<PAGE>
As filed with the Securities and Exchange Commission on June 14, 1999
Registration No. 333-66237
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________________________
AMENDMENT NO. 1 TO
FORM SB-2
Registration Statement
Under the Securities Act of 1933
____________________________________
CLASSIC TRENDS INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
TEXAS 5013 76-0540287
----- ---- ----------
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Number)
10696 HADDINGTON, SUITE 117 FREDERIC G. HINDLE
HOUSTON, TEXAS 77043 CLASSIC TRENDS INTERNATIONAL, INC.
(713) 464-2626 10696 HADDINGTON, SUITE 117
(Address and telephone HOUSTON, TEXAS 77043
number of principal (713) 464-2626
executive offices) (Name, address and
telephone number of
agent for service)
Copies to:
MARGARET C. FITZGERALD
BREWER & PRITCHARD, P.C.
1111 BAGBY, 24TH FLOOR
HOUSTON, TEXAS 77002
PHONE (713) 209-2950
_____________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of this prospectus is expected to be made
pursuant to Rule 434, please check the following box. [_]
----------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
Proposed Proposed
Title of Each Class of Amount Maximum Maximum Amount of
Securities To Be Being Offering Price Aggregate Registration
Registered Registered Per Share/(1)/ Offering Price/(1)/ Fee/(3)/
- --------------------------------------------------------------------------------------------------------
Common Stock to be distributed/(2)/ 15,603,400 .0182199 $284,293.38 $79.03
- --------------------------------------------------------------------------------------------------------
TOTAL 15,603,400 .0182199 $284,293.38 $79.03
========================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457.
(2) The book value of the common stock as calculated pursuant to Rule 457 (f).
(3) Previously paid with the company's original filing of its registration statement on Form SB-2 filed
with the SEC October 28, 1998.
_________________________
</TABLE>
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the SEC, acting pursuant to said Section 8(a), may
determine.
<PAGE>
Subject to Completion, Dated June 14, 1999
CLASSIC TRENDS INTERNATIONAL, INC.
DISTRIBUTION OF 15,603,400 SHARES OF COMMON STOCK AS A STOCK DIVIDEND
Posh International, Inc. ("Posh"), our parent company, has decided to
distribute 15,603,400 shares consisting of our securities, as a stock dividend
to Posh shareholders of record as of June 11, 1997. This distribution will
constitute our initial public offering. On or about _______, 1999 (or as soon
thereafter as practicable), Posh will distribute one share of Classic Trends for
each share of Posh common stock you own on the record date. You will not be
charged or assessed for the shares and neither we nor Posh will receive any
proceeds from the distribution of the shares.
If you reside in a state in which the state securities laws do not
permit a readily available exemption for the distribution of the shares, Posh
reserves the right to issue cash in lieu of shares, at a price of $.01 per
share.
Neither the Nasdaq Stock Market nor any national securities exchange
lists Classic Trend's common stock. Prior to this offer, there has been no
public market for Classic Trend's common stock. There can be no assurance that
a market for such securities will develop.
We have not applied to register the shares in any state. An exemption
from registration will be relied upon in the states where the shares are
distributed and may only be traded in such jurisdictions after compliance with
applicable securities laws. There can be no assurances that the shares will be
eligible for sale or resale in such jurisdictions. We may apply to register the
shares in several states for secondary trading, however we are under no
requirement to do so. Rather, we retain the option and anticipate that we will
pay the dividend in cash rather than in shares to holders of Posh common stock
that reside in states which do not provide for an exemption from state
registration for this offering.
-----------------------------------
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 3.
------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is June 14, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Prospectus Summary.................................................................................. 1
Questions and Answers Concerning the Stock Distribution............................................. 2
Summary Financial Information....................................................................... 3
Risk Factors........................................................................................ 3
We Require Substantial Capital to Pursue Our Operating Strategy.................................. 3
We Have Limited Sources of Liquidity............................................................. 3
We May Need Additional Funds..................................................................... 4
We Have a Limited Operating History.............................................................. 4
We Have a History of Operating Losses............................................................ 4
Our Profitability is Uncertain................................................................... 4
Our Auditors Have Qualified Their Opinion Regarding Our Ability to Continue as a Going Concern... 4
Our Success Depends on Our Ability to Execute Our Business Strategy.............................. 5
Market Acceptance of Our Products is Uncertain................................................... 5
Our Customers Are Concentrated in Texas.......................................................... 5
We Depend on Subcontractors for Our Products..................................................... 5
We Depend on a Subcontractor for Packaging, Storage and Handling of Our Products................. 5
We Have a Limited Product Line................................................................... 6
There are Risks in New Product Development....................................................... 6
We Depend on Key Personnel....................................................................... 6
Lack of Patent Protection for Products........................................................... 6
Adverse Effect of Possible Future Product Liability Claims....................................... 6
Competition in the Automotive Product Industry................................................... 6
Lack of Public Market for Our Common Stock....................................................... 7
Fluctuation in the Price of Our Common Stock..................................................... 7
Penny Stock Regulations May Decrease Your Ability to Sell Our Common Stock....................... 7
Our Board of Directors May Issue Blank Check Preferred Stock..................................... 7
Lack of Disinterested, Independent Directors..................................................... 7
Our Special Note Regarding Forward-Looking Statements............................................... 8
Plan of Distribution................................................................................ 8
Federal Income Tax Consequences of the Distribution................................................. 9
Use of Proceeds..................................................................................... 10
Dividend Policy..................................................................................... 10
Capitalization...................................................................................... 10
Management's Discussion and Analysis of Financial Condition and Results of Operation................ 10
Business............................................................................................ 13
Management.......................................................................................... 20
Executive Compensation.............................................................................. 21
Security Ownership of Certain Beneficial Owners and Management...................................... 22
Certain Relationships and Related Transactions...................................................... 22
Description of Securities........................................................................... 22
Experts............................................................................................. 23
Legal Matters....................................................................................... 23
</TABLE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THE SHARES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
ABOUT THIS PROSPECTUS
You should only rely on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus.
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. To understand this offering fully, you should read the entire
prospectus carefully.
KEY FACTS ABOUT OUR COMPANY AND THIS PROSPECTUS
Our Company........................... Our strategy is to market and
distribute automotive care products,
which currently consist of an
internal engine treatment and an
exterior car care product.
Our Address........................... 10696 Haddington, Suite 117; Houston,
Texas 77043
Our Phone Number...................... (713) 464-2626
Common Stock Outstanding.............. 15,603,400 shares
Shares to be Distributed.............. 15,603,400 shares
Common Stock Outstanding After
Dividend............................. 15,603,400 shares, may be adjusted if
Posh issues the dividend in cash as
permitted.
No Proceeds........................... We nor Posh will receive any proceeds
from this distribution.
Market for Company Securities......... There is currently no market for our
securities, and there is no assurance
that any market will develop. If a
market develops for our securities,
it will likely be limited, sporadic,
and highly volatile.
Risk Factors.......................... Your investment in our common stock
involves a high degree of risks. You
should carefully read the "Risk
Factors" beginning on page 3.
1
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WHY THIS PROSPECTUS WAS SENT TO YOU
This prospectus is being delivered by Posh to you because you owned Posh
common stock on June 11, 1997. This entitles you to receive, at no cost to you,
for one share of Posh common stock you own a distribution consisting of one
share of Classic Trends, a development stage corporation.
QUESTIONS AND ANSWERS CONCERNING
THE STOCK DISTRIBUTION
Will Every Stockholder Share in Proportion to Their Posh Holdings?
Yes, the stockholders of record at June 11, 1997, will receive shares in
proportion to their holdings. However, certain states may not allow us to
distribute the shares without registration or qualification in that particular
state. Therefore, we have the right to pay you $.01 as the dividend for each
share you would have received.
What is the Connection Between Posh and Classic Trends?
Prior to this dividend we were a subsidiary of Posh.
Why Are We Engaging in This Distribution?
The dividend represents Classic Trends' initial public offering of its
securities, although it is different than a traditional offering in that
securities are directed only to eligible Posh stockholders. We believe that the
dividend has several advantages over a traditional initial public offering. This
type of offering gives us an opportunity to offer our common stock to investors
who we believe, as Posh stockholders, already have some interest in Classic
Trends. This form of offering also is more cost effective than the traditional
method since there will not be any underwriting discounts and commissions.
In addition, Posh's management supports the dividend because they believe
it will benefit Posh stockholders by:
. separating our business, with its own unique market opportunity and
risk/reward profile, from Posh's other traditional business, which
should increase our financial flexibility in the capital markets by
allowing us to be viewed, from an investor's perspective, as engaging
in only the automotive care product business;
. enabling Posh stockholders to increase or decrease their level of
participation in our new business by varying their level of investment
in us; and
. allowing Posh and us to pursue different operating strategies, given
our different business environments and competitive market conditions.
Can I Sell My Shares?
Upon the effectiveness of our registration statement with the SEC, the
shares of common stock will be freely tradeable, assuming any market for these
securities ever develops.
Where Will the Classic Trends Common Stock Trade?
There is currently no public market for our common stock. We expect that
securities will trade in the over-the-counter market on the OTC Electronic
Bulletin Board. We can not assure you that a market for our common stock will
develop or if it does develop that the market will be sustained.
2
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial information presented below is derived from the
audited financial statements of the company for the fiscal year ended June 30,
1998, and the pro forma unaudited financial statements for the twelve months
ended June 30, 1997 which have been prepared by management and utilize the
company's audited financial statements included elsewhere in this prospectus.
The financial information for the twelve months ended June 30, 1997, reflects
the combined operations of the company, and its predecessor entity, Posh. Also
presented is interim unaudited financial information for the nine months ended
March 31, 1998 and March 31, 1999.
<TABLE>
<CAPTION>
Twelve Months Nine Months NINE MONTHS
STATEMENT OF Ended Year Ended Ended ENDED
OPERATIONS DATA: June 30, 1997 June 30, 1998 March 31,1998 MARCH 31, 1999
<S> <C> <C> <C> <C>
Revenues $ 532,335 $ 201,932 $ 151,449 $ 29,364
Cost of Sales 105,797 110,235 82,676 9,410
Selling Expenses 346,985 219,206 164,405 59,671
General and
Administrative Expenses 471,508 350,810 263,108 273,614
Operating Loss $(405,887) $(478,319) $(358,740) $(313,331)
Net Loss $(408,917) $(442,549) $(376,514) $(331,681)
JUNE 30, 1998 MARCH 31, 1999
BALANCE SHEET DATA:
Working Capital (Deficit) $(531,831) $(894,042)
Total Assets 494,340 281,985
Long-Term Debt -- --
Stockholders' Equity (Deficit) $(436,441) $(809,030)
</TABLE>
RISK FACTORS
WE REQUIRE SUBSTANTIAL CAPITAL TO PURSUE OUR OPERATING STRATEGY
To date, we have relied upon net cash provided by financing activities to
fund our capital requirements. Cash provided by financing activities was
$343,443 and $332,085 for the fiscal year ended June 30, 1998, and the twelve
months ended June 30, 1997, respectively. Our operations used $291,029 and
$402,085 of cash in operations during the fiscal year ended June 30, 1998 and
the twelve months ended June 30, 1997, respectively. We can provide no assurance
that we will generate sufficient cash in future periods to satisfy our capital
requirements.
