three
years subsequent to the termination of this agreement.
<PAGE>40
June 25, 1998
Mr. David Womick
President
Redneck Food, Inc.
1796 Henderson Road, Suite 1
Asheville, NC 38804
Dear Mr. Womick:
This will confirm our understanding that the Wall Street Group, Inc. has been
retained as financial public relations counsel to Redneck Foods, Inc.
beginning July 1, 1998 at a cash fee of $6,000 per month, payable in advance
on the first day of each month, plus the reimbursement of out-of-pocket
expenses, payable ion receipt of an itemized statement thereof, as well as the
granting of a five-year option, with piggyback registration rights as more
fully set forth below, on as many shares as could be purchased on the open
market for $100,000 at the closing bid price on June 22, 1998, but not less
than 50,000 shares for the first year, which option shall be evidenced by an
option agreement in the form attached hereto as Exhibit A. This option is to
be granted to our consulting affiliate, Wall Street Consultants, Inc.
At the conclusion of 12 months, should this contract not be canceled by either
party on 90 days prior written notice, or modified, by mutual agreement, the
same terms will pertain to the next 12 month period, except that Wall Street
Consultants, Inc. will be granted an additional five-year option on as many
shares as could be bought for $100,000 using the closing bid price (or last
sale price if the common stock shall be listed on a national securities
exchange) of the common stock on the anniversary of the date of this Agreement
as the exercise price; and each year thereafter, this additional option grant
and formula will be maintained, until this agreement shall be canceled or
modified. Redneck Foods, Inc. agrees to maintain and reserve a sufficient
number of authorized and unissued shares of common stock for future exercise
of any additional stock options granted pursuant to the preceding sentence.
Redneck Foods, Inc. agrees, with respect to all options which Wall Street
Consultants, Inc. is entitled to receive hereunder, that for so long as such
options remain exercisable and for a period of two years thereafter, whenever
Redneck Foods, Inc. proposes to file with the Securities and Exchange
Commission a registration statement (other than as to securities issued
pursuant to an employee benefit plan or as to a merger, acquisition or similar
transaction subject to Rule 145 promulgated under the Securities Act of 1933,
as amended), Redneck Foods, Inc. shall, at least 30 days prior to such filing,
give written notice of such proposed filing to Wall Street Consultants, Inc.
(or its successors or assigns, as the case may be) setting forth the facts
with respect to such proposed filing, and shall offer to include in any such
filing all of the shares subject to such options, provided that Redneck Foods,
Inc. receives a request therefore at least 10 days prior to the proposed
filing date. All fees, disbursements and out-of-pocket expenses in connection
with the filing of any registration statement and in complying with applicable
securities and blue sky laws shall be borne by Redneck Foods, Inc., all as
more fully set forth in the option agreement.
The number of options due Wall Street Consultants, inc. in any twelve month
period beginning with the initiation of this agreement will double and vest
fully and immediately should arrearages of fees and reimbursements of out of
pocket expenses due Wall Street Group, Inc. cumulatively total $18,000,
equivalent to ninety days of cash fees.
This agreement can be canceled by either party on ninety (90) days written
notice. Should this agreement be canceled earlier than one year from the date
hereof as reflected below, Wall Street Consultants, Inc. will, if applicable,
return to Redneck Foods, Inc. a prorated portion of the five-year stock
option, which portion shall be based on the number of days remaining in the
twelve month retainer period. For this purpose (and all other purposes of
this agreement), the ninety (90) day period following notice of termination
shall be considered part of the retainer period.
It is understood that during the ninety day period following notice of
termination, Redneck Foods, Inc. will continue to honor its fee arrangement to
the Wall Street Group, Inc. plus reimbursement of expenses, and that The Wall
Street Group, Inc. will continue the completion of any work undertaken on
behalf of Redneck Foods, Inc.
Any disputes arising under or in connection with the interpretation of this
Agreement or the rights and obligations of the parties hereto shall be
resolved by arbitration in the City of New York under the rules of the
American Arbitration Association then obtaining. The decision of the
arbitrator(s) shall be final and binding, and judgment may be entered thereon
I the Supreme Court of the State of New York or in the United States District
Court for the Southern District of New York or any court having jurisdiction.
The costs and expenses, including counsel fees shall be borne by each of the
parties or as the arbitrator(s) may determine at the request of any party.
