SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarter Ended: September 30, 1999; or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _________ to __________
Commission File Number: 000-26261
AMERICAN FIRE RETARDANT CORP.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
NEVADA 88-03826245
- ------------------------------ -----------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9337 Bond Avenue, El Cajon, California 92021
- ---------------------------------------------------- ------------------------
(Address of principal executive offices) Zip Code)
(619) 390-6888
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that a
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
On September 30, 1999 there were 2,343,788 shares of the registrant's
Common Stock, $0.01 par value, issued and outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
This Form 10-QSB has 23 pages, the Exhibit Index is located at page 22.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The financial statements included herein have been prepared by the Company,
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading.
In the opinion of the Company, all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the financial position of the
Company as of September 30, 1999 and the results of its operations and changes
in its financial position from inception through September 30, 1999 have been
made. The results of operations for such interim period is not necessarily
indicative of the results to be expected for the entire year.
Index to Financial Statements
-----------------------------
Page
----
Balance Sheets........................................................... 3
Statements of Operations................................................. 5
Statements of Stockholders' Equity (deficit)............................. 6
Statements of Cash Flows................................................. 7
Notes to Financial Statements for Period................................. 9
All other schedules are not submitted because they are not applicable or
not required or because the information is included in the financial statements
or notes thereto.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
AMERICAN FIRE RETARDANT CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ - $ -
Inventory 211,371 140,495
Accounts receivable, net 840,056 472,302
Prepaid expenses 10,000 -
------------- -------------
Total Current Assets 1,061,427 612,797
------------- -------------
PROPERTY AND EQUIPMENT 247,166 196,603
------------- -------------
OTHER ASSETS
Restricted cash 138,649 71,519
Deferred charges, net 46,750 72,500
Deposits and other assets 28,194 16,372
------------- -------------
Total Other Assets 213,593 160,391
------------- -------------
TOTAL ASSETS $ 1,522,186 $ 969,791
============= =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
AMERICAN FIRE RETARDANT CORPORATION
AND SUBSIDIARY
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Cash overdraft $ 43,716 $ 9,462
Accounts payable 336,748 65,887
Accrued expenses 327,041 229,321
Unearned revenue 87,690 42,690
Shareholder loans 203,714 215,700
Notes payable, current portion 291,696 225,697
Line of credit 646,460 418,869
------------- -------------
Total Current Liabilities 1,937,065 1,207,626
------------- -------------
LONG-TERM LIABILITIES
Notes payable 100,000 94,668
------------- -------------
Total Liabilities 2,037,065 1,302,294
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, 0.001 par value; 25,000,000
shares authorized, 2,343,788 and 2,278,661
shares issued and outstanding, respectively 2,344 2,279
Additional paid-in capital 917,614 872,090
Accumulated deficit (1,434,837) (1,206,872)
------------- -------------
Total Stockholders' Equity (Deficit) (514,879) (332,503)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 1,522,186 $ 969,791
============= =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
<PAGE>
AMERICAN FIRE RETARDANT CORPORATION
AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
NET SALES $ 1,914,924 $ 1,301,496 $ 893,380 $ 451,982
COST OF SALES 648,375 470,608 309,291 194,004
------------- ------------- ------------- -------------
GROSS MARGIN 1,266,549 830,888 584,089 257,978
------------- ------------- ------------- -------------
EXPENSES
Selling, general and administrative 1,201,485 1,055,420 475,549 231,229
Depreciation and amortization expense 27,300 14,769 8,554 9,908
Bad debt expense 7,711 20,995 (3,148) 8,537
------------- ------------- ------------- -------------
Total Expenses 1,236,496 1,091,184 480,955 249,674
INCOME (LOSS) FROM OPERATIONS 30,053 (260,296) 103,134 8,304
------------- ------------- ------------- -------------
OTHER EXPENSES
Interest expense (258,018) (113,029) (113,567) (30,923)
------------- ------------- ------------- -------------
Total Other Expenses (258,018) (113,029) (113,567) (30,923)
------------- ------------- ------------- -------------
LOSS BEFORE INCOME TAXES (227,965) (373,325) (10,433) (22,619)
PROVISION FOR INCOME TAXES - - - -
------------- ------------- ------------- -------------
NET LOSS $ (227,965) $ (373,325) $ (10,433) $ (22,619)
============= ============= ============= =============
BASIC LOSS PER SHARE $ (0.10) $ (0.18) $ (0.00) $ (0.01)
============= ============= ============= =============
FULLY DILUTED LOSS PER SHARE $ (0.10) $ (0.18) $ (0.00) $ (0.01)
============= ============= ============= =============
BASIC WEIGHTED AVERAGE SHARES 2,322,556 2,021,010 2,343,788 2,022,738
============= ============= ============= =============
FULLY DILUTED WEIGHTED
AVERAGE SHARES 2,322,556 2,021,010 2,343,788 2,022,738
============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
<PAGE>
AMERICAN FIRE RETARDANT CORPORATION
AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Common Stock Additional Stock
---------------------- Paid-In Subscription Accumulated
Shares Amount Capital Receivable Deficit
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 2,018,333 $ 2,018 $ 730,369 $ (30,000) $ (695,768)
Common stock issued for cash 4,785 5 18,495 - -
Receipt of stock subscription - - - 30,000 -
Common stock issued for
services and interest 255,543 256 52,726 - -
Contributed capital for
services rendered - - 70,500 - -
Net loss for the year ended
December 31, 1998 - - - - (511,104)
------------------------------------------------------------------------
Balance, December 31, 1998 2,278,661 2,279 872,090 - (1,206,872)
Common stock issued for
debt conversion (unaudited) 49,159 49 34,362 - -
Common stock issued for
interest (unaudited) 15,968 16 11,162 - -
Net loss for the nine months
ended September 30, 1999
(unaudited) - - - - (227,965)
------------------------------------------------------------------------
Balance, September 30, 1999
(unaudited) 2,343,788 $ 2,344 $ 917,614 $ - $(1,434,837)
========================================================================
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
6
<PAGE>
AMERICAN FIRE RETARDANT CORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ (227,965) $ (373,325) $ (10,433) $ (22,619)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Common stock issued for services and
interest expense 11,178 48,586 - 17,625
Depreciation and amortization 54,600 25,408 18,584 18,912
Allowance for bad debts 10,859 12,548 17,100 -
Change in Assets and Liabilities:
(Increase) decrease in accounts receivable (378,613) (24,500) (455,895) (26,870)
(Increase) decrease in deposits - (6,683) - -
(Increase) decrease in inventory (70,876) (45,814) (88,120) (31,314)
(Increase) decrease in prepaid expenses
and deferred charges (10,000) (8,281) (10,000) (13,506)
(Increase) decrease in notes receivable (11,822) - (11,822)
Increase (decrease) in accounts payable 270,861 (14,904) 247,979 (15,207)
Increase (decrease) in accrued expenses 97,720 114,456 68,717 38,366
Increase (decrease) in unearned revenue 45,000 3,170 45,000 3,170
------------- ------------- ------------- -------------
Net Cash Provided (Used) by
Operating Activities (209,058) (269,339) (178,890) (31,443)
------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of fixed assets (79,413) (12,290) (69,994) -
------------- ------------- ------------- -------------
Net Cash (Used) by Investing Activities (79,413) (12,290) (69,994) -
------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from notes payable - related 48,000 90,500 10,000 45,000
Payments on notes payable - related (25,575) (56,150) (7,949) (23,150)
Proceeds from sale of common stock - 48,500 - -
Proceeds from notes payable 157,500 160,500 85,000 85,000
Payment on notes payable (86,169) (108,468) (30,306) (11,591)
Proceeds from lines of credit 227,591 233,592 267,823 -
Paydown on line of credit - (86,257) - (86,257)
------------- ------------- ------------- -------------
Net Cash Provided (Used) by
Financing Activities $ 321,347 $ 282,217 $ 324,568 $ 9,002
------------- ------------- ------------- -------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
7
<PAGE>
AMERICAN FIRE RETARDANT CORPORATION
AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH $ 32,876 $ 588 $ 75,684 $ (22,441)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 62,057 83,911 19,249 106,940
------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 94,933 $ 84,499 $ 94,933 $ 84,499
============= ============= ============= =============
SUPPLEMENTAL CASH FLOW
INFORMATION
CASH PAID FOR
Interest $ 174,038 $ 103,665 $ 58,345 $ 52,520
Income taxes $ - $ - $ - $ -
NON-CASH FINANCING ACTIVITIES
Common stock issued for debt $ 34,411 $ - $ - $ -
Common stock issued for interest and
services $ 11,178 $ 48,586 $ - $ 17,625
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
8
<PAGE>
AMERICAN FIRE RETARDANT CORPORATION
AND SUBSIDIARY
Notes to the Consolidated Financial Statements
September 30, 1999 and December 31, 1998
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared by
the Company without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present
fairly the financial position, results of operations and cash flows at
September 30, 1999 and 1998 and for all periods presented have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It is
suggested that these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's December 31, 1998 audited consolidated financial statements. The
results of operations for the periods ended September 30, 1999 and 1998 are
not necessarily indicative of the operating results for the full years.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere herein.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1998.