WE HAVE LIMITED SOURCES OF LIQUIDITY
At March 31, 1999, we had cash, short-term debt and a working capital
deficit of $91,087, $1,091,015 and $894,042, respectively. We have an unsecured
$150,000 line of credit with Southwest Bank of Texas through May 2000 which
bears interest at 8.5% per annum. As of March 31, 1999, we had utilized $49,805
under the line of credit. In addition, in May 1998 we borrowed $188,889 from an
unaffiliated third party for a period of one year bearing interest at 7.5% per
annum, which has now been extended for an additional year. In December 1996,
3
<PAGE>
1,250,000 shares of Posh common stock were sold in a capital raising transaction
for $436,000. During 1997, $176,000 from the capital raising transaction above
had been received in cash and $260,000 remained in notes receivable. As of June
30, 1998, we had received $60,000. Subsequent to June 30, 1998, we received
400,000 shares of common stock of Titan Resources, Inc. as partial payment of
the stock subscriptions receivable. On the day of the transfer, the stock was
valued at $.359 per share, or $143,600. As of March 31, 1999, the Titan stock
has been sold for $84,092.98 and an additional $40,000 has been paid on the
stock subscription receivable. This left the balance on the stock subscription
receivable of $75,907.12. Of the $75,90712, $35,000 was collected as of May 12,
1999.
WE MAY NEED ADDITIONAL FUNDS
We intend to use borrowed funds if necessary to fund our operations. We
utilize approximately $15,000 per month in operations. While we anticipate that
revenues, repayment of debt and our line of credit will be sufficient to fund
our operations for a period of seven months, there can be no assurance that we
will not need additional capital in order to pursue our business strategy in the
future. If we are unable to secure sufficient capital in the future, our ability
to pursue our current business strategy, as well as results of operations in
future periods, may be impaired. We have no current commitments or arrangements
for additional debt or equity financing and we can provide no assurance that
additional financing will be available on acceptable terms, if at all.
WE HAVE A LIMITED OPERATING HISTORY
We commenced operations in June 1997, as a development-stage company, and
have a limited operating history on which to base an evaluation of our business
and prospects. Our prospects must be considered in light of the risks, expenses
and difficulties frequently encountered by companies in their early stages of
development.
WE HAVE A HISTORY OF OPERATING LOSSES
We have had a history of losses since inception. For the nine months ended
March 31, 1999 and the nine months ended March 31, 1998, we had revenues of
$29,364 and $151,449, respectively, with net losses of $331,681 and $376,514 ,
respectively. For the fiscal year ended June 30, 1998, and the twelve months
ended June 30, 1997, we had revenues of $201,932 and $532,335, respectively,
with net losses of $442,549 and $408,917, respectively. We expect continued
losses in the current fiscal year. We may experience continued operating losses
in future periods.
OUR PROFITABILITY IS UNCERTAIN
We can provide no assurance that we will be profitable in the future, if at
all. Our results of operations have been and are expected to be affected by the
following factors:
. market acceptance of our products and any other products that may be
introduced in the future,
and
. the need for additional capital.
OUR AUDITORS HAVE QUALIFIED THEIR OPINION REGARDING OUR ABILITY TO CONTINUE AS A
GOING CONCERN
Our independent accountants have qualified their opinion with respect to
our financial statements for the fiscal year ended June 30, 1998 to reflect that
losses incurred from operations have raised substantial doubt about our ability
to continue as a going concern. Furthermore, the financial statements do not
include any adjustments that might result from the outcome of such uncertainty.
Our current cash forecast indicates that there will be negative cash flows from
operations for the fiscal year ending June 30, 1999. Our ability to continue as
a going concern is dependent upon our ability to expand the market for our
products and to obtain additional funding to facilitate our expansion.
Furthermore, the period of time that such additional financing would be
sufficient, could be effected by:
. lower than expected revenues,
. unforeseen costs in entering new markets,
. insufficient market penetration to support general and administrative
costs (including advertising), and
. any new product introductions.
4
<PAGE>
OUR SUCCESS DEPENDS ON OUR ABILITY TO EXECUTE OUR BUSINESS STRATEGY
Our success will depend primarily on our ability to successfully carry out
our business strategy, which is based primarily on management's knowledge and
experience. Our business strategy is to utilize increased advertising to expand
into additional metropolitan areas, and name recognition to increase
distributors which will depend upon a number of factors, including
. identifying and securing distributors,
. the recruiting and training of skilled representatives,
. television advertising,
. the availability of adequate financing,
. the availability of an adequate supply of our products,
. existing and emerging competition, and
. our ability to maintain sufficient profit margins.
We had 367 independent representatives participating in our sales program.
Management believes the utilization of infomercials will increase the number of
independent representatives and direct sales.
MARKET ACCEPTANCE OF OUR PRODUCTS IS UNCERTAIN
Our growth depends on our ability to sell our products in both new and
established markets. We have historically distributed our products primarily in
Texas. We intend to distribute our products and any future products in markets
where we have limited or no previous operating experience. To date, we have
conducted limited market feasibility studies with respect to our products, and
therefore, there can be no assurance that our products will achieve substantial
market penetration or that there will be sufficient demand. Management intends
to utilize available cash to fund television infomercial advertising in several
markets. We expect the utilization of infomercials to increase and expand the
sales generated by independent third party sales representatives. Such sales
representatives have a non-exclusive right to market the company's products and
are not under contract with the company. While our products have gained limited
acceptance in current markets, there can be no assurance of successful marketing
of our products in additional markets, and as a result, we may not generate
sufficient revenue from product sales to cover related expenses.
OUR CUSTOMERS ARE CONCENTRATED IN TEXAS
For the fiscal year ended June 30, 1998 and the twelve months ended June
30, 1997, 20.3% and 34.7% of revenue was derived from the Texas area. Our
strategy is to expand and diversify our customer and distribution base through
the use of a 30 minute Guardian Angel television infomercial to sell Guardian
Angel directly to consumers. Accordingly, until we expand our revenue base,
results for a particular quarter may be adversely affected by adverse economic
conditions in the State of Texas.
WE DEPEND ON SUBCONTRACTORS FOR OUR PRODUCTS
We purchase the formula for our products from third parties. These third
parties have no obligation to supply all of the product we demand. We believe
that these suppliers have sufficient financial incentive and capacity to
accommodate our demand for our products. There can be no assurance that these
third parties will not market products we purchase to our competitors, the
result of which could have an adverse effect on our business. Management does
not have any contracts for back-up and/or fulfillment production and there can
be no assurance that we will be able to locate additional subcontractors in the
event that the current subcontractors terminate their relationship with us.
WE DEPEND ON A SUBCONTRACTOR FOR PACKAGING, STORAGE AND HANDLING OF OUR PRODUCTS
We subcontract all packaging, storage and handling of our products with one
subcontractor on an order-by-order basis. While we believe that this
subcontractor will continue to package, store and handle our products on
favorable terms, there can be no assurance that this subcontractor will continue
to do so on favorable terms, the result of which may have a material adverse
impact on the company.
5
<PAGE>
WE HAVE A LIMITED PRODUCT LINE
We are currently dependent on the sales of two products, Guardian Angel and
Posh Wash, which represented approximately 77% and 7% of our revenues for the
fiscal year ended June 30, 1998, respectively. The remaining 16% of revenues
were derived from the sale of sales and marketing materials to distributors. We
will be dependent on revenues from Guardian Angel and Posh Wash for the
foreseeable future and until we are able to successfully develop and market
additional products. We can provide you no assurance that any additional
products will be developed (or acquired) and distributed. Dependence on two
products poses a significant risk in the event problems (real or perceived) are
encountered with respect to the quality or cost of the product or competitive
products reduce demand for Guardian Angel and/or Posh Wash.
THERE ARE RISKS IN NEW PRODUCT DEVELOPMENT
While we intend to develop and market additional products in the future,
frequently there are problems, delays, expenses, and difficulties encountered in
the development and marketing of new products, many of which are beyond our
control. These difficulties include, but are not limited to:
. unanticipated developmental, testing, manufacturing, and marketing costs;
. unforeseen production or marketing problems; and
. competition that may exceed management's expectations.
An unsuccessful new product could have a greater adverse affect on our results
of operations than would be the case in a company with a broader line of
products. In addition, an unsuccessful new product may damage our reputation and
brand name.
WE DEPEND ON KEY PERSONNEL
Our success is dependent upon the experience and abilities of Mr. Hindle, a
director and president, and Mr. Shriver, a director and consultant. We have
entered into an employment agreement with Mr. Hindle that expires in October
2008 and a consulting agreement with Mr. Shriver that expires in October 2008.
We do not maintain key-man life insurance on these individuals. The loss of the
services of Messrs. Shriver or Hindle, for any reason, could have a material
adverse effect on the company. Furthermore, our continued growth will depend
upon our ability to attract and retain additional skilled personnel. There can
be no assurance that we will be able to hire and retain the necessary additional
personnel.
LACK OF PATENT PROTECTION FOR PRODUCTS
Neither the company nor the inventor of Guardian Angel or Posh Wash has
applied for any patents covering the formula used in these products. We can
provide you no assurance that any particular aspect of the Guardian Angel or
Posh Wash formula will not be found to infringe on the claims of other existing
patents or proprietary rights.
ADVERSE EFFECT OF POSSIBLE FUTURE PRODUCT LIABILITY CLAIMS
We are an "additional insured" on a general liability insurance policy in
the general aggregate amount of $2,000,000 ($1,000,000 maximum for each
occurrence) from the manufacturer of Guardian Angel, but insurance is not
furnished by the manufacturer of Posh Wash. To date, we have not experienced any
product liability or other general liability claims. However, we may be
adversely effected in the future by product liability claims from any of our
current or future products, insurance company defense positions with respect to
coverage, or damages exceeding the amount of applicable liability insurance
limits.