<PAGE>41
It is further understood that as your financial public relations counsel we
must in all instances rely upon the accuracy and completeness of the
information supplied to us by Redneck Foods, Inc., its officer and directors.
In that connection, Redneck foods, Inc. assumes full responsibility for the
accuracy and completeness of such information, and Redneck Foods, Inc. agrees
to indemnify WSG and pay the reasonable costs and expenses (including, without
limitation, attorneys' fees, disbursements and related expenses), of The Wall
Street Group, Inc. in any suit or proceeding arising out of or related to any
action taken by, or omitted to be taken by, Redneck Foods, Inc. or any of its
officers, directors, agents or employees, or by WSG in the performance of
services for Redneck Foods, Inc..
In turn, the Wall Street Group, Inc. agrees to issue no press releases on
behalf of Redneck Foods, Inc. which have not had the prior clearance of Mr.
David Womick or any other corporation officer he may designate.
If this agreement meets with your approval, please sign one copy and return it
to me, along with a check representing the first month's fee and the completed
Stock Option Agreement while retaining the other copy for your files.
Very truly yours,
Ronald Stabiner
Vice President
RS/ak
Redneck Foods, Inc.
Mr. David Womick
President
Dated: 6/25/98
<PAGE>42
REDNECK FOODS, INC.
STOCK OPTION AGREEMENT
Option granted as of June 22, 1998 by Redneck Foods, Inc. (the "Corporation")
to Wall Street Consultants, Inc. (which together with its assigns is sometimes
hereinafter referred to as the "Grantee"):
1. The Option. In further consideration of the services to be provided to
the Corporation by the Grantee pursuant to that certain retainer agreement
between the Corporation and the Grantee dated June 25, 1998, (the "Retainer
Agreement"), the Corporation grants to the Grantee, effective on the Date of
Grant, a stock option (the "Option") to purchase, on the terms and conditions
herein set forth, up to the number of shares (the "Shares") of the
Corporation's fully paid, nonassessable shares of common stock, ("Common
Stock"), at the purchase price for the Shares set forth in Section 2 below,
such tat the aggregate purchase shall equal $100,000, but not less than 50,000
shares for the first year, provided however, that in no event shall the
Corporation be required to sell a fractional Share, and the number of Shares
purchasable hereunder shall be limited accordingly.
2. The Purchase Price. The purchase price of the Shares shall be $2.50 per
share (the "Option Price"), which price is the fair market value of the Shares
as of the Date of the Grant, as such Option Price shall be adjusted from time
to time pursuant to paragraph 10.
3. Exercise of Option.
(a) The Option is exercisable over a period of five years from the Date of
Grant (the "Option Period"). The Option may be exercised from time to time
during the Option Period as to the total number of Shares subject to this
Option as determined under Section 1, or any lesser amount thereof, and the
Option shall continue as to any unexercised Shares.
(b) In the event the Grantee elects to exercise all or any portion of the
Option, the Grantee shall deliver to the Corporation written notice (the
"Notice") of such election, which Notice shall specify the number of Shares in
respect of which the Option is to be exercised, along with payment of the
Option Price of the Shares in respect of which the Option is exercised. The
Option Price shall be paid in full in United Stated dollars at the time of
exercise; provided, however, that if any fees are owed or expenses
unreimbursed pursuant to the Retainer Agreement, then the exercise price may
be paid by the Grantee agreeing to credit the corporation thereof. If the
Option is exercised in accordance with the provisions of this Agreement, the
Corporation shall deliver as soon as practicable to the Grantee a certificate
or certificates representing the number of Shares in respect of which the
Option is being exercised, which Shares shall be registered in the holder's
name.
4. Sales of Shares. The Grantee shall not be entitled to sell, transfer, or
distribute the Shares except pursuant to (i) an effective registration
statement under the Securities Act of 1933, as amended (the "Act"), or (ii)
if there be not registration statement in effect, pursuant to an exemption
from registration under the Act. Prior to offering or selling the Shares upon
claim of exemption, the holder shall obtain a written opinion from counsel
reasonably satisfactory to the Corporation to the effect that such exemption
is available or shall deliver a "no-action" letter from the Securities and
Exchange Commission with respect to the proposed sale, transfer or
distribution of the Shares.