NET SALES increased $441,398 or 97.7% over the comparable period a year
earlier. For such three-month periods the increase was from $451,982 to
$893,380. The increase in net sales is due to additional contracts signed in the
course of doing normal business
GROSS PROFIT increased 126.4% in the three months ended September 30, 1999
to $584,089 from $257,978. Gross profit as a percentage of sales was 65.4% for
the third quarter of fiscal 1999 compared to 57.1% for the third quarter of
fiscal 1998. The increase in percentage gross profit is mainly due to increased
sales in chemicals which the company has a higher percent of profit. Also, the
Company now controls the manufacturing of its main chemical, FIREXTRA 238 at a
savings of $12/gallon. In addition, the Company is now pricing its products more
competitively.
OPERATING EXPENSES increased to $480,955 for the three months ended
September 30, 1999 from $249,674 for the three months ended September 30, 1998.
This is a 92.63% increase for those two three month periods ending September 30.
The increase in the operating expenses is due in large part to a substantial
increase in travel and also legal and accounting fees for the third quarter
1999. The legal and accounting fees for the third quarter 1999 were $30,585 as
compared to $13,239 for the third quarter 1998. The increase in legal and
accounting fees were incurred in preparation for the Company's Form 10 Filing.
There was also an increase in travel expenses in association with various
meetings with the attorneys and accountants in the same matter. Travel also
included trips for maintaining due diligence in future acquisitions in addition
to normal business trips to Louisiana and Florida, setting up the Florida
satellite office and sending crews to Florida and Louisiana for particular jobs.
The travel for the third quarter 1999 was $61,983 as compared to $11,754 for the
same period in 1998. Other Operating Expenses such as shop supplies,
advertising, office expense, etc. went up proportionally with Net Sales and Cost
of Sales.
OTHER EXPENSES increased to $113,567 for the three months ended September
30, 1999 from $30,923 for the same three months in 1998. This increase is due to
the use of factoring and additional interest on loans received by the Company to
assist in cash flow.
As a result of the foregoing factors, the Company had a NET LOSS of $10,433
for the three months ended September 30, 1999 as compared to a NET LOSS of
$22,619 for the three months ended September 30, 1998, a decrease of 53.8%.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1998.
NET SALES increased $613,428 or 47.1% for the nine months ended September
30, 1999 to $1,914,924 from $1,301,496 for the nine months ended September 30,
1998. The increase in net sales is attributable to a significant increase in
overall business. The sale of chemicals increased 82.1% for the nine months
ended September 30, 1999 from $208,249 for the nine months ended September 30,
1998 to $379,306 for the nine months ended September 30, 1999. The firefilm jobs
increased from $155,476 for the nine months ended September 30, 1998 to $518,091
for the same period in 1999. That is a 233.2% increase from 1998 to 1999. Our
fabric treatment sales increased 8.1% in the nine-month period for 1999 as
compared to the same nine-month period in 1998. It was $187,445 for the nine
months ended September 30, 1998 as compared to $202,714 for the nine months
ended September 30, 1999. However, all of these increases were significantly
offset by a decrease in firestop sales due to the completion of the Beau Rivage
job prior to 1999. The firestop sales for the nine months ended September 30,
1999 were $428,932 as compared to $627,950 for the nine months ended September
30, 1998. That is a 31.7% decrease in those nine-month periods from 1998 to
1999. As a result of the foregoing factors, the NET SALES for the Company
increased $613,428 for the nine months ended September 30, 1999 as compared to
the nine months ended September 30, 1998.
10
<PAGE>
GROSS PROFIT increased 52.4% in the nine months ended September 30, 1999 to
$1,266,549 from $830,888. Gross profit as a percentage of sales was 66.1% for
the first half of 1999 as compared to 63.8% for the first half of fiscal 1998.
This increase is primarily due to the the cost of sales as that cost decreased
similarly as a percentage for the two periods. Also, the Company now controls
the manufacturing of its main chemical, FIREXTRA 238 at a savings of $12/gallon.
In addition, the Company is now pricing its products more competitively.
OPERATING EXPENSES increased to $1,236,496 for the nine months ended
September 30, 1999 from $1,091,184 for the nine months ended September 30, 1998.
This increase was primarily due to a very significant increase in legal and
accounting fees incurred. As shown in the table below, interest, travel and
advertising also had significant increases that contributed to the overall
increase in operating expenses.
%
EXPENSE INCREASE
------------------- --------
Accounting and Legal 360.0%
Travel 128.4%
Advertising 443.9%
The accounting and legal expenses are directly related to the Company
preparing to go public. The travel increase is because of the number of meetings
with the attorneys and accountants in preparation for the Company going public
in addition to the other reasons stated above. The advertising has increased in
an effort to better publicize the Company to a larger market.
OTHER EXPENSES increased to $258,018 for the nine months ended September
30, 1999 from $113,029 for the nine months ended September 30, 1998. The
interest increase is due to the use of factoring and additional interest on
loans received by the Company to assist in cash flow.
As a result of the foregoing factors, the Company had a NET LOSS of
$227,965 for the nine months ended September 30, 1999 as compared to a NET LOSS
of $373,325 for the nine months ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary needs for funds are to provide working capital
associated with forecasted growth in sales volumes. Specifically, funds are
required to provide materials and manpower required for the larger contracts
which the Company has been signing beginning in July of 1999. Working capital
for the nine months ended September 30, 1999 was funded primarily through the
sale of accounts receivable and proceeds from private lenders.
Net cash used by operating activities was ($209,058) for the nine months
ended September 30, 1999 as compared to ($269,339) for the nine months ended
September 30, 1998.
Net cash provided by financing activities for the nine months ended
September 30, 1999 was $321,347 compared to $282,217 during the nine months
ended September 30, 1998. The first three quarters of fiscal 1999 included
$157,500 proceeds from notes payable and $227,591 from lines of credit. The
repayment of notes payables and lines of credit offset these amounts. For the
first three quarters of fiscal 1998, $48,500 was provided from issuance of
capital stock. No such issuance occurred in the first three quarters of fiscal
1999.
11
<PAGE>
CAUTIONARY FORWARD - LOOKING STATEMENT
- -------------------------------------
Statements included in the Management's Discussion and Analysis of
Financial Condition and Results of Operations, and in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases and in oral statements made with the approval of an authorized
executive officer which are not historical or current facts are "forward-looking
statements" and are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. The following important factors, among others, in some cases have
affected and in the future could affect the Company's actual results and could
cause the Company's actual financial performance to differ materially from that
expressed in any forward-looking statement: (i) the extremely competitive
conditions that currently exist in the fire retardant and fireproofing industry
are expected to continue, placing further pressure on pricing which could
adversely impact sales and erode profit margins; (ii) many of the Company's
major competitors in its channels of distribution have significantly greater
financial resources than the Company; and (iii) the inability to carry out
marketing and sales plans would have a materially adverse impact on the
Company's projections. The foregoing list should not be construed as exhaustive
and the Company disclaims any obligation subsequently to revise any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
RISKS FACTORS
- -------------
The Company's present and proposed business operations will be highly
speculative and subject to the same types of risks inherent in any new or
unproven venture, as well as risk factors particular to the industries in which
it will operate, and will include, among other things, those types of risk
factors outlined below.
YEAR 2000 PROBLEMS MAY DISRUPT THE COMPANY'S OPERATIONS AND HARM ITS BUSINESS
RISK ASSOCIATED WITH YEAR 2000 ISSUES - THE COMPANY IS UNCERTAIN OF THE EFFECTS
OF THE YEAR 200O ON ITS COMPUTER PROGRAMS AND SYSTEMS.
Many currently installed computer systems and software programs were
designed to use only a two digit date field. These date code fields will need to
accept four digit entries to distinguish 21st century dates from 20th century
dates. Until the date fields are updated, the systems and programs could fail or
give erroneous results when referencing dates following December 31, 1999. Given
that the Company's products operate on certain hardware platforms and within
certain software operating systems and environments, the Company must rely upon
the efforts of the hardware and software vendors and manufacturers to be in the
vanguard with respect to operating systems and platform issues relating to the
Year 2000 compliance.
PRESENT YEAR 2000 STATUS
The Company has assessed the impact of the year 2000 issue on the Company's
products, services, platforms systems and internal information technology
systems (IT systems) and non-information technology systems (non-IT systems), in
use, and has found them to be Year 2000 compliant. The Company has also
contacted its major vendors and suppliers and has received confirmation and
verification that their respective computer systems are also Year 2000
compliant. The Company does not expect the Company's financial results to be
materially affected by the need to continue to monitor and address year 2000
issues, but if the costs associated with addressing these issues are greater
than planned, the Company's earnings and results of operations could be
affected. Due to the Company's dependence on computer technology to conduct the
Company's business, the nature and impact of year 2000 processing failures on
the Company's business, financial condition and operating results could be
material.
12
<PAGE>
BUSINESS CONTINUITY AND CONTINGENCY PLANNING
The Company continues the process of identifying the reasonably likely year
2000 problem failures that the Company could experience with the goal of
revising, to the extent practical, the Company's existing business continuity
and contingency plans to address the internal and external issues specific to
those problems. Thus far, the Company has focused as planned on reviewing the
Company's critical business processes and although the Company conducted tests
on the various and Platform systems in use, and has found them to be Year 2000
compliant, the Company's expect to continuously review, test and revise the
Company's existing business continuity and contingency plans to ensure that all
systems are and maintain year 2000 compliant. This will include as required
repairing or obtaining replacement systems; changing suppliers; and reducing or
suspending certain non-critical aspects of our operations.