COMPETITION IN THE AUTOMOTIVE PRODUCT INDUSTRY
The business in which we compete is subject to numerous competitive factors
which include, among others:
. price,
. quality,
. reliability, and
. market acceptance.
6
<PAGE>
Our current products, Guardian Angel and Posh Wash, compete with engine
treatments, and washes and waxes developed and marketed by large companies that
have substantially greater financial, marketing and other resources. We can
provide no assurance that a competitor:
. will not develop a product similar to the our current or future products,
. will not contract with our subcontractors to distribute a similar product,
or
. will not develop products that are more innovative, superior or less
expensive than our current or future products.
LACK OF PUBLIC MARKET FOR OUR COMMON STOCK
Prior to this prospectus, there has been no public trading market for our
common stock. Upon the registration statement becoming effective, the common
stock will not be listed on a national securities exchange, Nasdaq, or on the
OTC Electronic Bulletin Board. Management's strategy is to list the common stock
on the OTC Electronic Bulletin Board as soon as practicable. However, to date we
have not solicited any such securities brokers to become market-makers of our
common stock. We can provide you no assurance that an active trading market for
the common stock will develop or be sustained upon the registration statement
becoming effective or that the market price of the common stock will not decline
below the initial public trading price. The initial public trading price will be
determined by market makers independent of the company.
FLUCTUATION IN THE PRICE OF OUR COMMON STOCK
The trading price of our common stock could be subject to wide fluctuations
in response to:
. variations in quarterly results of operations,
. changes in earning estimates by analysts,
. announcements of new products by us or by our competitors, and
. other events or factors, many of which are beyond our control.
In addition, the stock market has usually experienced extreme price and volume
fluctuations which have affected the market price for many companies in the
automotive products industry which have been unrelated to the operating
performance of these companies. These market fluctuations may have a material
adverse effect on the market price of our common stock.
PENNY STOCK REGULATIONS MAY DECREASE YOUR ABILITY TO SELL OUR COMMON STOCK
If our common stock trades below $5.00 per share, it may become subject to
the penny stock regulations. If our shares are subject to the penny stock
regulations, the market liquidity in them could be adversely affected because
the rules require broker-dealers to make a special suitability determination for
the purchaser and have received the purchaser's written consent prior to the
sale. This makes it more difficult administratively for broker-dealers to buy
and sell stock subject to the penny stock regulations on behalf of their
customers. Consequently, the regulations may affect the ability of broker-
dealers to sell our shares and may affect the ability of holders to sell them in
the secondary market.
OUR BOARD OF DIRECTORS MAY ISSUE BLANK CHECK PREFERRED STOCK
Our board of directors have the authority to issue up to 5,000,000 shares
of "blank check" preferred stock with such designations, rights and preferences
as may be determined by them. Accordingly, our board of directors is empowered,
without further stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of our common stock. Certain
companies have used the issuance of preferred stock as an anti-takeover device
and the board of directors could, without further stockholder approval, issue
preferred stock with certain rights that could discourage an attempt to obtain
control of the company in a transaction not approved by the board of directors.
LACK OF DISINTERESTED, INDEPENDENT DIRECTORS
All of our directors have a direct financial interest in the company,
either through common stock ownership interests, royalty arrangements or
otherwise. While management believes that its current directors will be able to
exercise their fiduciary duties as directors, we expect to appoint an
independent, disinterested director to serve on the board of directors in the
future.
7
<PAGE>
OUR SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus, in particular the
"Risk Factors" and "Business" sections, discuss future expectations, contain
projections of results of operation or financial condition or state other
"forward-looking" information. These statements are subject to known and unknown
risks, uncertainties, and other factors that could cause the actual results to
differ materially from those contemplated by the statements. The forward-looking
information is based on various factors and is derived using numerous
assumptions. Important factors that may cause actual results to differ from
projections include, for example:
. the success or failure of our management's efforts to implement their
business strategy;
. our ability to raise sufficient capital to meet operating requirements;
. the uncertainty of consumer demand for our product;
. our ability to protect our intellectual property rights;
. our ability to compete with major established companies;
. the effect of changing economic conditions;
. our ability to attract and retain quality employees; and
. other risks which may be described in future filings with the SEC.
We do not promise to update forward-looking information to reflect actual
results or changes in assumptions or other factors that could affect those
statements.
PLAN OF DISTRIBUTION
REASONS FOR THE DISTRIBUTION
The board of directors of Posh has determined that it is in the best
interest of Posh and its stockholders to make the distribution in the manner
described herein. Posh and the company are engaged in unrelated businesses. The
distribution will result in the company being a separate publicly held company.
MANNER OF EFFECTING THE DISTRIBUTION
This prospectus relates to the distribution by Posh of 100% of the shares
of our common stock. Our common stock will be distributed by Registrar and
Transfer Company, the distribution agent, to Posh stockholders of record as of
the record date on the basis of one share of our common stock for every share of
Posh common stock. All such shares of our common stock will be fully paid and
nonassessable and the holders thereof will not be entitled to preemptive rights.
No consideration will be paid to Posh or the company by the Posh stockholders
for the shares of our common stock received in the distribution. Following the
distribution, Posh will own no shares of our common stock or our other
securities. The distribution is currently expected to be effected as soon as
practicable after the registration statement, of which this prospectus is a
part, is declared effective. Certificates representing the shares of our common
stock will be mailed to the Posh stockholders on that date or as soon thereafter
as practicable. We will not receive any proceeds from the resale of common stock
by the Posh stockholders.
TRANSFER AND RESALE OF COMMON STOCK
The shares of our common stock distributed to the Posh stockholders will be
freely transferable, except for shares received by persons who may be deemed to
be our "affiliates" under the Securities Act. Persons who may be deemed to be
our affiliates after the distribution include individuals or entities that
control, are controlled by or under common control with the company, and include
our directors and principal executive officers, as well as any stockholder
owning 10% or more of the total stock issued and outstanding. Under Rule 144,
resales of common stock for the account of affiliates cannot be made until the
common stock has been held for one year from the later of its acquisition from
the company or an affiliate of the company. Thereafter, shares of common stock
may be resold without registration subject to Rule 144's:
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. volume limitation,
. aggregation,
. broker transaction,
. notice filing requirements, and
. requirements concerning publicly available information about the company.
The volume limitations provide that a person (or persons who must aggregate
their sales) cannot, within any three-month period, sell more than the greater
of one percent of the then outstanding shares, or the average weekly reported
trading volume during the four calendar weeks preceding each such sale. The five
individuals listed as directors and executive management of the company are
affiliates of the company. After the distribution we believe we will have more
than 100 stockholders.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The following discussion is a summary of the material U.S. federal income
tax consequences of the distribution of our shares. However, it is not intended
to be a complete discussion of all potential tax effects that might be relevant
to the distribution. It also is limited to domestic non-corporate shareholders.
It may not be applicable to certain classes of taxpayers, including, without
limitation, corporations, nonresident aliens, insurance companies, tax-exempt
organizations, financial institutions, securities dealers, and broker-dealers.
Such classes of taxpayers should consult their own tax advisors regarding the
tax consequences of the distribution.
The following summary is based on laws, regulations, rulings, practice, and
judicial decisions in effect at the date of this prospectus. Legislative,
regulatory, or interpretive changes, or future court decisions may significantly
modify the statements made in this description. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences described herein.
YOU ARE URGED TO CONSULT WITH YOUR OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO YOU OF THE DISTRIBUTION OF OUR SHARES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN TAX LAWS, AND OF CHANGE
IN THE APPLICABLE LAWS.
FEDERAL INCOME TAX CONSEQUENCES TO SHAREHOLDERS
Posh has not requested nor does it intend to request a ruling from the
Internal Revenue Service as to the federal income tax consequences of the
distribution. However, based on the facts of the proposed transaction, it is the
opinion of management of Posh that the transaction will not qualify as a "tax
free" spin off under Section 355 of the Internal Revenue Code of 1986, as
amended. Rather, Posh will report the transaction as a taxable distribution to
which Section 301 applies.
The amount of the distribution for purposes of Section 301 of the Code is
equal to the fair market value of the shares on the date of the distribution.
Since we are a development stage company and have minimal, if any, operations,
we are not expected to have earnings or profits as of the date of the
distribution. Furthermore, because there is no current public market for our
common stock the fair market value of these shares and hence the amount of the
distribution will probably be minimal on the date of distribution. Our net book
value on the date of the distribution is expected to be approximately $.01 per
share. This is the amount that Posh intends to report as the taxable value of
the distribution.
The distribution should first reduce your adjusted basis in your Posh
common stock, but not below zero. If the amount of the distribution would have
the effect of reducing your adjusted basis below zero, the excess will be
treated as a gain from the sale or exchange of property. If the Posh common
stock is a capital asset in your hands, the gain will be a capital gain, either
long-term or short-term depending on whether you held the Posh common stock for
more than 12 months. The maximum federal income tax rate on long-term capital
gains is 20%, while the maximum federal income tax rate on short-term capital
gains is 39.6%.
Your tax basis in the securities received in the distribution will equal
the fair market value of the shares on the date of the distribution. The holding
period for measuring your gain or loss on a subsequent sale of the shares will
generally begin on the day following the date of the distribution.
The foregoing sets forth the opinion of management of Posh. Posh will
report the amount of the distribution to the Internal Revenue Service based on
our net book value on the date of distribution. The Internal Revenue Service is
not bound thereby and no assurance exists that it will concur with the position
of management regarding the value of the shares or other matters herein
discussed. Specifically, it is possible that the Internal
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Revenue Service may assert that a substantially higher fair market value existed
for the shares on the date of distribution. If the Internal Revenue Service were
to successfully assert that a substantially higher value should be placed on the
amount of the distribution, the taxation of the transaction to Posh and its
stockholders would be based on such higher value. In such event, the tax impact
would increase significantly and would not be minimal. Posh would recognize gain
to the extent the value placed on the amount of the distribution exceeded its
adjusted basis in the stock (which approximates our net book value). You would
be taxed on the amount so determined for the distribution as a dividend to the
extent of any current year or accumulated earnings and profits of Posh and would
recognize gain on the balance of the distribution to the extent it exceeded
their adjusted basis in our shares owned by them.
YOU ARE URGED TO CONSULT WITH YOUR OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO YOU OF THE DISTRIBUTION OF OUR SHARES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF CHANGE
IN THE APPLICABLE LAWS.
USE OF PROCEEDS
We will not receive any proceeds from the distribution of our common stock
to Posh stockholders.
DIVIDEND POLICY
We have not paid any dividends on our common stock and we expect to retain
any future earnings for use in our business. Future dividend policy will be
determined by our board of directors in light of our prevailing financial needs.