5. Registration Rights. The Corporation agrees, that, for so long as the
Option remains exercisable for a period of two years thereafter, whenever the
Corporation proposes to file with the Securities and Exchange Commission a
registration statement (other than as to securities issued pursuant an
employee benefit plan or as to a merger, acquisition or similar transaction
subject to Rule 145 promulgated under the Securities Act), the Corporation
shall, at least 30 days prior to such filing, give written notice of such
proposed filing to the Grantee setting forth the facts with respect to such
proposed filing, and shall offer to include in any such filing the Shares
subject to the Option provided that the Corporation receives a request
therefor at least 10 days prior to the proposed filing date. All fees,
disbursements and out-of-pocket expenses in connection with the filing of any
registration statement and in complying with applicable securities and blue
sky laws shall be borne by the Corporation.
The Corporation will indemnify and hold harmless the Grantee and each person
who controls the Grantee within the meaning of Section 15 of the Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all losses, claims, damages, expenses and
liabilities, joint or several (including any investigation, legal and other
expenses incurred in connection with, and any amount paid in any settlement
effected with the Corporation's consent (not to be unreasonably withheld) of,
any action, suit, or proceeding or any claim asserted), to which they, or any
of them, may become subject under the Act, the Exchange Act or other federal
or state law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities arise out of or are based on (A) any
untrue statement or alleged untrue statement of a materiel fact contained in
the registration statement filed with respect to the Shares (including any
related preliminary or definitive prospectus, or any amendment or supplement
to such registration statement or prospectus), (B) any omission or alleged
<PAGE>43
omission to state in such document a material fact required to be stated in it
or necessary to make the statements in it not misleading, or (C) any violation
by the Corporation of the Act, the Exchange Act, any blue sky laws or any rule
or regulation thereunder in connection with such registration; provided
however, that the Corporation will not be liable to the extent that such loss,
claim, damage, expense or liability arises from and is based solely on a
materiel untrue statement or omission or alleged material untrue statement or
omission made in such registration statement and in conformity with
information furnished in writing to the Corporation by the Grantee expressly
for use in such registration statement. With respect to the matter referred
to in the proviso of the foregoing sentence, the Grantee will indemnify and
hold harmless the Corporation from and against any and all losses, claims,
damages, expenses and liabilities, joint or several, to which it may become
subject under the Act, the Exchange Act or other federal or state statutory
law or regulation, at common law or otherwise to the same extent provided in
the immediately preceding sentence.
Promptly after receipt by an indemnified party of notice of the commencement
of any action involving matters referred to in the foregoing paragraph, such
indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party, thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof at its own expense with counsel reasonably satisfactory to the
indemnified party or parties, and in such case, if the indemnified party
desires to retain its own counsel, the expense of such counsel shall be borne
by the indemnified party.
6. Termination of Retainer Agreement. In the event the engagement of the
Wall Street Group, Inc. under the Retainer Agreement ceases by reason of the
termination of the Retainer Agreement by either party on ninety (90) days
notice pursuant to the provisions thereof, the maximum number of Shares
exercisable hereunder shall be multiplied by a fraction, the numerator of
which shall be the number of days which shall have expired from the Date of
Grant to the earlier of the next subsequent anniversary date of the Retainer
Agreement or ninety (90) days after receipt by the Wall Street Group, Inc. of
the notice of termination sent pursuant thereto, and the denominator of which
shall be 365, and such product shall thereupon be the maximum number of Shares
purchasable hereunder; provided, however, that in no event shall the
Corporation be required to sell a fractional Share, and the number of Shares
purchasable hereunder shall be limited accordingly.
7. Successors and Assigns. This agreement shall be binding upon and shall
inure to the benefit of the parties' respective successors and assigns.
8. Expiration of Option. This Option is not exercisable after the expiration
of five years from the Date of Grant.
9. Rights.
(a) the granting of this Option shall not confer upon the Grantee any right to
continue to be retained b the Corporation or any of its subsidiaries, subject,
however, to the terms of the Retainer Agreement between the Grantee and the
Corporation.
(b) The Grantee shall not, be reason of the granting to it of the Option,
have or thereby acquire any rights of a stockholder of the Corporation with
respect to any Shares unless and until it has tendered full payment of the
Option Price for such Shares.