POSSIBLE CONSEQUENCES OF YEAR 2000 PROBLEMS
The Company believes that the Company has put in place the processes and
are devoting the resources necessary to achieve a level of readiness to meet the
Company's year 2000 challenges in a timely and appropriate manner. However,
there can be no assurance that the Company's internal systems or the systems of
others on which we rely will be year 2000 ready in a timely and appropriate
manner or that the Company's contingency plans or the contingency plans of
others on which the Company relies will mitigate the effects of year 2000
problem failures. Currently, the Company believes the most reasonably likely
worst case scenario would be a sustained, concurrent failure of multiple
critical systems (internal and external) that support the Company's operations
(i.e. vendors and suppliers of the Company). While the Company does not expect
that scenario to occur, that scenario if it occurs could, even despite the
successful execution of the Company's business continuity and contingency plans,
result in the reduction or suspension of a material portion of our operations
and accordingly have a material adverse effect on the Company's business and
financial condition.
The "Year 2000 Information" discussion contains various forward-looking
statements that represent the Company's beliefs or expectations regarding future
events. When used in the "Year 2000 Information" discussion, the words
"believes," "expects," "estimates," "plans," "goals," and similar expressions
are intended to identify forward-looking statements. Forward-looking statements
include, without limitation, the Company's expectations as to when the Company
will complete the identification and assessment, remediation planning,
remediation, and testing activities of the Company's year 2000 program as well
as the Company's year 2000 contingency planning; the Company's estimated cost of
achieving year 2000 readiness; and the Company's belief that the Company's
internal systems and equipment will be year 2000 ready in a timely and
appropriate manner. All forward-looking statements involve a number of risks and
uncertainties that could cause the actual results to differ materially from the
projected results. Factors that may cause those differences include availability
of information technology resources; customer demand for the Company's products
and services; continued availability of materials, services, and data from the
Company's suppliers; the ability to identify and remediate all date sensitive
lines of computer code and to replace embedded computer chips in affected
systems and equipment; the failure of others to timely achieve appropriate year
2000 readiness; and the actions or inaction of governmental agencies and others
with respect to year 2000 problems.
RISK THAT THE COMPANY'S COMMON STOCK MAY BE DEEMED A "PENNY STOCK."
The Company's common stock may be deemed to be "penny stock" as that term
is defined in Reg. Section 240.3a51-1 of the Securities and Exchange Commission.
Penny stocks are stocks (i) with a price of less than five dollars per share;
(ii) that are not traded on a "recognized" national exchange; (iii) whose prices
are not quoted on the NASDAQ automated quotation system (NASDAQ-listed stocks
must still meet requirement (i) above); or (iv) of an issuer with net tangible
assets less than US$2,000,000 (if the issuer has been in continuous operation
for at least three years) or US$5,000,000 (if in continuous operation for less
than three years), or with average annual revenues of less than US$6,000,000 for
the last three years.
Section 15(g) of the 1934 Act and Reg. Section 240.15g-2 of the Commission
require broker-dealers dealing in penny stocks to provide potential investors
with a document disclosing the risks of penny stocks and to obtain a manually
signed and dated written receipt of the document before effecting any
transaction in a penny stock for the investor's account. Potential investors in
the Company's common stock are urged to obtain and read such disclosure
carefully before purchasing any shares that are deemed to be "penny stock."
13
<PAGE>
PATENTS AND PROPRIETARY RIGHTS - THE UNAUTHORIZED USE OF INTELLECTUAL PROPERTY
BY THIRD PARTIES MAY HARM THE COMPANY'S BUSINESS.
The Company relies on patents, contractual rights, trade secrets,
trademarks, and copyrights to establish and protect its proprietary rights in
its products and its components. The Company has patented the technology that is
incorporated into its products and believes that, since it is a technology
patent, competitors will have a more difficult time developing products
functionally similar to the Company's. To further protect its products, the
Company will apply for additional patents for its inventions and for
non-commercial available components designed and developed by the Company that
are integral to product performance.
PROSECUTING ANY INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS COULD BE EXPENSIVE
AND, IF THE COMPANY IS NOT SUCCESSFUL, COULD DISRUPT ITS BUSINESS.
The Company intends to closely monitor competing product introductions for
any infringement of the Company's proprietary rights. The Company believes that,
as the demand for products such as those developed by the Company increases,
infringement of intellectual property rights may also increase. If infringement
of the Company's proprietary rights is by industry competitors, they have
substantially greater financial, technical, and legal resources than the Company
which could adversely affect the Company's ability to defend its rights. In
addition, the Company could incur substantial costs in defending its rights.
Further, the Company's patents are U.S. patents, and the Company does not
have patent protection outside the United States. The Company will be unable to
obtain patent protection in most non-U.S. jurisdictions, including Europe and
Japan. Some competitors may have non-U.S. operations where U.S. Patent rights
are not effective which could permit competitors to infringe on the Company's
proprietary rights without violating U.S. law.
The Company anticipates, based on the size and sophistication of its
competitors and the history of rapid technological advances in its industry,
that several competitors may be working to develop the Company's patented
technology. The Company intends to closely monitor any infringement of the
Company's proprietary rights. Competitors may have patent applications in
progress in the United States that, if issued, could relate to the Company's
products. If such patents were to issue, there can be no assurance that the
patent holders or licensees will not assert infringement claims against the
Company or that such claims will not be successful. The Company could incur
substantial costs in defending itself and its customers against any such claims,
regardless of the merits of such claims. Parties making such claims may be able
to obtain injunctive or other equitable relief which could effectively block the
Company's ability to sell its products, and each claim could result in an award
of substantial damages. In the event of a successful claim of infringement, the
Company and its customers may be required to obtain one or more licenses from
third parties. There can be no assurance that the Company or its customers could
obtain necessary licenses from third parties at a reasonable or acceptable cost
or at all. Patent litigation could be very expensive, and there is no assurance
that it would not have an adverse effect on the Company's business, financial
condition and results of operations.
14
<PAGE>
Moreover, Reg. Section 240.15g-9 of the Commission requires broker-dealers
in penny stocks to approve the account of any investor for transactions in such
stocks before selling any penny stock to that investor. This procedure requires
the broker-dealer to (i) obtain from the investor information concerning his or
her financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for investors in the Company's
common stock to resell their shares to third parties or to otherwise dispose of
them.
THE COMPANY IS DEPENDANT ON CERTAIN KEY EMPLOYEES.
Historically, the Company has been heavily dependent on the ability of
Bruce E. Raidl, to contribute essential technical and management experience. In
the event of future growth in administration, marketing, manufacturing and
customer support functions, the Company may have to increase the depth and
experience of its management team by adding new members. The Company's success
will depend to a large degree upon the active participation of its key officers
and employees. Loss of services of any of the current officers and directors
could have a significant adverse effect on the operations and prospects of the
Company. There can be no assurance that it will be able to employ qualified
persons on acceptable terms to replace officers that become unavailable.
IF THE COMPANY IS UNABLE TOO HIRE AND RETAIN NECESSARY SPECIALIZED KEY PERSONNEL
THE COMPANY'S BUSINESS AND GROWTH WILL SUFFER.
Although the management of the Company is committed to the business and
continued development and growth of the business, the addition of specialized
key personnel and sales persons to assist the Company in its expansion of its
national operations will be necessary. There can be no assurance that the
Company will be able to locate and hire such specialized personnel on acceptable
terms.
IF THE COMPANY IS UNABLE TO MAINTAIN ADEQUATE LEVELS OF INVENTORY THE COMPANY'S
BUSINESS MAY BE DISRUPTED.
The size of the fire retardant and fire protection markets and need to
maintain adequate inventories with regard to such products could force the
Company into implementing additional manufacturing and warehousing programs.
There can be no assurance that the Company will have the necessary capital
resource or man power to implement such manufacturing and warehousing programs.
IF THE COMPANY IS UNABLE TO MARKET ITS PRODUCTS AND SERVICES ITS BUSINESS WILL
SUFFER.
Due to the Company's limited resources, the sales and marketing of the
Company's products has been limited to date. The success of the Company is
dependent upon its ability to market and sell the products and services of the
Company with such limited resources.
IF THE GOVERNMENT IMPLEMENTS NEW OR ADDITIONAL REGULATIONS IN THE INDUSTRY IN
WHICH THE COMPANY OPERATES, THESE REGULATIONS MAY BE COSTLY OR DIFFICULT FOR THE
COMPANY TO COMPLY WITH AND COULD RESULT IN LOSS OF SALE.
While the Company is unaware of any new regulations being contemplated by
the subject agencies, it remains possible that these agencies could institute
new guidelines which could affect all similar companies in this field. The
implementation of new regulatory compliance factors could restrict sales of
certain products. Additional testing could be required and such additional
testing could cause delays in the introduction of products into certain market
sectors, which delays could adversely affect the Company's revenues.
15
<PAGE>
IF THE COMPANY DOES NOT OBTAIN ADDITIONAL FINANCING IT MAY NOT BE ABLE TO
IMPLEMENT ALL OF ITS BUSINESS PLAN.
The Company's plan of operation calls for additional capital to facilitate
growth and support its long-term development and marketing programs. It is
likely that the Company would need to seek additional financing through
subsequent future public or private sales of its securities, including equity
securities. The Company may also seek funding for the development and marketing
of its products through strategic partnerships and other arrangements with
investment partners. There can be no assurance, however, that such collaborative
arrangements or additional funds will be available when needed, or on terms
acceptable to the Company, if at all. Any such additional financing may result
in significant dilution to existing stockholders. If adequate funds are not
available, the Company may be required to curtail one or more of its future
programs.
COMPETITION AND RAPID TECHNOLOGICAL CHANGE COULD HARM THE COMPANY'S BUSINESS.