CAPITALIZATION
The following table sets forth the capitalization of the company as of
March 31, 1999.
MARCH 31, 1999
Long-term debt $ --
Stockholder's Deficit:
Common Stock, $.001 par value,
30,000,000 shares authorized; 15,603,400
shares issued and outstanding respectively 15,603
Preferred Stock, $.001 par value,
5,000,000 shares authorized,
no shares outstanding --
Retained Earnings --
Additional paid-in capital 837,277
Less: Stock subscription receivable (40,907)
Accumulated deficit (1,621,003)
-----------
Total stockholders' equity (deficit) $ (809,030)
===========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with the financial
statements and notes thereto also contained in this prospectus.
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General
The following analysis compares the financial condition of the company for
the twelve months ended June 30, 1997 and the fiscal year ended June 30, 1998.
Financial information for the twelve months ended June 30, 1997 reflects
combined operations of the company, and its predecessor entity, Posh. The pro
forma unaudited financial statements for the twelve months ended June 30, 1997,
have been prepared by the company and are derived from audited financial
statements included elsewhere in this prospectus. The company was incorporated
in May 1997. On June 14, 1997, the company acquired all of the assets and
liabilities of Posh.
The company recognizes revenue when the product is shipped to the customer.
To date, total product exchanges and cash refunds have been minimal. The company
allows product sold to new customers on their initial order to return any unsold
product. The company provides an allowance for these returns. Total returns for
fiscal 1998 and the twelve months ended June 30, 1997 amounted to less than 5.2%
and 6.4%, respectively.
For the fiscal year ended June 30, 1998, Guardian Angel represented 77% and
Posh Wash represented 7% of the company's revenues, respectively. The remaining
16% of revenues were derived from the sale of sales and marketing materials to
distributors. For the twelve months ended June 30, 1997, Guardian Angel
represented 82% and Posh Wash represented 18% of the company's revenues,
respectively.
RESULTS OF OPERATIONS
Results of operations for the nine months ended March 31, 1999, compared
with the results of operations for the nine month period ended March 31, 1998.
Revenues decreased from $151,449 for the nine months ended March 31, 1998
to $29,364 for the nine month period ended March 31, 1999. The decrease of
$122,085 or 515% was attributed to a decrease in sales.
Costs of good sold decreased from $82,676 for the nine months ended March
31, 1998 to $9,410 for the nine month period ended March 31, 1999. The decrease
of $73,266 or 776% was attributed to a decrease in sales.
Selling expenses decreased from $164,405 for the nine months ended March
31, 1998 to $59,671 for the nine month period ended March 31, 1999. The decrease
of $104,734 or 275% was attributed to a decrease in sales.
General and administrative expenses increased from $263,108 for the nine
months ended March 31, 1998 to $273,614 for the nine month period ended March
31, 1999, an increase of $10,506 of 4%.
The company had a net loss of $376,514 for the nine months ended March 31,
1998 compared to a net loss of $331,681 for the nine month period ended March
31, 1999.
Net loss per share of common stock was $.01 for the nine months ended March
31, 1998 as compared to a net loss per share of $.01 for the nine months ended
March 31, 1999.
Results of operations for the twelve months ended June 30, 1997, compared
with the results of operations for the fiscal year ended June 30, 1998.
Revenues decreased from $532,335 for the twelve months ended June 30, 1997,
to $201,932 for the fiscal year ended June 30, 1998. The decrease of $330,403 or
62% was primarily due to changes in the company's marketing strategy.
Costs of goods sold for the twelve months ended June 30, 1997 were $105,797
compared with $110,235 for the fiscal year ended June 30, 1998, resulting in
gross profits of $428,539 and $91,697, respectively. The company's gross margin
as a percentage of sales decreased from 80.5% for the twelve months ended June
30, 1997, compared to 45.4% for the fiscal year ended June 30, 1998. The
decrease in the gross profit percentage reflects a reduced margin received on a
large quantity bulk sale made during the year and the write-off of obsolete
inventory. Historically, the company has not incurred a material amount (both in
product and dollar amounts) of returns.
Selling expenses decreased from $346,985, for the twelve months ended June
30, 1997, to $219,206 for the fiscal year ended June 30, 1998. The decrease of
$127,779 or 36.8% primarily reflects the revised marketing plan and curtailing
marketing activities involved with the company's previous business plan.
General and administrative expenses decreased from $471,508 for the twelve
months ended June 30, 1997, to
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$350,810 for the fiscal year ended June 30, 1998. The decrease in general and
administrative expenses of $120,698 or 25.6% primarily reflects the reduced
overhead required by the company's business plan.
The company had a net loss of $408,917 for the twelve months ended June 30,
1997, compared with a net loss of $442,549 for the fiscal year ended June 30,
1998. The company expects to incur additional losses for the remainder of the
fiscal year and management does not believe that the company will achieve
profitability until such time as it develops additional markets for the Guardian
Angel and Posh Wash products and gains broader market acceptance in its existing
markets. The increased net loss of $33,632 or 8.2% was principally due to the
decrease in revenues.
Net loss per share of common stock was approximately $(.03) for both the
fiscal year ended June 30, 1998, and the twelve months ended June 30, 1997.
The company may in the future experience significant fluctuations in its
results of operations. Such fluctuations may result in volatility in the price
and/or value of the company's common stock if any market develops. Results of
operations may fluctuate as a result of a variety of factors, including the
introduction of new products and services, the timing of significant marketing
programs, the number and timing of the hiring of additional personnel,
competitive conditions in the industry and general economic conditions.
Shortfalls in revenues may adversely and disproportionately affect the company's
results of operations because a high percentage of the company's operating
expenses are relatively fixed. Accordingly, the company believes that period to
period comparisons of results of operations should not be relied upon as an
indication of future results of operations. There can be no assurance that the
company will be profitable. Due to the foregoing factors, it is likely that in
one or more future periods the company's operating results will be below the
expectations of stockholders.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the company's primary source of liquidity was $91,087
of cash, $35,000 of stock subscriptions receivable and $70,886 of inventory. The
company's working capital deficit and stockholders' deficit were $894,042 and
$809,030, respectfully, as of March 31, 1999.
Net cash used by operating activities during the fiscal year ending
June 30, 1998 was $291,029 compared with $402,085 for the twelve months ended
June 30, 1997. Net cash provided by financing activities was $343,443 for the
fiscal year ended June 30, 1998, compared with $332,085 for the twelve months
ended June 30, 1997. The company expects to continue to incur negative cash
flows from operations and will likely need to fund this shortfall with proceeds
from debt, royalty agreements or sales of equity.
The company has financed its growth primarily through royalty arrangements
with various investors and borrowings from Flair Image and an unaffiliated third
party. In May 1998, the company borrowed $188,889 from an unaffiliated third
party pursuant to a one-year note bearing interest at 7.5% per annum, which one-
year note has been extended to May 2000. In May 1998, the company borrowed
$50,000 from Southwest Bank of Texas against an unsecured line of credit bearing
interest at 8.5%. At June 30, 1998, the balance due was $49,805. In addition, in
May 1998, the company borrowed $35,280 from Southwest Bank of Texas bearing
interest at 9.5% per annum. The company repaid this debt in August 1998. In
December 1996, 1,250,000 shares of Posh common stock were sold in a capital
raising transaction for $436,000. During 1997, $176,000 from the capital raising
transaction above had been received in cash and $260,000 remained in notes
receivable. As of June 30, 1998, $200,000 remained outstanding. Subsequent to
June 30, 1998, the company received 400,000 shares of common stock of Titan
Resources, Inc., as partial payment of the stock subscription receivable. On the
day of the transfer, the stock was valued at $.359 per share, or $143,600. In
October 1995, the company's note payable to affiliates, which amounted to
$236,544 at June 30, 1998, was acquired by two stockholders of such affiliates
and acquired by the company in exchange for common stock and the company also
reduced its liability for future royalties by $136,250 by issuing 61,250 shares
of common stock and a warrant to acquire 150,000 shares of common stock at $.50
per share, which warrant was subsequently terminated. Management's goal is not
to incur additional royalties in future periods. As of March 31, 1999, the Titan
stock had been sold for $84,092.98 and an additional $40,000 had been paid on
the stock subscription receivable. This left a balance on the stock subscription
receivable of $75,907.02. Of the $75,90712, $35,000 was collected as of May 12,
1999. Subsequent to March 31, 1999, the company increased its line of credit
with Southwest Bank of Texas another $100,000. As of March 31, 1999, the
company's sources of internal and external financing were limited. Cash flow
problems could be created in the event payments from retailers are delayed, for
any reason, which could delay payments made to suppliers that could cause credit
problems with suppliers. It is not expected that internal sources of liquidity
will improve until net cash is provided by operating activities and until such
time, the company will rely upon external sources for liquidity. There can be
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no assurance that the company will be able to obtain any additional financing on
reasonable terms, if at all. The company utilizes approximately $15,000 per
month in operations. The company believes that revenues, the repayment of debt
and a line of credit with Southwest Bank of Texas will provide adequate
liquidity to meet the company's capital requirements for the next seven months.
Lower than expected revenues resulting from adverse economic conditions or
otherwise, unforeseen costs in entering new markets, insufficient market
penetration to support general and administrative costs (including advertising)
and any new product introductions could restrict the company's ability to expand
its business plan, and, if severe enough, may shorten the period during which
the available cash may be expected to satisfy the company's capital
requirements. As of March 31, 1999, the company had no material capital
commitments.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The company's board of directors has established a committee to initiate
formal communications with its subcontractors to determine the extent to which
the company's operations are vulnerable to those third parties' failure to
remediate their own Year 2000 Issues. There can be no guarantee that the systems
of other companies on which the company's operations rely will be timely
converted and would not have an adverse effect on the company's operations. Any
year 2000 compliance problems of the company could have a material adverse
effect on the company's business, results of operations and financial condition.
BUSINESS
THE COMPANY
In October 1995, Posh was incorporated as a Texas corporation and acquired
all of the outstanding partnership interests in Posh Wash G.P, owned by Mr.
Pearce, Metro Publications and Messrs. Shriver and Hindle (Flair Image
transferred its Posh Wash G.P. partnership interest to Messrs. Shriver and
Hindle in October 1995), and from October 1995, to June 1997 all business had
been conducted through Posh. The company was incorporated in May 1997, as a
wholly owned subsidiary of Posh and in June 1997, all of the assets and
liabilities of Posh were assigned to the company in exchange for 15,603,400
shares of company common stock. Concurrently therewith, the board of directors
of Posh established a record date of June 11, 1997, to distribute all of the
issued and outstanding stock of the company to the Posh stockholders. The
historical management of Posh has assumed management of the company. The
directors and officers of Posh are different and unrelated to the officers and
directors of the company. Posh is in the business of manufacturing marbles and
collectibles. Posh's fiscal year was September 30 and the company adopted a
fiscal year in 1997 of June 30.