10. Adjustment of Number of Shares and Option Price. In the event that a
dividend shall be declared upon the Shares payable in shares of Common Stock,
the number of Shares then subject to the Option and the Option Price shall be
adjusted by adding to each of such Shares the number of shares of Common
Stock, which would be distributable thereon if such Share had been outstanding
on the date fixed for determining the stockholders entitled to receive such
stock dividend and reducing the Option Price proportionally. In the event
that the outstanding Shares shall be changed into or exchanged for a different
number of kind of shares of stock o other securities of the Corporation or of
another corporation, whether through reorganization, recapitalization, stock
split-up, combination of shares, merger or consolidation, then there shall be
substituted for each Share subject to the Option the number and kind of shares
of stock or other securities into which each outstanding share of Common Stock
shall be so changed or for which each such share shall be exchanged; provided,
however, that in the event that such change or exchange results from a merger
or consolidation, and in the judgment of the Board of Directors of the
Corporation such substitution cannot be effected or would b inappropriate, or
if the Corporation shall sell all or substantially all of its assets, the
Corporation shall use reasonable efforts to effect some other adjustment of
the Option which the Board of Directors, in its sole discretion, shall deem
equitable. In the event that there shall be any change, other than as
specified above in the Paragraph 10, in the number or kind of outstanding
Shares or of any stock or other securities into which such Shares shall have
been changed or for which they shall have been exchanged, then, if the Board
of Directors shall determine that such change equitably requires an adjustment
in the number or kind of Shares then subject to the Option, such adjustment
shall be made by the board of Directors and shall be effective and binding for
<PAGE>44
all purposes of this Option. In the case of any such substitution or
adjustment as provided for in this paragraph, the Option Price will be the
option price for all shares of stock or other securities which shall have been
substituted for each Share or to which such Share shall have been adjusted
pursuant to this paragraph 10. No adjustment or substitution provided for in
this paragraph 10 shall require the Corporation to sell a fractional Share,
and the total substitution or adjustment shall be limited accordingly.
11. Reserve of Shares. The Corporation will reserve and set about and have at
all times, free from preemptive rights, a number of shares or authorized but
unissued Common Stock deliverable upon exercise of the Option and it will have
at all times any other rights or privileges provided for therein sufficient to
enable it at any time to fulfill all of its obligations in this Agreement.
12. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York.
If the foregoing is in accordance with the Grantee's understanding and
approved by it, it may so confirm by signing and returning the duplicate of
this Agreement delivered for that purpose.
Redneck Foods, Inc.
Dated: 6/26/98
By: David Womick
The foregoing is in accordance with the undersigned's understanding and is
hereby confirmed and agreed to as of the Date of Grant.
WALL STREET CONSULTANTS, INC.
Dated: 6/25/98
By: Ronald Stabiner
<PAGE>45
TERMINATION OF JOINT VENTURE AGREEMENT
THIS TERMINATION OF JOINT VENTURE AGREEMENT is made and entered into this the
17th day of September, 1998, by and between REDNECK FOODS, INC ("Redneck")
and PIGS "R" US, INC. ("Pigs").
Recitals
This Joint Venture, known as "Redneck Pigs Joint Venture I," was created
pursuant to October 9, 1997, Agreement between the parties hereto
(hereinafter referred to as the "Agreement").
The conversion of the Joint Venture into a limited liability company was
contemplated in Paragraph 1(B) of the October 9, 1997, Agreement has never
been accomplished.
Pursuant to the terms of said Agreement, Redneck is now a ten (10%) percent
owner in the Joint Venture and Pigs is now a ninety (90%) percent owner
therein.
It is the purpose of this Agreement to set forth the terms by which the Joint
Venture will be terminated by Redneck acquiring from Pigs the ninety (90%)
percent interest of Pigs in the Joint Venture.
Agreements
In consideration of the mutual promises of the parties hereto and for other
good and valuable considerations, the receipt and sufficiency of which is
hereby acknowledged, Redneck and Pigs, intending to be legally bound, do
hereby agree as follows:
1. The Joint Venture between Redneck and Pigs is hereby terminated.
2. Redneck and Pigs shall jointly execute the Bill of Sale attached
hereto as Exhibit "1" by which the Joint Venture transfers and assigns all
property of the Joint Venture to Redneck in its individual proprietary
capacity.