The industry in which the Company operates is highly competitive, rapidly
growing and the Company will have to compete with a multitude of similar
companies, possessing substantially greater financial, personnel, technological
and marketing resources. It is particularly difficult for small independent
companies to compete with such major companies in the automobile industries,
fabric manufacturers, mills, etc. There is no assurance that the Company will be
able to compete in such an environment.
SUBSTANTIAL DOUBT THAT THE COMPANY CAN CONTINUE AS A GOING CONCERN.
The Company expects to continue to incur significant capital expenses in
pursuing its plans to increase sales volume, the expansion of its product line
and to obtain additional financing through stock offerings or other feasible
financing alternatives. Additional financing may not be available on terms
favorable to the Company, or at all. If adequate funds are not available or are
not available on acceptable terms, the Company may not be able to execute its
business plan or take advantage of business opportunities. The ability of the
Company to obtain such additional financing and to achieve its operating goals
is uncertain. In the event that the Company does not obtain additional capital
or is not able to increase cash flow through the increase of sales, there is a
substantial doubt of its being able to continue as a going concern.
16
<PAGE>
PART II - OTHER INFORMATION.
Item 1. Legal Proceedings.
Alman v. AFRC Florida
- ---------------------
The Company was involved in litigation in the calendar year 1997. The
Company's former subsidiary, AFRC Florida was a party defendant in the matter
Allen E. Alman and Phyllis S. Alman v. American Fire Retardant Corporation of
Florida and Stephen F. Owens, Dade County Florida, Case No. 97-7203 CA 09. The
matter was a dispute over the terms of a Stock Purchase Agreement entered into
in September 1993 with regard to the purchase by AFRC Florida of all the stock
and assets of Apco Equipment Sale Corporation dba Thoro-Sheen Company. This
matter was resolved in July 1997 wherein AFRC Florida and Mr. Owens agreed to
pay to Mr. And Mrs. Almans the total sum of $51,550, payable $5,775.00 on or
before July 15, 1997, $5,775.00 on or before August 30, 1997 and the balance of
$40,000 in installments of $1,800.00 per month for 24 months commencing on
September 30, 1997, until paid in full.
All payments were made in a timely manner pursuant to the terms of the
Joint Stipulation and the final payment was made on September 15, 1999.
Halvelin v. AFRC
- ----------------
The Company is a party defendant in the matter of Havelin v. American Fire
Retardant Corporation, United States District Court, Southern District of
Mississippi, Case No. 1-99CV156GR. The Plaintiff, Jennifer L. Havelin was suing
the Company alleging that the Company discriminated against the Plaintiff
because of Plaintiff's sex, a female. The Plaintiff originally filed a claim
with Equal Employment Opportunity Commission ("EEOC") in May 15, 1998 alleging
discrimination and that Plaintiff had been laid off because she was a female. On
January 29, 1999 the EEOC dismissed Plaintiffs claim as being without merit.
This action arose from the same facts set forth by Plaintiff in her claim with
the EEOC. Further, pursuant to Title VII the Plaintiff had 90 days (i.e. until
May 1, 1999) to file a lawsuit in Federal Court with regard to this matter. The
Plaintiff filed her action beyond the prescribed time period.
On August 25, 1999, the Company settled this matter for a total sum of
$5,000 paid by the Company to Ms. Havelin.
As a result of the resolution of the above matters, the costs of litigation
associated with those matters have ceased and therefore there is no further
effect on the results of operations and liquidity.
Delinquent Payroll Taxes
- ------------------------
The Company owes the Internal Revenue Service $219,582 for prior delinquent
payroll taxes by the Company's former subsidiaries, AFRC Florida and AFRC
Louisiana. These payroll taxes became delinquent starting in the 3rd quarter of
1997 through the 4th quarter of 1998. The total delinquent payroll tax
liabilities are $101,403 attributed to AFRC Florida and $118,178 attributed to
AFRC Louisiana. The Company has retained the tax counsel of Royston & Hebert in
Lafayette, Louisiana to represent the Company before the Internal Revenue
Service and the Company is currently submitting an Offer and Compromise work-out
agreement to obtain a substantial reduction of the outstanding payroll tax
balance due. The Company has since kept current with all present payroll and
other tax obligations.
With the exception of the legal proceedings and tax matter set forth above,
the Company is not presently a party to any litigation, claim, or assessment.
Further, the Company is unaware of any unasserted claim or assessment, which
will have a material effect on the financial position or future operations of
the Company.
Item 2. Changes in Securities.
Not required.
Item 3. Defaults Upon Senior Securities.
Not required.
17
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Engagement of Capstone Partners.
-------------------------------
On September 27, 1999, the Company entered into an Investment Banking and
Consulting Agreement with Capstone Partners. A copy of the Agreement between the
Company and Capstone Partners is attached hereto and incorporated herein by
reference. See Exhibit List Index.
Recent Issuance of Securities
-----------------------------
On September 27, 1999, pursuant to the terms of the Investment Banking and
Consulting Agreement with Capstone Partners the company issued 5,859 restricted
shares to Capstone Partners.
Item 6. Exhibits and Reports on Form 8-K.
(a) List of Exhibits attached or incorporated by referenced pursuant to
Item 601 of Regulation S-B.
(2) 2.1(a) Certificate of Merger from the State of Wyoming
regarding Merger AFRC Louisiana with and into AFRC Wyoming
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
2.1(b) Certificate of Merger from the State of Louisiana
regarding Merger of AFRC Louisiana with and into AFRC
Wyoming. (Incorporated by reference from the Company's
Registration Statement on Form 10-SB filed June 4, 1999;
Commission File No. 000-26261).
2.1(c) Articles of Merger regarding Merger of AFRC Louisiana
with and into AFRC Wyoming. (Incorporated by reference from
the Company's Registration Statement on Form 10-SB filed
June 4, 1999; Commission File No. 000-26261).
2.1(d) Acquisition Agreement and Plan of Merger regarding
Merger of AFRC Louisiana with and into AFRC Wyoming.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
2.2(a) Certificate of Merger from the State of Florida
regarding Merger of AFRC Florida with and into AFRC
Wyoming.(Incorporated by reference from the Company's
Registration Statement on Form 10-SB filed June 4, 1999;
Commission File No. 000-26261).
2.2(b) Certificate of Merger from the State of Wyoming
regarding Merger of AFRC Louisiana with and into AFRC
Wyoming. (Incorporated by reference from the Company's
Registration Statement on Form 10-SB filed June 4, 1999;
Commission File No. 000-26261).
2.2(c) Florida Articles of Merger regarding Merger of AFRC
Louisiana with and into AFRC Wyoming.(Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
2.2(d) Wyoming Articles of Merger regarding Merger of AFRC
Louisiana with and into AFRC Wyoming.(Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
18
<PAGE>
2.2(e) Acquisition Agreement and Plan of Merger regarding
Merger of AFRC Florida with and into AFRC Wyoming.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
2.3(a) Articles of Merger regarding Merger regarding Merger
of AFRC Wyoming with and into AFRC Nevada (the "Company") to
change the Domicile of the Company. (Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
2.3(b) Acquisition Agreement and Plan of Merger regarding
Merger of AFRC Wyoming with and into AFRC Nevada (the
"Company") to change the Domicile of the Company.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
(3) 3.1 Articles of Incorporation of American Fire Retardant
Corp. filed on January 20, 1998. (Incorporated by reference
from the Company's Registration Statement on Form 10-SB
filed June 4, 1999; Commission File No. 000-26261).
3.2 Restated By-laws of American Fire Retardant Corp.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
3.3 Qualification of American Fire Retardant Corp., as a
Foreign Corporation in the State of Florida. (Incorporated
by reference from the Company's Registration Statement on
Form 10-SB filed June 4, 1999; Commission File No.
000-26261).
3.4 Qualification of American Fire Retardant Corp., as a
Foreign Corporation in the State of Louisiana. (Incorporated
by reference from the Company's Registration Statement on
Form 10-SB filed June 4, 1999; Commission File No.
000-26261).
3.5 Statement and Designation of American Fire Retardant
Corp., as a Foreign Corporation in California. (Incorporated
by reference from the Company's Registration Statement on
Form 10-SB filed June 4, 1999; Commission File No.
000-26261).
3.6 Qualification of American Fire Retardant Corp., as a
Foreign Corporation in the State of Colorado. (Incorporated
by reference from the Company's Registration Statement on
Form 10-SB filed June 4, 1999; Commission File No.
000-26261).
3.7 Qualification of American Fire Retardant Corp., as a
Foreign Corporation in the State of Mississippi.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
(10) 10.1(a) Letter of Intent Between American Fire Retardant
Corp., and Fabritek Industries, LLC. (Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
10.1(b) Amendment to Letter of Intent Between American Fire
Retardant Corp., and Fabritek Industries, LLC. (Incorporated
by reference from the Company's Registration Statement on
Form 10-SB filed June 4, 1999; Commission File No.
000-26261).
19
<PAGE>
10.2 Royalty Agreement between American Fire Retardant
Corp., and Norman O. Houser. (Incorporated by reference from
the Company's Registration Statement on Form 10-SB filed
June 4, 1999; Commission File No. 000-26261).
10.3 Sale, Assignment and Assumption Agreement between
American Fire Retardant Corp. and Patrick L. Brinkman with
regard to the purchase of manufacturing rights to De-Fyre
X-238.(Incorporated by reference from the Company's
Registration Statement on Form 10-SB filed June 4, 1999;
Commission File No. 000-26261).