INDUSTRY BACKGROUND
In 1998, Automotive Marketing, a predominant trade magazine reported that
30% of do-it-yourselfers bought oil treatment products and 26% bought appearance
products. Management believes this amount is expected to increase as the average
automobile age (currently 7.9 years) continues to increase due to the rising
cost of new automobiles, and as car owners search for more ways to maintain the
"new" appearance of older cars. The study distributed in April 1998 by
Automotive Marketing, found that 66% of respondents were light do-it-yourselfers
who at least washed and waxed their automobiles. Of the total do-it-yourselfers,
only 55% bought auto supplies in auto parts stores, and management believes that
this percentage has been steadily decreasing. Other retail outlets where
chemical automotive appearance products are purchased include grocery stores,
mass merchandisers, service stations, and auto detail shops. This study found
that female do-it-yourselfers were becoming an important part of the market
segment that purchases automotive maintenance products.
PRODUCTS
Our strategy is to develop and market automotive care products that
management believes have a potential for consumer application.
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Guardian Angel
Currently, we market and distribute Guardian Angel, a two-step automotive
engine treatment. During the fiscal year ended June 30, 1998, we distributed
14,849 bottles of Guardian Angel. The average wholesale price for a two-step
package of Guardian Angel is $22.95 and the suggested retail price is $29.95.
Management believes that Guardian Angel is a technologically advanced engine
treatment product and is unique, as compared to traditional automotive engine
treatments or oil additives. Guardian Angel is manufactured using a proprietary
formula that has been tested by QC Laboratories, Inc. to demonstrate how
Guardian Angel penetrates case hardness and treats metal. Management believes
Guardian Angel is not a typical solid-particulate-based engine treatment that
coats the metal with Teflon, graphite, or other solid friction reducing agents.
Guardian Angel is a concentrated proprietary formula that protects car and truck
engines from excessive wear caused by the high temperatures of normal operation.
Guardian Angel Engine Treatment and Guardian Angel Power Booster Treatment
contain polarized liquid polymer molecules that penetrate and bond with your
car's engine, creating a heat-transfer mechanism that eliminates damaging heat
buildup and friction wear.
Guardian Angel has been tested by numerous companies and laboratories under
the manufacturer's product name X-1R. Based on copies of independent test
reports received by management, we believe Guardian Angel offers advantages over
other engine treatments.
Since the 1970's, producers of polytetrafluoroethylene ("PFTE") engine
treatment formulas have successfully educated the consumer regarding the need to
reduce engine friction. Most competitive engine treatment formulas contain PFTE,
popularly known as Teflon, which is a slippery solid substance. PFTE engine
treatment formulas claim to reduce metal-to-metal grinding of moving engine
parts during start-up which is when management estimates that significant engine
wear occurs. Based on studies reported in Lubrication World, we estimate that
the annual market for engine treatment products is approximately $150 million.
The first function of lubrication is to establish a film thick enough and
strong enough to prevent metal-to-metal contact, and therefore reduce wear.
Unlike oil or other engine lubrication additives, Guardian Angel is not a
coating or film. Independent testing has demonstrated that Guardian Angel
actually impregnates itself in the metal and magnetically bonds to the critical
"high" points of an engine where "boundary lubrication" exists. This liquid
polarized molecule permanently sets up a safety barrier of molecule-to-molecule
contact instead of metal-to-metal contact. Guardian Angel impregnates itself
into the metal increasing the density which results in:
. Guardian Angel Engine Lubrication and Power Booster improving engine
protection;
. Guardian Angel exhibiting better unlubricated wear resistance with its
molecular bond;
. Guardian Angel creating a slippery surface that reduces the damaging
effects of friction; and
. Guardian Angel transferring heat away from the engine "hot spots."
The second function of lubrication is to reduce friction. Even where full
film lubrication is present, force is required to move parts over one another
and overcome the viscosity effect of the lubricant. Also, when the lubricant
becomes contaminated with soot, dirt, and sludge, the viscosity is increased,
and therefore friction and drag is increased. Guardian Angel reduces this
friction in two ways:
. millions of elongated liquid polarized polymer molecules complete the
circuit of thermal cycling and effectively carry away friction heat, even
in dirty oil; and
. the use of Guardian Angel treats the metal and reduces contamination of
oil.
This is especially true of sludge and metal particles caused by "Boundary
Lubrication" and metal-to-metal wearing.
The third function of lubrication is to keep engine interiors clean and
protect against rust and corrosion, oil contamination, dirt, dust, metal
particles, carbon, water, acids and unburned gasoline. Guardian Angel Engine
Protectant and Guardian Angel Power Booster along with high grade motor oil or
synthetic oil contain:
. additives which inhibit rust and corrosion caused by water condensation;
. detergent/dispersing agents which prevent the formation of sludge and
varnish; and
. neutralizing acids which retard the oxidation of the oil at high
temperatures.
Because of the lubricating qualities of Guardian Angel, contamination of
the oil is significantly decreased to the extent the additives in the lubricant
function longer and allow longer intervals between oil changes. For proper
lubrication, some oil must reach the area of the top piston ring in order to
lubricate both the rings and the cylinder walls. This oil is exposed to the
combustion of the fuel, therefore some of it is actually burned off. When
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this burning is excessive, black smoke is emitted from exhaust, oil consumption
is excessive, and heavy carbon deposits are accumulated in the combustion
chamber and on the spark plugs. Guardian Angel lubrication keeps the piston
rings free and minimizes the amount of oil that is burned in the combustion
chamber. This reduces oil consumption and pollution. Guardian Angel lubrication
minimizes carbon deposits in the combustion chamber and on the spark plugs
increasing efficiency and horsepower. Increased efficiency also increases fuel
economy and reduces exhaust emissions.
The fourth function of lubrication is to permit starting and allow prompt
circulation. It is important to use lubrication which insures satisfactory
cranking, proper circulation, and high temperature protection. Guardian Angel
provides a safety factor for engine cranking before oil is circulated, and while
engine surfaces are dry. The friction-reducing properties of Guardian Angel
increases the cranking speed, and decreases the amperage drain on the battery.
Engines start quickly even in extremely cold temperatures with minimal engine
wear. Guardian Angel does not change the oil viscosity and management believes
it is suitable for use with all premium and synthetic motor oils.
The fifth function of lubrication is to cool engine parts. The use of
Guardian Angel aids engine cooling by:
. immediately transferring heat away from engine parts allowing the oil to
transfer the heat back to the oil crank case;
. reducing friction and decreasing water temperature aiding upper engine
cooling;
. reducing friction and decreasing oil temperature aiding lower engine
cooling; and
. helping keep oil passages clear of sludge deposits and contaminants so
oil can circulate and cool properly.
The sixth function of lubrication is to seal combustion pressures. The
surfaces of the piston rings, ring grooves and cylinder walls are not completely
smooth. When seen under a microscope these surfaces consist of little hills and
valleys. Because of the hills and valleys, the rings cannot completely prevent
high combustion compression and pressure from escaping into the low pressure
area of the crankcase which wastes horsepower and reduces efficiency. Guardian
Angel impregnates into the metal increasing the density by filling in these
hills and valleys increasing cylinder compression and horsepower. Management
believes that with the use of Guardian Angel, the consumer's automobile will
last longer, run smoother, use less gasoline, cost less to maintain and reduce
the possibility of roadside breakdowns. Management believes that Guardian Angel
offers the following advantages:
. Ease of Use - No special tools or equipment are needed. The consumer simply
adds Guardian Angel Engine Protection to the crankcase of their automobile.
The consumer adds Guardian Angel Power Booster oil treatment after their
next regularly scheduled oil-change for optimum performance.
. Improved Performance - Guardian Angel provides the consumer with (1)
increased gas mileage, (2) increased horsepower, (3) increased compression,
(4) improved lubrication, (5) reduced wear and down-time, (6) reduced oil
consumption, (7) reduced friction and drag reduced operating temperatures,
and (8) reduced emissions.
Posh Wash
We market and distribute Posh Wash, a one-step automotive care cream.
During the fiscal year ended June 30, 1998 we distributed 825 bottles of Posh
Wash. The average wholesale price for a 16 oz. bottle of Posh Wash, including
applicator sponge, is $15.16 and the suggested retail price is $19.95.
Management believes that Posh Wash is a technologically advanced car care
product and is unique from traditional automotive washes and waxes as it does
not contain harsh cleaning agents, phosphates, and solvents which can be
abrasive to automobile surfaces. Posh Wash is a car care cream containing
special wetting agents and emulsifiers which, when applied with the applicator
sponge, emulsifies with the surface soils and holds them in suspension and
prevents surface abrasion. Furthermore, Posh Wash leaves a wax-like shine but
does not remove paint as does typical automotive waxes. Accordingly, management
believes Posh Wash replaces the need to utilize several automotive chemical
appearance products, including washes, waxes, polishes, protectants, degreasers
and glass/chrome/leather cleaners, to achieve a similar result.
Management believes that Posh Wash has numerous benefits over traditional
car care products as it can be utilized to:
(1) clean exposed materials including:
. paint,
. glass,
. wood,
. leather,
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. vinyl,
. plastic,
. upholstery,
. rubber,
. clear coats, and
. chrome;
(2) remove (and protect against);
. road grime,
. tar,
. corrosive chemicals,
. bird droppings, and
. bug residue;
(3) dry without streaks or water spots; and
(4) protect an automobile with two sunscreens.
Posh Wash provides a protective wax-like finish at the same time as the car is
washed, without buffing, and without leaving a residue build-up. Management
believes Posh Wash eliminates the need to use:
. removers,
. washes,
. rinses,
. waxes,
. polishes, and
. conditioners.
Moreover, management believes that Posh Wash is environmentally safe as it
contains no petroleum distillates and it is unique in the way it works because
it is a chemical automotive appearance product that breaks the cycle of washing
and waxing which, over time, removes the automobile's paint with each use.
Other Products
Our long-term strategy is to introduce new products to our independent
representatives as a means of expanding our product base. At this time, we are
evaluating several test products which are non-exclusive products being marketed
and distributed by other companies. We have not made a final determination
whether these products will be profitable to us for distribution. We can
provide no assurance that we will market or distribute these products, or if
such marketing or distribution occurs that we will be successful in our efforts.