3. The consideration to be payable by Redneck to Pigs for the sale
shall consist of Redneck's issuance to Pigs of 241,290 shares of the
restricted common stock of Redneck (based upon a purchase price of
$748,000.00 at $3.10 per share), said purchase price to be adjusted and
reduced for any monies due to Redneck from the Joint Venture upon termination
of the Joint Venture and unpaid by the Joint Venture as of the closing date
and any other accounts payable to the Joint Venture assumed by Redneck in
connection with termination of the Joint Venture.
4. Redneck will not assume any employee-related liabilities of the Joint
Venture, which liabilities through the termination date shall be paid and
satisfied by the Joint Venture. Redneck will also assume all utility
deposits and alcoholic beverage licenses held by the Joint Venture. Pigs
covenants and agrees to assist Redneck and take any and all actions necessary
to accomplish transfer of said utility deposits and alcoholic beverage
licenses to Redneck.
5. A certified public accounting firm located in the Orlando, Florida area
of Redneck's choice will promptly after execution of this Agreement by all
parties hereto audit the books and records of the Joint Venture since its
formation and certify to the parties the amount of Redneck common stock to be
issued to Pigs hereunder, taking into account any sums due Redneck from the
Joint Venture and any accounts payable of the Joint Venture which must be
assumed by Redneck upon termination because of insufficient cash of the Joint
Venture to pay such accounts payables.
6. The restricted Redneck stock is issued above shall be registered
with the United States Securities and Exchange Commission in connection with
the next public offering registration of Redneck, upon approval by Sovereign
Capital Advisors, L.L.C., or other underwriter/investment advisor to Redneck.
Pigs shall not be required to bear any of the expense of such registration.
Notwithstanding that said shares when so registered would be freely
transferable under applicable federal securities laws and regulations, Pigs
acknowledges that a limited trading market will exist for said stock when
registered and that the sale of a substantial portion of said stock in open-
market transactions could depress the public trading price of Redneck's
common stock. Accordingly, Pigs agrees that if Pigs desires to sell more
than ten (10%) percent of the registerable shares of Redneck owned by Pigs in
any three (3) month period (other than in privately negotiated transactions)
(a "Significant Disposition") Pigs will give Redneck twenty (20) days notice
prior to initiating a Significant Disposition. Upon receipt of such notice,
purchaser will use its best efforts to locate a purchaser for the shares
offered for sale in a privately negotiated transaction at a net price to Pigs
equal to the closing bid price of Redneck's common stock for the trading date
immediately preceding the date of such notice. If such privately negotiated
transaction is not consummated within said twenty (20) day notice period,
Pigs shall be free to sell said offered shares in open-market transactions.
<PAGE>46
The rights and obligations of Pigs under this Paragraph 5 shall pass to the
stockholders of Pigs as to any Redneck stock distributed by Pigs to the
Stockholders thereof after termination of the Joint Venture.
7. The Options and Rights of Refusal of Pigs pursuant to Paragraph 16 of
the Joint Venture Agreement shall continue in full force and effect for a
period of five (5) years after the date hereof as provided in the Joint
Venture Agreement; provided, however, that Pigs at that time qualifies as a
licensee of Redneck under Redneck's customary franchise agreement in effect
at such time.
8. Consummation of this Agreement and termination of the Joint
Venture shall be conditioned upon Redneck entering into a new lease of the
restaurant facility presently subleased to the Joint Venture from Robert L.
Cazaras, Landlord thereunder.
9. Pigs, having had day-to-day operating control of the Joint
Venture since its commencement of business, hereby warrants and represents to
Redneck that the July 31, 1998, profit and loss and balance sheet statements
of the Joint Venture as attached hereto were true and correct as of said date
and that the financial condition for the Joint Venture has not materially
adversely changed between July 31, 1998, and the termination of the Joint
Venture.
10. This Agreement shall be governed in all respects by the laws of
the State of Florida. The terms, covenants and provisions of this Agreement
shall bind and inure to the benefit of all parties hereto and their
respective heirs, executors, administrators, personal representatives and
assigns.
IN WITNESS WHEREOF, the undersigned parties have hereunto set their
respective hands and seals on behalf of the Joint Venture the day and year
first above written.
PIGS "R" US, INC.
By:
President
REDNECK FOODS, INC.
By: David Womick, President
(Corporate Seal)
Stockholder
Stockholder
Stockholder
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 47,934
<SECURITIES> 0
<RECEIVABLES> 87,245
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0
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<OTHER-SE> 1,206,914
<TOTAL-LIABILITY-AND-EQUITY> 1,290,879
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