10.4(a) Merchant Service Agreement between American Fire
Retardant Corp. and St. Martin Bank. (Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
10.4(b) St. Martin Bank $100,090 Promissory Note Dated March
11, 1997.(Incorporated by reference from the Company's
Registration Statement on Form 10-SB filed June 4, 1999;
Commission File No. 000-26261).
10.4(c) Edward E. Friloux Commercial Guaranty to St. Martin
Bank re:$100,090 Promissory Note. (Incorporated by reference
from the Company's Registration Statement on Form 10-SB
filed June 4, 1999; Commission File No. 000-26261).
10.4(d) Stephen F. Owens Commercial Guaranty to St. Martin
Bank re:$100,090 Promissory Note. (Incorporated by reference
from the Company's Registration Statement on Form 10-SB
filed June 4, 1999; Commission File No. 000-26261).
10.4(e) Angela M. Raidl Commercial Guaranty to St. Martin
Bank re:$100,090 Promissory Note. (Incorporated by reference
from the Company's Registration Statement on Form 10-SB
filed June 4, 1999; Commission File No. 000-26261).
10.4(f) St. Martin Bank $250,000 Promissory Note Dated May
21, 1998.(Incorporated by reference from the Company's
Registration Statement on Form 10-SB filed June 4, 1999;
Commission File No. 000-26261).
10.4(g) St. Martin Bank Business Loan Agreement Dated August
18, 1998. (Incorporated by reference from the Company's
Registration Statement on Form 10-SB filed June 4, 1999;
Commission File No. 000-26261).
10.4(h) St. Martin Bank $172,725.73 Promissory Note Dated
August 18, 1998. (Incorporated by reference from the
Company's Registration Statement on Form 10-SB filed June 4,
1999; Commission File No. 000-26261).
10.4(i) Edward E. Friloux Commercial Guaranty to St. Martin
Bank re:$172,725.73 Promissory Note. (Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
10.4(j) Stephen F. Owens Commercial Guaranty to St. Martin
Bank re: $172,725.73 Promissory Note. (Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
10.4(k) Angela M. Raidl Commercial Guaranty to St. Martin
Bank re: $172,725.73 Promissory Note. (Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
10.4(l) St. Martin Bank Commercial Pledge Agreement re:
$172,725.72 Promissory Note. (Incorporated by reference from
the Company's Registration Statement on Form 10-SB filed
June 4, 1999; Commission File No. 000-26261).
20
<PAGE>
10.4(m) St. Martin Bank Pledge of Collateral Mortgage Note
re: $172,725.72 Promissory Note. (Incorporated by reference
from the Company's Registration Statement on Form 10-SB
filed June 4, 1999; Commission File No. 000-26261).
10.4(n) St. Martin Bank Agreement to Provide Insurance re:
$172,725.72 Promissory Note. (Incorporated by reference from
the Company's Registration Statement on Form 10-SB filed
June 4, 1999; Commission File No. 000-26261).
10.4(o) St. Martin Bank - Collateral Mortgage re:
$172,725.72 Promissory Note. (Incorporated by reference from
the Company's Registration Statement on Form 10-SB filed
June 4, 1999; Commission File No. 000-26261).
10.4(p) St. Martin Bank - $54,059.29 Promissory Note Dated
February 4, 1999. (Incorporated by reference from the
Company's Registration Statement on Form 10-SB filed June 4,
1999; Commission File No. 000-26261).
10.5(a) Private Capital, Inc. - Purchase and Security
Agreement Dated April 17, 1997. (Incorporated by reference
from the Company's Registration Statement on Form 10-SB
filed June 4, 1999; Commission File No. 000-26261).
10.5(b) Private Capital, Inc. - Angela M. Raidl Continuing
Guaranty & Waiver. (Incorporated by reference from the
Company's Registration Statement on Form 10-SB filed June 4,
1999; Commission File No. 000-26261).
10.5(c) Private Capital, Inc. - Stephen F. Owens and Edward
E. Friloux Continuing Guaranty & Waiver. (Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
10.6(a) Bank of Erath $15,030 Promissory Note Dated June 16,
1997. (Incorporated by reference from the Company's
Registration Statement on Form 10-SB filed June 4, 1999;
Commission File No. 000-26261).
10.6(b) Bank of Erath of Loan Extension Agreement Dated
October 20, 1998.(Incorporated by reference from the
Company's Registration Statement on Form 10-SB filed June 4,
1999; Commission File No. 000-26261).
10.7 American Fire Retardant Corp. - El Cajon, California
Industrial Lease. (Incorporated by reference from the
Company's Registration Statement on Form 10-SB filed June 4,
1999; Commission File No. 000-26261).
10.8(a) Whitney Bank - $74,400 Secured Promissory Note.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
10.8(b) Whitney Bank - Collateral Mortgage, Security
Agreement and Assignment of Leases and Rents. (Incorporated
by reference from the Company's Registration Statement on
Form 10-SB filed June 4, 1999; Commission File No.
000-26261).
10.9 American Fire Retardant Corp. - Standard Lease for
Louisiana Corporate Apartment. (Incorporated by reference
from the Company's Registration Statement on Form 10-SB
filed June 4, 1999; Commission File No. 000-26261).
10.10 Oil, Gas & Mineral Lease with Penwell Energy Inc.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
10.11(a) Whitney National Bank - $42,888.46 Promissory Note.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
21
<PAGE>
10.11(b) Whitney National Bank - Security Agreement.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
10.12 Presidio Capital Consulting Agreement. (Incorporated
by reference from the Company's Registration Statement on
Form 10-SB filed June 4, 1999; Commission File No.
000-26261).
10.13 Warren Guidry Letter Promissory Note. (Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
10.14(a) Agreement with Richard Rosenberg. (Incorporated by
reference from the Company's Registration Statement on Form
10-SB filed June 4, 1999; Commission File No. 000-26261).
10.14(b) Amendment to Agreement with Richard Rosenberg.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
10.14(c) Richard Rosenberg - $43,134.39 Promissory Note.
(Incorporated by reference from the Company's Registration
Statement on Form 10-SB filed June 4, 1999; Commission File
No. 000-26261).
10.15 Capstone Partners Investment Banking and Consulting
Agreement dated September 27, 1999, attached hereto
(27) Financial Data Schedule
27.1. Financial Data Schedule (submitted electronically for
SEC information only).
(b) There were no other reports on Form 8-K filed during the quarter of the
period covered.
The following Exhibit Index sets forth the Exhibits attached hereto.
EXHIBIT INDEX
Exhibit Description
10.15 Capstone Partners Investment Banking and Consulting
Agreement dated September 27, 1999.
22
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the Undersigned, thereunto duly authorized.
AMERICAN FIRE RETARDANT CORP.
A Nevada Corporation
Date: November 12, 1999 /S/ Stephen F. Owens
---------------------------------------
By: Stephen F. Owens
Its: President
Date: November 12, 1999 /S/ Angela M. Raidl
---------------------------------------
By: Angela M. Raidl
Its: Vice President, Chief Financial
Officer, Secretary
23
<PAGE>
EXHIBIT 10.15
Capstone Partners Investment Banking and Consulting
Agreement dated September 27, 1999, attached hereto.
<PAGE>
INVESTMENT BANKING AND Consulting AgreemenT
FOR
American Fire Retardant Corp.
This Agreement ("Agreement") is made as of September 27, 1999, by and
between American Fire Retardant Corp., a Nevada corporation, with its principal
place of business at 9337 Bond Avenue, El Cajon, California 92021 ("Company"),
and Capstone Partners, Inc., a Utah limited liability company, ("CAPSTONE") with
its principal offices at 3475 Lenox Road, Suite 400, Atlanta, Georgia 30326.
Witnesseth
WHEREAS, Company requires expertise in the areas of corporate finance
consulting, securities compliance and regulation, securities markets awareness
and support, and general investment banking services to support its further
development and growth: and
WHEREAS, CAPSTONE, an NASD-member broker dealer, through its Investment
Banking Department, is in the business of providing corporate finance advice and
services, investment banking services, and other related advisory services
including business development, advice on mergers and acquisitions, and
strategic planning; and
WHEREAS, The Company and CAPSTONE intend that this Agreement shall
supercede and replace all other written investment banking or financial services
agreements previously entered in to by the parties or their respective
affiliates.
NOW, THEREFORE, in consideration of the premises above and the mutual
promises and covenants contained herein and subject specifically to the
conditions hereof, and intending to be legally bound thereby, the parties agree
as follows:
1. Certain Definitions- When used in this Agreement, the following terms shall
have the meanings set forth below:
1.1 Affiliate - any persons or entities controlled by or under common
control of a party to this Agreement.
1.2 Company - the Company who uses the services of CAPSTONE. Unless
specifically stated otherwise, the term "Company" shall also include
any other business enterprises which are affiliated with the Company.
1.3 Contact Person - The persons who shall be primarily responsible for
carrying out the duties of the parties hereunder. The Company and
CAPSTONE shall each appoint a Contact Person to be responsible for
their respective duties. In the event that one party gives notice to
the other party in writing that, in their reasonable opinion, the
other party's Contact Person is not able to fulfill their duties and
responsibilities hereunder, both parties shall mutually agree upon a
replacement Contact Person within 10 days of the said notice.
<PAGE>
1.4 Extraordinary Expenses - are expenses that are beyond those expenses
that are usual, regular, or customary towards the performance of
CAPSTONE's duties in fulfillment of the scope of this Agreement.
1.5 Equity - cash, securities or liquid assets, specifically excluding
real property.
1.6 Payment or Payable in Kind - distribution or delivery of compensation
in the same type and form as was given as valuable consideration for a
transaction.