Production, Storage, Handling and Shipping
We subcontract all manufacturing and packaging of Guardian Angel and Posh
Wash. We purchase the Guardian Angel formula from Sun Coast Chemicals of
Daytona, Inc. who manufactures Guardian Angel on an order-by-order basis. Sun
Coast is a manufacturing company that manufactures various lubrication products.
Sun Coast manufactures the Guardian Angel formula at its location and bottles
Guardian Angel in 8 oz. bottles.
We are the non-exclusive distributor of the formula for Guardian Angel
throughout the continental United States and the entire foreign market. The unit
cost to us of an 8 oz. bottle of Guardian Angel ranges from $2.24 to $1.91
depending upon the amount ordered. We do not have any sales quota or minimum
purchase agreements.
We purchase the Posh Wash formula from Mr. Robert Tisman who, in turn,
subcontracts the manufacturing of Posh Wash to J. F. Daley, Inc. on an order-by-
order basis. Daley is a manufacturing company that manufactures various creams,
shampoos, and make-up and has three manufacturing facilities located in
Missouri, Illinois and California. Management believes that the current
facilities of Daley can accommodate the growth plan of the company, and if not,
that there are other companies similar to Daley that could manufacture Posh Wash
in the event the relationship with Daley was terminated. Daley manufactures the
Posh Wash formula at its California location and bottles Posh Wash in a 16 oz.,
silk-screened, two-color bottle with flip cap.
Mr. Tisman entered into a product supplier agreement with Flair Image, Inc.
which was assigned to Posh Wash G.P. in October 1995 which was subsequently
assigned to Posh in November 1995. The product supplier agreement between the
company and Mr. Tisman automatically renewed through January 2003. Pursuant to
the
16
<PAGE>
agreement, we are the non-exclusive distributor of the Posh Wash formula
throughout the continental United States and the entire foreign market. The unit
cost to the company of a 16 oz., silk-screened, two-color bottle with flip cap,
Posh Wash packed, ranges from $1.81 to $1.49 depending upon the amount ordered.
We do not have any sales quota or minimum purchase agreements. We have agreed to
pay Mr. Tisman a sales commission of 2-1/2% of the current retail price of each
Posh Wash sold, based initially upon a sales price of $19.95, with a mutually
agreed upon bonus arrangement to be negotiated between the parties when retail
sales reach $250,000 per month, $500,000 per month, and $1,000,000 per month.
After the product is supplied by Daley and Sun Coast, each bottle is
packaged in appropriate containers. Each bottle of Guardian Angel is packaged in
a customized box that contains one 8 oz. bottle of step 1 Guardian Angel Engine
Treatment and one 8 oz. bottle of step 2 Guardian Angel Power Booster. Each
bottle of Posh Wash along with an applicator sponge is packaged into a 4" x 8-
1/4" x 4" box. We subcontract the manufacture of the Posh Wash applicator sponge
to Armaly Brands, the manufacture of the Posh Wash box to Carton Sales Company,
Inc., the manufacture of the Guardian Angel box to Frankston Admiral, Inc., and
the packaging of Guardian Angel and Posh Wash to Nightingale Rehabilitation,
Inc. Completed product is warehoused at Nightingale which is located in Houston,
Texas. Nightingale is currently charging us $90 per month for storage and
handling. We do not have written contracts with any of these subcontractors
other than current purchase orders. Management believes that there exists other
subcontractors that could provide the necessary services if any current
subcontractor terminates its relationship with the company.
We are responsible for all shipping costs between manufacturers and
Nightingale. In addition, we are responsible for all shipping costs from
Nightingale's warehouse to independent distributors and other retailers. We
utilize various national trucking lines and United Parcel Service for all of our
shipping requirements, excluding deliveries in the Houston metropolitan area
that are handled by a local delivery company.
MARKETING
Strategy
We had approximately 367 independent representatives participating in our
sales program generating product sales from their home-based business. During
the next year, we plan to utilize infomercials to create a market presence for
Guardian Angel. Management believes that the power of person-to-person selling
and use of direct response television will increase sales to sufficient levels
to maintain our future operations.
Marketing Techniques
Management believes person-to-person sales of our products are successful
because of the benefits provided by the products. However, equally important to
representatives is our compensation plan. We utilize a seven level payment plan
that all representatives participate in once they make an initial purchase of
our products. Commissions are paid through our seven-level Unilateral Commission
Plan. Representatives earn money by retailing our products, wholesaling our
products, and by recruiting, training, and motivating others to sell and
recruit.
Using the experience of a Hollywood, California production company, we
contracted for and completed the production of a 30-minute infomercial with
Warren Chaney Productions, Inc. Beginning in the third quarter of 1999, we
expect to introduce Guardian Angel by purchasing media time on selected cable
stations in areas where we have independent representatives. We believe the sale
of Guardian Angel by direct response television will also produce potential
independent representatives. In addition, management expects media advertising
to promote name recognition for independent representatives, thereby increasing
independent representative person-to-person sales. Purchasers will buy the
product and receive information on marketing along with their product.
Another important element in our marketing strategy is to keep the retail
price of Guardian Angel and Posh Wash low. The company prices Guardian Angel and
Posh Wash at a suggested retail price point that we believe is affordable to a
large percentage of the population. To date, our returns of product from
retailers has been insignificant.
DISTRIBUTION
Our strategy is to expand and diversify our customer and distribution base.
We have been and continue to be dependent on independent representatives to sell
our products in accordance with the marketing program. Moreover, we have
produced a 30-minute television infomercial to use in selected cable television
media markets to
17
<PAGE>
sell Guardian Angel. In addition to selling products through television 1-800
direct sales, new independent representatives will be developed through a
presentation of the marketing program when they receive the product. For the
fiscal year ending June 30, 1998, our sales of Guardian Angel and Posh Wash to
independent representatives represented 84% of our total revenue. We expect the
dollar amount of our total sales to independent representatives to increase
because satisfied customers earn commissions when recommending the purchase of
our products to new customers. Since independent representatives earn
commissions from retailing products, wholesaling products or recruiting other
representatives that sell our products, we expect to continue to expand sales
revenue of products sold through independent representatives. Independent
representatives buy products at wholesale prices and pay us in advance for all
products ordered. In addition, we believe revenues from products sold will
increase from direct response sales generated from the television infomercial.
COMMISSIONS
Commissions are paid by us based on a seven-level Unilateral Commission
Plan. When a representative sells our products and the customer decides to also
become a representative, the new representative is placed on the original
representatives first level of our seven-level commission plan. The original
representative earns commissions on all repeat sales of all first level
representatives and their entire downline of representatives through seven
levels as long as they continue to train and motivate their sales organization
to build a clientele of retail customers who order a minimum of $50 wholesale
volume per month. Commissions are:
1st 2nd 3rd 4th 5th 6th 7th
Product Level Level Level Level Level Level Level
- ------- ----- ----- ----- ----- ----- ----- -----
Guardian Angel 10% 5% 5% 20% 5% 5% 5%
Posh Wash 10% 5% 5% 10% 5% 5% 5%
In addition to traditional channels of network marketing distribution, we
believe that Guardian Angel and Posh Wash can be sold through a variety of other
distribution channels such as mail order, direct response advertising, and home
shopping networks. Management will continue to pursue all networks of
distributing Guardian Angel and Posh Wash in order to promote its product.
ROYALTIES
We have entered into several agreements to pay royalties in exchange for
capital investments and advertising contributions. The agreements provide for
the company to pay royalties to investors based on, but not limited to, the
number of bottles of Posh Wash sold per month based on the wholesale price, the
percentage of international licensing fees received, and percentages of income
earned from the sale of other automotive products. Based on our existing product
line and geographic distribution, we currently pay the following royalties: (1)
2.5% of the retail price of Posh Wash, currently $19.95, to Mr. Tisman; (2) a
$1.00 per bottle royalty on all sales of Posh Wash to Thurman Thomas
Investments; (3) a $.1482 per bottle royalty on all sales of Posh Wash in the
United States until sales reach 700,000 bottles, then a $.1482 per bottle
royalty on all sales of Posh Wash in the United States over 10,000 bottles per
month thereafter, and a 1.48% royalty of all gross international sales of Posh
Wash to six unaffiliated investors - Allen J. Becker, Jeffrey D. Friedman, Mark
A. Kaufman, James A. Friedman, Linscomb & Williams Investment Partnership and
Window Communications Corporation; and (4) a $.50 per bottle royalty on all
sales of Posh Wash over 12,000 bottles per month and a $1.00 per bottle royalty
on all sales of Posh Wash over 20,000 bottles per month to Sunbelt Broadcasting
II, L.P. until such royalties total $300,000. Our strategy is to minimize any
future royalty payments.
COMPETITION IN THE AUTOMOTIVE PRODUCTS INDUSTRY
The automotive products aftermarket is a highly fragmented and competitive
industry. Guardian Angel and Posh Wash compete with numerous other car wash and
engine treatment products, several of which are a part of a range of automotive
products marketed under a common trade name. While management does not believe
that competitors are distributing a product based upon Sun Coast's or Mr.
Tisman's formulas, there can be no assurance that this will not occur in the
future. Companies that market such products have significantly greater financial
resources than the company. The primary competitive factors in the automotive
aftermarket are:
. brand-name recognition,
. product quality,
18
<PAGE>
. ease of use,
. channels of distribution,
. space, and
. perceived price/value relationship.
There can be no assurance that we will be able to successfully compete in this
highly competitive marketplace.
PATENTS AND TRADEMARKS
Neither the company, Mr. Tisman nor Sun Coast has applied for any patents
covering the formula used in Posh Wash or Guardian Angel. We have obtained
federal trademark registration on the "Posh Wash" brand name and have applied
for trademark registration on the "Guardian Angel" brand name.
PERSONNEL
As of June 9, 1999, we had three salaried employees and approximately 367
independent representatives who are compensated on a commission basis. We also
employ additional office personnel on a temporary basis. None of our employees
are represented by labor unions. We believe our employee relations are good.
FACILITIES
Our corporate headquarters consists of 2,500 square feet of leased space in
Houston, Texas. These premises are utilized by members of senior management and
accounting personnel. We sublease our space from an unaffiliated third party
under an oral agreement for a base rent of $1,325 per month which management
believes to be competitive with market prices. We share our space with the
unrelated third party.
LEGAL PROCEEDINGS
As of the date of this prospectus, there are no legal proceedings pending
or, to our knowledge, threatened against us or to which we are a party.
AVAILABLE INFORMATION
The SEC maintains a web site on the Internet that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the SEC. The address of the site is http:\\www.sec.gov.
Visitors to the site may access such information by searching the EDGAR data
base on the site.