2. Contact Persons. The Contact Persons for the Company are Stephen F. Owens,
President and Angela M. Raidl, Vice President and Secretary. The Contact Persons
for CAPSTONE are Gregory Bartko, Esq., Chief Executive Officer and Ronald P.
Ardt, President.
3. Services to be Rendered by CAPSTONE. Services to be rendered by CAPSTONE are
as follows:
3.1 Advice and Counsel. CAPSTONE will participate with the Company's other
professionals and advisors to provide advice and counsel in relation
to the Company's strategic business and financial plans, and other
strategies, including but not limited to, identification and
negotiations with potential lenders and investors, mergers and
acquisition candidates, joint ventures, corporate partners and others
involving financial and financially related transactions, as well as
marketing and public relation matters as requested by the Company.
CAPSTONE may provide additional mergers and acquisition candidates and
strategies so as to assist the Company in its corporate expansion and
development.
In addition, CAPSTONE will assist in creating one or more securities
offering structures for the Company, either debt and equity offerings,
will assist in identifying one or more funding sources and strategies
designed to locate investment capital for the Company, and
specifically will use its best efforts to identify and negotiate the
placement of a "bridge capital" facility currently being undertaken by
the Company. This Agreement shall specifically include investment
banking services related to the Company's planned Rule 506 private
placement offering to be structured for the purpose of placing
sufficient debt and/or equity securities to enable the Company to
raise a minimum of $2.0 million and a maximum of $3.0 million of
investment capital, on terms and according to a corporate finance
structure hereinafter to be agreed upon by the parties.
3.2 Introductions to the Securities Brokerage Community. CAPSTONE has
developed an association with a multitude of other NASD-member broker
dealers and investment professionals. In the event the utilization of
such association becomes necessary or desirable, CAPSTONE will enable
and facilitate contact with the Company to facilitate business
transactions among them. In this event, CAPSTONE shall use it's best
efforts to assist the Company in establishing relationships with
securities dealers and to provide the most recent corporate
information to interested securities
<PAGE>
dealers on a regular and continuous basis. CAPSTONE understands that
this is in keeping with the Company's business objective to establish
a nationwide network of securities dealers, market professionals, and
market makers, who have an interest in the Company's securities.
3.3 Market-making Intelligence. CAPSTONE also has close associations with
numerous marketing and public relations professionals and will use its
best efforts to introduce and facilitate contacts and relationships
between the Company to facilitate business transactions and marketing
expertise among them. By sharing marketing ideas and networking among
contacts introduced by CAPSTONE, the Company can increase its public
markets exposure and expertise by establishing these relationships.
3.4 Company Transaction Due Diligence. CAPSTONE will participate with
other companies, professionals and advisors to undertake due diligence
on all proposed financial transactions affecting the Company,
including investigation and advice on the financial, valuation and
stock price implications thereof.
3.5 Additional Duties. Company and CAPSTONE shall mutually agree upon any
additional duties that CAPSTONE may provide for compensation paid or
payable by Company under this Agreement. Such additional agreement(s),
although there is no requirement to do so, may be attached hereto and
made a part hereof as Exhibits beginning with Exhibit A.
3.6 Best Efforts and Non-exclusive.
(a) Except as to specific time deadlines imposed pursuant to the terms
of this Agreement as set forth in Exhibit 1, CAPSTONE shall devote
such time and best efforts as may be reasonably necessary to perform
its services as agreed herein. CAPSTONE is not responsible for the
performance of any services that may be rendered hereunder without the
Company providing the necessary information prior thereto. CAPSTONE
cannot guarantee results on behalf of Company, but shall pursue all
reasonable avenues available through its network of financial
contacts. At such time as interest is expressed in the Company's
business and capital raising objectives, CAPSTONE shall notify Company
and advise it as to the source of such interest or capital and any
terms and conditions of such. The acceptance and consumption of any
transaction is subject to acceptance of the terms and conditions by
the Company. It is understood that a portion of the compensation to be
paid hereunder is being paid by Company to have CAPSTONE remain
available to assist it with transactions on an "as needed" basis
during the term of this Agreement.
(b) The parties further acknowledge that this Agreement is being
entered into by the Company on a non-exclusive basis, meaning that
<PAGE>
there is no prohibition in this Agreement restraining the Company from
receiving like services from any third party to this Agreement.
4. Legality of Transactions and Services. CAPSTONE hereby represents and
warrants the services contemplated herein, the consideration received and the
services to be rendered are and will be in compliance with all federal and state
laws of the United States. Upon request, CAPSTONE shall provide an opinion of an
attorney licensed to practice law within the United States, that the foregoing
is correct.
5. Compensation to CAPSTONE. Initially, CAPSTONE shall receive compensation
under this Agreement for: (i) successfully placing the Company's bridge capital
facility in an amount of at least $250,000 and (ii) for ongoing investment
banking services separate from and in addition to the placement of the bridge
capital facility. Fees for the combination of the services referenced in this
section shall be payable as follows:
5.1 Compensation and Fees.
A. Retainer Fee. CAPSTONE shall be paid a retainer fee
("Retainer") equal to 25% of the total number of shares of
Common Stock of the Company as provided in paragraph 5.1(B),
below, upon the execution of this Agreement (one-quarter of
1%). This Retainer is in lieu of CAPSTONE'S customary cash
retainer fee.
B. Monthly Fee. In addition, for a period of six (6) months
from the date of execution of this Agreement, the Company
agrees to pay CAPSTONE $2,500 per month during the term of
this Agreement commencing on execution of this Agreement,
with each subsequent monthly payment due on the 15th day of
each month thereafter, provided that CAPSTONE meets that
specific time deadlines set forth in Exhibit 1. In the event
that the Company is delinquent in making any monthly
payment, the amount which is delinquent may be paid either
in cash or by transferring an appropriate number of the
Company's restricted Common Stock valued at a 50% discount
to the market inside bid price to CAPSTONE per month, upon
the due date, in lieu of cash, at CAPSTONE's option (i.e. if
a $2,500 fee is not paid, $5,000 of restricted Common Stock
shall be delivered to CAPSTONE).
If CAPSTONE fails to complete a project, through no fault of
the Company, by a specific deadline set forth in Exhibit 1,
then the Company shall not be obligated to pay the next
months fee of $2,500 and said monthly fee shall be deemed
waived by CAPSTONE.
Should the Company become delinquent in keeping the monthly
consulting fees current by more than 15 days, CAPSTONE may
discontinue work on the Company's behalf.
<PAGE>
If CAPSTONE fails to complete a project within 15 days after
its designated deadline as set forth in Exhibit 1, then the
Company, at the election of the Company, may terminate this
Agreement.
C. Shares. As partial consideration for CAPSTONE'S services,
expertise, and introductions to sources of debt or equity
capital, the Company shall cause to be delivered and issued
to CAPSTONE (or CAPSTONE'S assignee(s)), a number of
restricted shares of the Company's Common Stock equal to 1%
of the total number of outstanding shares at the date of
this Agreement, being 23,438 shares ("Shares"). These Shares
shall be earned, issued and delivered according to the
following delivery and issuance schedule:
(i) 25% of the restricted Shares deliverable on the
execution date of this Agreement as the Retainer
pursuant to paragraph 5.1(A). These Shares shall be
subject to the resale limitations contained in Rule 144
promulgated under the Securities Act of 1933, as
amended ("Act").
(ii) 50% of the restricted Shares deliverable at the time
that CAPSTONE delivers a draft of the Private Placement
Documents pursuant to Exhibit 1 attached hereto. These
Shares shall be restricted under Rule 144 of the Act
and shall be subject to the resale limitations
contained in Rule 144 promulgated under the Act.
(iii)25% of the restricted Shares deliverable at the time
that CAPSTONE delivers a draft of the final Private
Placement Documents and Required Notices pursuant to
Exhibit 1 attached hereto. These Shares and shall be
subject to the resale limitations contained in Rule 144
promulgated under the Act.
D. Warrants. Warrants shall be granted to CAPSTONE from the Company
entitling CAPSTONE (or its assignee(s)) to purchase an equal
number of shares of Common Stock as are the subject of section
5.1(B) of this Agreement (i.e. 1.0% of the total number of
outstanding shares of Common Stock as of the date of this
Agreement) ("Warrant"). The Warrants shall not be exercisable
until 180 days from the date of grant thereof. The Warrants shall
be exercisable at a price equal to 75% of the average inside bid
price of the Company's Common Stock for the five trading day
trading period prior to the actual exercise of the Warrant or any
part thereof. The term of the Warrants shall be for three (3)
years from the date of grant, and they will include a "cashless
exercise" (i.e., conversion provision. The Warrants and shares
received by CAPSTONE, if the Warrants are exercised, shall be
subject to the resale restrictions contained in Rule 144
promulgated under the Act, unless they are subject to
registration in accordance with this Agreement.
<PAGE>
E. Provisions Governing the Warrant Shares. The following provisions
are applicable to the Shares which are to be issued to CAPSTONE
in the event that the Warrants are exercised pursuant to this
agreement ("Warrant Shares"):
(i) All Warrant Shares shall be subject to piggyback
registration rights whenever the Company proposes to
register any of its securities under the Securities Act of
1933, (excluding the Company's initial registered public
offering, and any Registration on Form S-8 for employee
benefit plans or Form S-4, or successor forms) with no
proceeds from the registration of said Warrant Shares going
to the Company. CAPSTONE may register all, a portion or none
of its Warrant Shares along with other of the Company's
shareholders, subject to approval of any Underwriter
representing the Company.
(ii) The Company shall provide, at its own expense at the time of
exercise of this Agreement, or within a reasonable time
thereafter, the necessary documents for CAPSTONE (or its
assignee(s)) to receive the following:
(x) Form of Warrant Agreement containing the grant of the
Warrants; and
(y) Piggyback Registration Rights Agreement covering the
Warrant Shares.
F. Bridge Funding and Private Placement Commissions. As compensation
to CAPSTONE for successfully locating and placing a minimum of
$250,000 in bridge financing on behalf of the Company, and in
addition to the other compensation payable to Capstone for its
investment banking services provided for in this Agreement,
CAPSTONE shall receive a cash commission of 3.0% of the gross
aggregate amount of funding received, payable at the time or
times that the Company receives proceeds from any source or
sources for any bridge financing placed through CAPSTONE'S
efforts or introductions.
The placement by CAPSTONE of the Company's debt or equity
securities, in addition to the bridge financing referenced above
(such as the Company's planned Rule 506 offering), shall be based
upon the terms of a separate placement agents or dealers
agreement hereinafter to be entered into by the parties prior to
the time of such offering(s).
<PAGE>
G. Shares for introduction Broker-Dealer Upon Quotation of
Common Stock. In consideration for the consulting services
and introductions provided by CAPSTONE to the Company with
regard to assisting the Company in locating a qualified and
reputable Broker Dealer to submit and file the requisite
Form 211 with the Over the Counter Bulletin Board, the
Company hereby agrees that at such time as the Company
begins price quotations on the NASD's Over the Counter
Electronic Bulletin Board market, or such other public
securities market, the Company shall cause to be issued and
delivered to CAPSTONE, or its assignee(s) 100,000 restricted
shares of the Company's Common Stock.
5.2 Optional Form of Payment. CAPSTONE may at its sole election, on
the due date of any payment due in accordance with this
Agreement, elect to receive all or a portion of its fees in the
form of restricted securities, equity, or financing instruments
issued by Company to CAPSTONE on terms agreed by the Company in
writing.
5.3 Extraordinary Expenses. Extraordinary expenses of CAPSTONE shall
be submitted to the Company for approval prior to expenditure and
shall be paid by the Company, within ten (10) business days of
receipt of CAPSTONE'S request for payment. Extraordinary expenses
shall include, but not be limited to, business travel, business
accommodations expenses, printing, regulatory fees, overnight
delivery or courier services.
5.4 Finder Fees.
5.4(a) In the event CAPSTONE introduces the Company or a Company
affiliate to any third party funding source(s), underwriter(s),
merger partner(s) or joint venturers who enter into a funding,
underwriting, merger, joint venture or similar agreement with the
Company, the Company hereby agrees to pay CAPSTONE an advisory
finder's fee according to industry standards based on the
industry standard known as the "Lehman's Formula", on the gross
proceeds or dollar value derived from such funding, payable upon
the consummation of such funding, underwriting, merger, joint
venture or similar agreement with the Company, even though the
term of this Agreement may have expired pursuant to the terms of
this Agreement. Capstone shall not be entitled to a finder's fee
for any proceeds or financing arranged directly by the Company or
from Monsoon International Manufacturing and Distribution, Inc.
("Monsoon"), or any parties introduced by Monsoon to the Company.
For the purposes of this Agreement Lehman's Formula is set forth
below:
(i) 5.0% of the first $1,000,000 of Financing;
(ii) 4.0% of the next $1,000,000 of Financing;
(iii) 3.0% of the next $1,000,000 of Financing;
(iv) 2.0% of the next $1,000,000 of Financing; and
(v) 1.0% of any amount in excess of $4,000,000 of Financing.
"Financing," as used herein, shall mean all amounts furnished to
or for the use of the Company with Investors directed or
introduced by, or through the efforts of, Finder after the date
of this Agreement, whether by investment in equity or debt
securities of the Company, loans, loan commitments, guarantees of
indebtedness, leasing, sale and leaseback, joint ventures or
licensing.
<PAGE>
5.5(b) CAPSTONE may, at its sole option, elect to receive all or
a portion of said advisory fee as payment in kind, i.e., pro-rata
in the same form and type of securities, equity, or financing
instruments issued to the funding source or underwriter by the
Company. In the event the exercise of this option results in
additional expenses over and above the expenses of the funding
and/or underwriting, then the additional expenses shall be borne
by CAPSTONE. In addition, the exercise of this option by CAPSTONE
shall not impede or otherwise have a negative effect on any
funding or underwriting.
6. Indemnification. Each party shall hold the other party harmless from and
against, and shall indemnify the other party, for any liability, loss, and
costs, expenses or damages howsoever caused by reason of any injury (whether to
body, property, personal or business character or reputation) sustained by any
person or to any person or property by reason of any act, neglect, default or
omission of it or any of its agents, employees, or other representatives arising
out of or in relation to this Agreement. Nothing herein is intended to nor shall
it relieve either party from liability for its own acts, omissions or their own
negligence. All remedies provided by law or in equity shall be cumulative and
not in the alternative.
7. Company Representations. Company hereby represents, covenants and warrants to
CAPSTONE as follows:
7.1 Authorization. The Company and its signatories herein have full power
and authority to enter into this Agreement and to carry out the
transactions contemplated hereby.
7.2 No Violation. Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will violate
any provision of the charter or by-laws of Company, or violate any
term or provision of any other agreement or any statute or law which
binds the Company.
7.3 Agreement in Full Force and Effect. All contracts, agreements, plans,
leases, policies and licenses referenced herein to which the Company
is a party are valid and in full force and effect.
7.4 Consents. No consent of any person, other than the signatories hereto,
is necessary to the consummation of the transactions contemplated
hereby, including, without limitation, consents from parties to loans,
contracts, lease or other agreements and consents from governmental
agencies, whether federal, state, or local.
<PAGE>
7.5 CAPSTONE Reliance. That CAPSTONE has and will rely upon the documents,
instruments and written information furnished to CAPSTONE by the
Company's officers, or designated employees.
7.6 Services NOT EXPRESSED OR IMPLIED.
7.6(a) That CAPSTONE has not agreed with the Company, in this
Agreement or any other agreement, either verbal or written, that any
associate of CAPSTONE will be a market-maker in any specific
securities or securities that the Company may have an interest in:
and,
7.6(b) That any payments made to CAPSTONE are not, and shall not be
construed as compensation to CAPSTONE for the purposes of having a
referral or associate of CAPSTONE make a market or write research
reports, or to cover CAPSTONE'S out-of-pocket expenses for having a
referral of CAPSTONE make a market, or for the submission by a
referral of CAPSTONE of an application to make a market in any
securities; and,
7.6(c) That no payments made to CAPSTONE are for the purpose of
affecting the price of any security or influencing any market-making
functions.
7.6(d) That no payment made to CAPSTONE shall be for making false or
exaggerated representations about the Company or any of the Company's
customers or products.
7.6(e) That no payment made to CAPSTONE shall be for research
reporting coverage or securities purchase recommendations. CAPSTONE'S
research department may or may not decide to initiate coverage of the
Company's stock based on its due diligence, independently from any
form of contractual agreement.
8. CAPSTONE Representations. CAPSTONE hereby represents, covenants and warrants
to Company as follows:
8.1 Authorization. CAPSTONE and its signatories herein have full power and
authority to enter into this Agreement and to carry out the
transactions contemplated hereby.
8.2 No Violation. Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will violate
any provision of the charter or by-laws of Company, or violate any
term or provision of any other agreement or any statute or law.
8.3 Agreement in Full Force and Effect. All contracts, agreements, plans,
leases, policies and licenses referenced herein to which Company is a
party are valid and in full force and effect.
<PAGE>
8.4 Consents. No consent of any person, other than the signatories hereto,
is necessary to the consummation of the transactions contemplated
hereby, including, without limitation, consents from parties to loans,
contracts, lease or other agreements and consents from governmental
agencies, whether federal, state, or local.
8.5 Company Reliance. That Company has and will rely upon the documents,
instruments and written information furnished to Company by the
CAPSTONE'S officers, or designated employees.
9. Confidentiality. CAPSTONE and the Company each agree to provide reasonable
security measures to keep information confidential whose release may be
detrimental to the stability and confidentiality of either CAPSTONE or the
Company.
10. Miscellaneous Provisions.
10.1 Amendment and Modification. This Agreement may be amended, modified,
and supplemented only by written agreement of CAPSTONE and Company.
10.2 Waiver of Compliance. Any failure of CAPSTONE or the Company to comply
with any obligation, agreement or condition herein may be expressly
waived in writing, but such waiver of failure to insist upon strict
compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
10.3 Expenses: Transfer Taxes, Etc. Whether or not the transactions
contemplated by this Agreement are consummated, CAPSTONE agrees that
all fees and expenses incurred by CAPSTONE, in connection with this
Agreement shall be borne by CAPSTONE and the Company agrees that all
fees and expenses incurred by the Company in connection with this
Agreement shall be borne by the Company, including, without limitation
as to CAPSTONE or Company, all fees of counsel and accountants.
10.4 Other Business Opportunities. Except as expressly provided in this
Agreement, each party hereto shall have the right independently to
engage in and receive full benefits from other business activities. In
case of business activities which would be competitive with the other
party, notice shall be given prior to this Agreement or, if such
activities are proposed, then within 10 days prior to any competitive
engagement. The doctrines of "corporate opportunity" or "business
opportunity" shall not be applied to any other activity, venture, or
operation of either party.