Prior to the date of this prospectus, we were not subject to the
information and reporting requirements of the Securities Act. As a result of
this registration statement becoming effective, we will become subject to such
requirements and, in accordance therewith, we will file periodic reports, proxy
materials and other information with the SEC. We will provide our stockholders
with annual reports containing audited financial statements and, if determined
to be feasible, quarterly reports for the first three quarters of each fiscal
year containing unaudited financial information. We have filed a registration
statement of Form SB-2 under the Securities Act, with respect to the securities
being registered. This prospectus does not contain all the information set forth
in the registration statement and the exhibits and schedules thereto, to which
reference is hereby made. Copies of the registration statement and its exhibits
are on file at the offices of the SEC and may be obtained upon payment of the
fees prescribed by the SEC or may be examined, without charge, at the public
reference facilities of the SEC, 450 Fifth Street, Northwest, Washington D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. We will provide without
charge to each person who receives a copy of the prospectus, upon written or
oral request of such person, a copy of any of the information that is
incorporated by reference in this prospectus (not including exhibits to the
information that is incorporated by reference unless the exhibits are themselves
specifically incorporated by reference). Such request should be directed to the
company, Attention: Mr. Frederic G. Hindle, 10696 Haddington, Suite 117,
Houston, Texas 77043.
19
<PAGE>
MANAGEMENT
The executive officers and directors of the company are as follows:
NAME AGE POSITION
---- --- --------
Donald L. Shriver 65 Chairman of the Board
Frederic G. Hindle 53 President, Director and Chief Executive Officer
Donald L. Shriver, Jr. 37 Secretary and Director
Denny C. Pearce 61 Director
Grady Cavness, Sr. 51 Director
DONALD L. SHRIVER has served as chairman of the board of the company since
inception. Mr. Shriver served as chairman of the board of Posh from October 1995
to June 1997. Mr. Shriver served as chief executive officer of Flair Image from
its inception in September 1991. Flair Image served as managing partner of Posh
Wash G.P. since the partnership was formed in June 1994. Mr. Shriver co-founded
Petrolon, Inc. in 1978, which, under his leadership as president, became one of
the leading automotive aftermarket corporations in the world through the sale of
the "Slick 50" product line of engine treatment products. Mr. Shriver sold his
interest in Petrolon, Inc. in March 1991, and in July 1995, Petrolon, Inc. was
acquired by the Quaker State Corporation. Mr. Shriver received a Bachelor of
Arts degree from Texas Christian University.
FREDERIC G. HINDLE has served as president and a director of the company
since inception. Mr. Hindle served as president of Posh from October 1995 to
June 1997. Mr. Hindle has served as an executive officer of Flair Image since
August 1993. From 1982 until August 1993, Mr. Hindle was an executive officer
with Investment Realty company ("IVC"), a real estate brokerage and development
company located in Houston that Mr. Hindle founded in 1982. At IVC, Mr. Hindle
was responsible for the day-to-day operations of the business which was involved
in the development of a variety of real estate projects ranging from $1 to $10
million. Mr. Hindle received a Bachelor of Science in Engineering from the
University of Florida.
DONALD L. SHRIVER, JR. has served as secretary and a director of the
company since inception. Mr. Shriver, Jr. served as secretary and a director of
Posh from October 1995 to June 1997. Mr. Shriver, Jr. has served as operations
manager of Flair Image since its inception in September 1991. Mr. Shriver, Jr.
served as communications director of Entourage International, Inc., a direct
sales company from 1986 to 1990. Mr. Shriver, Jr. has over nine years experience
in computer desktop publishing and graphic design. Mr. Shriver, Jr. received a
Bachelor of Arts degree from Houston Baptist University.
DENNY C. PEARCE has served as a director of the company since inception.
Mr. Pearce served as director with Posh from October 1995 to June 1997. From
1978 to April 1995, Mr. Pearce owned and operated Tech-Weld Inc., a welding
supply company he founded. In April 1995, Mr. Pearce sold Tech-Weld and since
that date has owned and operated NPI Systems, Inc., a nut and bolt supply
company.
GRADY CAVNESS, SR. has served as a director of the company since inception.
Mr. Cavness served as director with Posh from October 1995 to June 1997. Mr.
Cavness has served for 17 years as area manager for Stesani Distributing Co.,
Coors Products. Mr. Cavness has served as Thurman Thomas' business manager since
1990 and the president of Thurman Thomas Investments, Inc. since June 1994. Mr.
Cavness received his Bachelor of Business Administration degree from the
University of Texas at El Paso.
Directors are elected annually and hold office until the next annual
meeting of the stockholders of the company and until their successors are
elected and qualified. The board has not established any committees. Officers
are elected annually and serve at the discretion of the board of directors.
Donald L. Shriver, Jr. is the son of Donald L. Shriver. There are no other
family relationships between or among any of the directors and executive
officers of the company. No compensation is paid to any director in any such
capacity other than reimbursement of out-of-pocket expenses to attend Board
meetings.
20
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the chief
executive officer of the company. No other executive officer has received in
excess of $100,000 in compensation during the last three fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
<S> <C> <C> <C> <C> <C> <C>
ANNUAL COMPENSATION
-------------------
Long-Term
Name and Principal Fiscal Other Annual Compensation All Other
Position Year Salary/(1)/ Bonus Compensation/(2)/ Option Compensation
- ----------------------------- ---- ---------- ----- ----------------- ------------ ------------
Frederic G. Hindle, President 1998 $64,000/(3)/
and Chief Executive Officer 1997 $60,000/(4)/
1996 $60,000/(5)/ $4,468/(6)/
</TABLE>
________________
(1) Compensation received in the form of a management fee.
(2) The named executive officer did not receive prerequisites or other benefits
valued in excess of 10% of the total reported annual fees and bonus.
(3) $30,000 has not been paid to date and is currently being accrued.
(4) $42,000 has not been paid to date and is currently being accrued.
(5) $10,000 has not been paid to date and is currently being accrued.
(6) Consists of incentive compensation.
EMPLOYMENT AND CONSULTING AGREEMENTS
In October 1995, Mr. Hindle entered into a 10-year employment agreement
with Posh that was assumed by the company that provided for a monthly management
fee of $5,000 plus sales incentive compensation ranging from 3%-5% of the
wholesale price of each bottle of Guardian Angel and Posh Wash sold plus
identical incentive compensation for each additional product sold by the
company. In October 1998, the company entered into an amended and restated
employment agreement with Mr. Hindle that expires in October 2008 which provides
for a minimum management fee of $7,000 per month plus incentive compensation as
described above. If Mr. Hindle is constructively terminated, as that term is
defined in the amended and restated employment agreement attached hereto as
Exhibit 10.3(2), Mr. Hindle will receive incentive compensation for the entire
term of the employment agreement plus the greater of one year of base
compensation or the remaining base compensation that would have been paid
pursuant to the employment agreement. In October 1995, Mr. Shriver entered into
a 10-year consulting agreement with Posh that was assumed by the company that
provides for a monthly fee of $5,000 plus sales incentive compensation ranging
from 3%-5% of the wholesale price of each bottle of Guardian Angel and Posh Wash
sold plus identical incentive compensation for each additional product sold by
the company. In October 1998, the company entered into an amended and restated
consulting agreement with Mr. Shriver that expires in October 2008 which
provides for a monthly fee of $7,000 and provides for incentive compensation as
described above. Messrs. Hindle and Shriver did not receive incentive
compensation during the twelve months ended June 30, 1997, and the fiscal year
ended June 30, 1998, and no incentive compensation was accrued.
STOCK OPTIONS
In June 1997, the board of directors and majority stockholders adopted a
stock option plan under which 600,000 shares of common stock have been reserved
for issuance. As of the date of this prospectus, no options have been granted
pursuant to such plan and the company has no present plans for the issuance
thereof. The company does not have a defined benefit plan or any retirement or
long-term incentive plans.
21
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information regarding the beneficial
ownership of all shares of the company common stock upon the completion of the
distribution of such shares to Posh stockholders by (i) each person who owns
beneficially more than five percent of the outstanding shares of common stock,
(ii) each director of the company, (iii) each named executive officer, and (iv)
all directors and officers as a group.
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER/(1)(2)/ OWNED PERCENT OF VOTING POWER
- --------------------------------
Frederic G. Hindle............... 4,169,094 26.7%
Donald L. Shriver................ 4,129,094 26.5%
Metro Publications, Inc./(3)/.... 1,440,000 9.2%
Denny C. Pearce.................. 1,119,312 7.2%
Donald L. Shriver, Jr............ 500,000 3.2%
Grady Cavness, Sr./(4)/.......... 122,500 *
All directors and officers
as a group (5 persons)......... 10,040,000 64.3%
- --------------------------
* Less than one percent.
(1) The business address of each individual is the same as the address of the
company's principal executive offices, except for Metro Publications, Inc.
whose business address is 681 Fifth Avenue, 10th Floor, New York, New York
10022, Mr. Pearce whose business address is 6606 N. Gessner, Houston, Texas
77040, and Thurman Thomas Investments, Inc. whose business address is 2506
Robinhood, Houston, Texas 77005.
(2) Unless otherwise noted, each person or entity has sole investment power and
sole voting power over the shares disclosed.
(3) Metro Publications, Inc. is a holding company. Mr. David Saperstein is has
voting control over the shares.
(4) Mr. Cavness is the president of Thurman Thomas Investments which is the
record holder of these shares and, as such, Mr. Cavness has shared
investment power and shared voting power over these shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1997, the company agreed to distribute 15,603,400 shares of its
common stock to Posh in consideration for all the right, title and interest in
and to the assets and liabilities of Posh. Posh agreed to distribute the
company's common stock to the Posh stockholders. The company has not utilized
the services of any promoters, and therefore, has not paid any consideration to
such persons.
DESCRIPTION OF SECURITIES
COMMON STOCK
Our articles of incorporation authorize 30,000,000 shares of common stock,
$.001 par value per share. The holders of common stock are entitled to one vote
per share with respect to all matters required by law to be submitted to
stockholders of the company. The holders of common stock have the sole right to
vote, except as otherwise provided by law or by the company's articles of
incorporation, including provisions governing any preferred stock. The common
stock does not have any cumulative voting, preemptive, subscription or
conversion rights. Election of directors and other general stockholder action
requires the affirmative vote of a majority of shares represented at a meeting
in which a quorum is represented. The outstanding shares of common stock are
validly issued, fully paid and non-assessable.
Subject to the rights of any outstanding shares of preferred stock, the
holders of common stock are entitled to receive dividends when, as and if
declared by the board of directors out of funds legally available therefor. In
the
22
<PAGE>
event of liquidation, dissolution or winding up of the affairs of the company,
the holders of common stock are entitled to share ratably in all assets
remaining available for distribution to them after payment or provision for all
liabilities and any preferential liquidation rights of any preferred stock then
outstanding.