10.5 Compliance with Regulatory Agencies. Each party hereby represents and
warrants that all actions, direct or indirect, taken by it and it's
respective agents, employees and affiliates in connection with this
Agreement and any financing or underwriting arising from this
Agreement, shall conform to all applicable Federal and state
securities laws.
<PAGE>
10.6 Notices. Any notices to be given hereunder by any party to the other
may be effected by personal delivery in writing or by mail, registered
or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at the addresses appearing
in the introductory paragraph of this agreement, but any party may
change his address by written notice in accordance with this
subsection. Notices delivered personally shall be deemed communicated
as of actual receipt; mailed notices shall be deemed communicated as
of three (3) days after mailing.
10.7 Assignment. This Agreement, and all of the provisions hereof, shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this
Agreement nor any right, interests or obligations hereunder shall be
assigned by either of the parties hereto without the prior written
consent of the other party, except by operation of law.
10.8 Delegation. Neither party shall delegate the performance of its duties
under this Agreement without the prior written consent of the other
party.
10.9 Publicity. Neither CAPSTONE nor the Company shall make or issue, or
cause to be made or issued, any announcement or written statement
concerning this Agreement or the transactions contemplated hereby for
dissemination to the general public without the prior consent of the
other party. This provision shall not apply, however, to any
announcement or written statement required to be made by law or the
regulations of any federal or state governmental agency, except that
the party concerning the timing and consent of such announcement
before such announcement is made.
10.10 Governing Law. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance with
the laws of the State of Georgia, without regard to its conflicts of
law doctrine. The Company and CAPSTONE agree that if action is
instituted to enforce or interpret any provision of this Agreement,
then jurisdiction and venue shall be in Fulton County, Georgia.
10.11 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
10.12 Headings. The heading of the sections of this Agreement are inserted
for convenience only and shall not constitute a part hereto or affect
in any way the meaning or interpretation of this Agreement.
10.13 Entire Agreement. This Agreement, including any exhibits hereto, and
the other documents and certificates delivered pursuant to the terms
hereto, set forth the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein, and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party
hereto.
10.14 Third Parties. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or give to any person or corporation other
than the parties hereto and their successors or assigns, any rights or
remedies under or by reason of this Agreement.
10.15 Attorneys' Fees and Costs. If any legal action or arbitration
proceeding is necessary to enforce, interpret, or collect upon the
terms of this Agreement, the prevailing party in that controversy
shall be entitled to recover from the non-prevailing party, reasonable
attorneys' fees and costs in addition to any other relief to which
that party may be entitled. This provision shall be construed as
applicable to the entire Agreement.
10.16 Survivability. If any part of this Agreement is found, or deemed by a
court of competent jurisdiction to be invalid or unenforceable, that
part shall be severable from the remainder of this Agreement.
10.17 Further Assurances. Each of the parties agree that it shall from time
to time take such actions and execute such additional instruments as
may be reasonably necessary or convenient to implement and carry out
the intent and purpose of this Agreement.
<PAGE>
10.18 Right to Data After Termination. After termination of this Agreement
each party shall be entitled to copies of all information acquired
hereunder as of the date of termination and not previously furnished
to it.
10.19 Relationship of the Parties. Nothing contained in this Agreement
shall be deemed to cause either party to be the partner of the other,
nor, except as otherwise herein expressly provided, to cause either
party to be the agent or legal representative of the other, nor create
any fiduciary relationship between them. It is not the intention of
the parties to create, nor shall this Agreement be construed to
create, any commercial or other partnership. Neither party shall have
any authority to act for or to assume any obligation or responsibility
on behalf of the other party, except as otherwise expressly provided
herein.. The rights, duties, obligations and liabilities of the
parties shall be several not joint or collective. Each party shall be
responsible only for its obligations as herein set out and shall be
liable only for its share of the costs and expenses as provided
herein. Each party shall indemnify, defend and hold harmless the other
party, its directors, officers, and employees from and against any and
all losses, claims, damages and liabilities arising out of any act or
any assumption of liability by the indemnify party, or any of its
directors, officers or employees, done or undertaken, or apparently
done or undertaken, on behalf of the other parties. Each party shall
be responsible for the acts of its agents and affiliates.
11. Arbitration; Indemnification. WITH RESPECT TO THE ARBITRATION OF ANY
DISPUTE, THE UNDERSIGNED HEREBY ACKNOWLEDGE THAT:
11.1 Arbitration is final and binding on the parties;
11.2 The parties are waiving their right to seek a remedy in court,
including the right to jury trial;
11.3 Pre-arbitration discovery is generally more limited and different from
court proceeding;
11.4 The arbitrator's award is not required to include factual findings or
legal reasoning and any party's right to appeal or to seek modification of
a ruling by the arbitrators is strictly limited;
11.5 The panel of arbitrators will typically include a minority of
arbitrators who were or are affiliated with the securities industry; and
11.6 This arbitration agreement is specifically intended to include any and
all statutory claims which might be asserted by any party.
11.7 All disputes, controversies, or differences between the company,
capstone or any of their officers, directors, legal representatives,
attorneys, accountants, agents or employees, or any customer or other
person or entity, arising out of, in connection with or as a result of this
agreement, shall be resolved through arbitration rather than through
litigation.
11.8 The undersigned hereby agrees to submit the dispute for resolution to
either the American Arbitration Association, in Atlanta, Georgia, or the
national association of securities dealers, inc., in Atlanta, Georgia,
whichever association may assert jurisdiction over the dispute, within five
(5) business days after receiving a written request to do so from any of
the aforesaid parties.
11.9 If any party fails to submit the dispute to arbitration on request,
then the requesting party may commence an arbitration proceeding.
<PAGE>
11.10 That any hearing scheduled after an arbitration is initiated shall
take place in Fulton County, Georgia and the federal arbitration act shall
govern the proceeding and all issues raised by this agreement to arbitrate.
If any party shall institute any court proceeding in an effort to resist
arbitration and be unsuccessful in resisting arbitration or shall
unsuccessfully contest the jurisdiction of any arbitration forum located in
Fulton County, Georgia, over any matter which is the subject of this
agreement, the prevailing party shall be entitled to recover from the
non-prevailing party its legal fees and any out-of-pocket expenses incurred
in connection with the defense of such legal proceeding or its efforts to
enforce its rights to arbitration as provided for herein.
11.12 Each party will sign any required NASD uniform submission
agreement at the time any dispute is submitted for arbitration. Or the
applicable paperwork for the American Arbitration Association, at the
time any dispute is submitted for arbitration whichever one is
applicable.
11.13 The parties shall accept the decision of any award as being,
final and conclusive and agree to abide thereby.
11.14 Any decision may be filed with any court of competent
jurisdiction as a basis for judgment and execution for collection.
12. Term of Agreement and Termination. This Agreement shall be effective upon
execution, shall continue for six (6) months unless terminated sooner, by either
party, pursuant to the terms of this Agreement, upon giving the other party
thirty (30) days written notice, after which time this Agreement is terminated.
CAPSTONE shall be entitled to the finder's fees described in this Agreement for
funding or underwriting commitments entered into by the Company's within one
year after the termination of this Agreement if said funding or underwriting was
the result of CAPSTONE'S efforts or introductions to other funding sources prior
to the termination of this Agreement.
13. Renewal. Provided that this agreement has not been otherwise terminated, and
that all specific deadlines have been met and all services to be provided
hereunder have been completed in a timely fashion and all payments to be made
hereunder have been made, then this agreement shall automatically renew for one
(1) additional period of six (6) months under the same terms and conditions and
compensation set forth in paragraph 5.1(B), 5.1(F) and 5.4, hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
THE COMPANY
American Fire Retardant Corp.
A Nevada Corporation
Date: September 29, 1999 /S/ Stephen F. Owens
---------------------------------------
By: Stephen F. Owens
Its: President
Date: September 30, 1999 /S/ Angela M. Raidl
---------------------------------------
By: Angela M. Raidl
Its: Vice President, Chief Financial
Officer, Secretary
CAPSTONE
Capstone Partners, L.C.
A Utah Limited Liability Company
Dated: September 27, 1999 /S/ Greg Bartko
---------------------------------------
By: Greg Bartko, Esq.
Its: Chief Executive Officer
<PAGE>
EXHIBIT 1
Specific Time Deadlines
Item 1. Private Placement Memorandum. Capstone as part of the compensation and
fees set forth in the Investment Banking and Consulting Agreement shall
prepare a Private Placement Memorandum pursuant to the provisions of Rule
506 of Regulation D along with the requisite subscription agreement,
investor questionnaire, investor representative questionnaire (Collectively
the "Private Placement Documents"), and the Form D Notice of Sale of
Securities and requisite state Blue Sky filings and notices pursuant to
Rule 506 and Sec. 18(b)(4)(D) of the Securities Act of 1933, for up to six
(6) states designated by the Company (the "Required Notices").
Any additional requisite Blue Sky filings and notices in excess of the
initial six (6) designated states shall be an additional cost of $250 per
state.
Due Dates:
(1) The draft of Private Placement Documents shall be completed no later
than 14 days following the execution of this Agreement.
(2) The final and completed Private Placement Documents along with the
Required Notices shall be completed no later than 10 days following the
approval of the draft of the Private Placement Document by the Company.
Costs:
The Company shall pay all required State Blue Sky filing fees associated
with the Private Placement, in addition to all other out-of-pocket costs
associated with the Private Placement Memorandum, such as copying and
binding charges, and the costs of distribution and mailing of the Private
Placement Memorandum.
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<S> <C>
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0
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