PREFERRED STOCK
The board of directors is authorized to issue up to 5,000,000 shares of
"blank check" preferred stock, par value $.001 per share. The company has no
present plans to issue any shares of preferred stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Registrar and
Transfer Company, Cranford, New Jersey.
EXPERTS
The financial statements for the fiscal year ended June 30, 1998, the
period from June 12 to June 30, 1997, the period from October 1, 1996 to June
11, 1997 and the period from October 9, 1995 to September 30, 1996, included in
this registration statement have been included herein in reliance upon the
report of Null Lairson, P.C., independent accountants, given on the authority of
said firm as experts in auditing and accounting.
LEGAL MATTERS
Certain legal matters relating to the distribution of the shares hereby
will be passed upon by Brewer & Pritchard, P.C., Houston, Texas.
23
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CLASSIC TRENDS INTERNATIONAL, INC.
Nine Months Ended March 31, 1999
Unaudited Balance Sheet................................................ F-2
Unaudited Statement of Income.......................................... F-3
Fiscal Year Ended June 30, 1998 and the period from June 12 to
June 30, 1997
Independent Auditor's Report........................................... F-5
Balance Sheets......................................................... F-6
Statements of Income................................................... F-7
Statement of Changes in Stockholders' Equity........................... F-8
Statements of Cash Flows............................................... F-9
Notes to Financial Statements.......................................... F-10
POSH INTERNATIONAL, INC.
Period from Inception (October 9, 1995) to September 30, 1996 and
the Period from October 1, 1996 to June 11, 1997
Independent Auditors' Report........................................... F-17
Balance Sheet.......................................................... F-18
Statements of Income................................................... F-19
Statements of Changes in Stockholders' Equity.......................... F-20
Statements of Cash Flows............................................... F-21
Notes to Financial Statements.......................................... F-22
PRO FORMA COMBINED FINANCIAL STATEMENTS
Twelve Months Ended June 30, 1997
Management's Report.................................................... F-28
Unaudited Pro Forma Statements of Income............................... F-29
Unaudited Pro Forma Statements of Cash Flows........................... F-30
F-1
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
BALANCE SHEET
MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 91,087 $ 4,212
Investment - 42
Accounts receivable-trade - -
Accounts Receivable-other - -
Stock subscription receivable 35,000 50,000
Inventory 70,886 89,705
----------- -----------
TOTAL CURRENT ASSETS 196,973 143,959
FIXED ASSETS, NET OF ACCUMULATED DEPRECIATION 10,000 20,341
OTHER ASSETS
Goodwill, net of accumulated amortization 72,066 74,066
Organizational Costs, net of accumulated amortization 2,946 4,396
----------- -----------
TOTAL OTHER ASSETS 75,012 78,462
----------- -----------
TOTAL ASSETS $ 281,985 $ 242,762
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and accrued expenses $ 59,227 $ 56,612
Accrued interest payable to a related party 64,320 43,491
Accounts payable to a related party 287,188 180,383
Liability for future royalties 100,786 100,786
Current note payable 342,950 145,352
Notes Payable to a related party 236,544 236,544
----------- -----------
TOTAL CURRENT LIABILITIES 1,091,015 763,168
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.001 par value; 5,000,000
shares authorized, none issued - -
Common Stock, $.001 par value; 30,000,000
shares authorized, 15,603,400 issued 15,603 15,603
Additional paid-in-capital 837,277 837,277
Less: Stock Subscription Receivable (40,907) (150,000)
Deficit accumulated during the development stage (1,621,003) (1,223,286)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (809,030) (520,406)
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 281,985 $ 242,762
=========== ===========
See accompanying notes to financial statements
</TABLE>
F-2
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
STATEMENTS OF INCOME
FOR THE PERIODS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
SALES $ 29,364 $ 151,449
COST OF SALES 9,410 82,676
---------- ----------
GROSS PROFIT 19,954 68,773
OPERATING EXPENSES
Selling Expenses 59,671 164,405
General and administrative expenses 273,614 263,108
---------- ----------
Total Operating Expenses 333,285 427,513
OPERATING LOSS (313,331) (358,740)
NON-OPERATING INCOME (EXPENSE)
Interest Expense (18,350) (17,774)
---------- ----------
NET LOSS $ (331,681) $ (376,514)
========== ==========
Cumulative Revenues since Inception $1,022,386 $ 868,387
========== ==========
Cumulative Expenses since Inception $2,620,047 $1,976,695
========== ==========
Earnings (Loss) Per Share $ (0.01) $ (0.01)
========== ==========
Weighted Average Number of Common
Shares Outstanding 15,603,400 15,603,400
========== ==========
See accompanying notes to financial statements
</TABLE>
F-3
<PAGE>
AUDITED FINANCIAL STATEMENTS
CLASSIC TRENDS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
Houston, Texas
June 30, 1998 and for the Period
June 12 to June 30, 1997
F-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Classic Trends International, Inc.
Houston, Texas
We have audited the accompanying balance sheets of Classic Trends International,
Inc., a Texas Corporation (the Company), for the twelve months ended June 30,
1998, and for the period June 12 to June 30, 1997, and the related statements of
income, changes in stockholders' equity and cash flows for the periods then
ended. These financial statements are the responsibility of the management of
Classic Trends International, Inc. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly in all
material respects, the financial position of Classic Trends International, Inc.
as of June 30, 1998, and for the period June 12 to June 30, 1997, and the
results of its operations and its cash flows for the periods then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's significant operating loss raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Null Lairson, P.C.
Houston, Texas
October 5, 1998
F-5
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
BALANCE SHEET
June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
Assets
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 92,830 $ 40,416
Investment - 42
Accounts receivable-trade - 2,710
Accounts receivable-other 16,812 5,000
Stock subscription receivable 50,000 110,000
Inventory 89,308 143,991
---------------- ----------------
Total Current Assets 248,950 302,159
Fixed assets, net of accumulated depreciation 17,500 28,867
Other Assets
Goodwill, net of accumulated amortization 73,547 75,521
Organizational Costs, net of accumulated amortization 4,343 6,204
---------------- ----------------
Total Other Assets 77,890 81,725
---------------- ----------------
Total Assets $344,340 $412,751
=============== ===============
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 59,398 $ 46,233
Accrued interest payable to a related party 49,696 30,197
Accounts payable to a related party 210,383 92,883
Liability for future royalties 100,786 100,786
Current note payable 273,974 50,000
Notes payable to a related party 236,544 236,544
---------------- ----------------
Total Current Liabilities 930,781 556,643
Shareholders' Equity (Deficit)
Preferred stock, $.001 par value; 5,000,000
shares authorized; none issued - -
Common stock, $.001 par value; 30,000,000
shares authorized; 15,603,400 issued 15,603 15,603
Additional paid-in-capital 837,277 837,277
Less: Stock subscription receivable (150,000) (150,000)
Deficit accumulated during the development stage (1,289,321) (846,772)
---------------- ----------------
Total Shareholders' Equity (Deficit) (586,441) (143,892)
---------------- ----------------
Total Liabilities and Shareholders' Equity $344,340 $412,751
=============== ===============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
STATEMENTS OF INCOME
For the Year Ended June 30, 1998 and Period Ended June 30, 1997
<TABLE>
<CAPTION>
June 12 to
June 30
1998 1997
----------------- -----------------
<S> <C> <C>
Sales $ 201,932 $ 27,654
Cost of sales 110,235 9,835
----------------- -----------------
Gross Profit 91,697 17,819
Operating Expenses
Selling Expenses 219,206 10,432
General and administrative expenses 350,810 38,534
----------------- -----------------
Total Operating Expenses 570,016 48,966
Operating Loss (478,319) (31,147)
Non-operating Income (Expense)
Gain on sale of investment 59,469 -
Interest expense (23,699) (1,037)
----------------- -----------------
Net Loss $(442,549) $ (32,184)
================ ================
Cummulative Revenues since Inception $ 997,438 $ 691,757
================ ================
Cummulative Expenses since Inception $ 2,286,759 $ 1,538,529
================ ================
Earnings (Loss) Per Share ($0.03) $0.00
================ ================
Weighted Average Number of Common
Shares Outstanding 15,603,400 15,603,400
================ ================
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Year Ended June 30, 1998 and Period Ended June 30, 1997
<TABLE>
<CAPTION>
Common Common Additional Stock
Preferred Stock Stock Paid-In Subscription Accumulated
Stock Shares Amount Capital Receivable Deficit
---------- ----------- --------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 11, 1997 $ - 15,603,400 $15,603 $837,277 $(150,000) $ (814,588)
Net Loss - - - - - (32,184)
---------- ----------- --------- ----------- ------------- ---------------
Balance at June 30, 1997 - 15,603,400 15,603 837,277 (150,000) (846,772)
Net Loss - - - - - (442,549)
---------- ----------- --------- ----------- ------------- ---------------
Balance at June 30, 1998 $ - 15,603,400 $15,603 $837,277 $(150,000) $ (1,289,321)
========= ========== ======== ========== ============ ==============
</TABLE>
See Notes to Financial Statements
F-8
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
For the Year Ended June 30, 1998 and Period Ended June 30, 1997
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $(478,319) $ (31,147)
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation 11,367 544
Amortization 3,835 204
Accrual of interest expense (23,699) (1,037)
Changes in operating assets and liabilities:
Investments 42 (42)
Accounts receivable (9,102) 159
Inventory 54,683 4,393
Accounts payable and accrued liabilities 13,165 9,758
Accounts payable to related parties 136,999 3,833
--------------- ---------------
Net Cash Provided by Operating Activities (291,029) (13,335)
--------------- ---------------
Cash Flows from Financing Activities
Proceeds from sale of common stock 59,469 -
Proceeds from note payable 223,974 25,000
Proceeds from contributed capital - 41
Proceeds from stock subscription receivable 60,000 -
--------------- ---------------
Net Cash Provided (Used)
by Financing Activities 343,443 25,041
--------------- ---------------
Net Increase in Cash and Cash Equivalents 52,414 11,706
Cash and cash equivalents at beginning of year 40,416 28,710
--------------- ---------------
Cash and Cash Equivalents at End of Year $92,830 $40,416
============== ==============
Cummulative cash inflows since inception 1,789,285 1,234,949
============== ==============
Cummulative cash outflows since inception 1,696,455 1,194,491
============== ==============
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
(A Development Stage Company)
================================================================================
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
June 30, 1998 and 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Classic Trends International, Inc., (the "Company") was
organized on May 28, 1997 as a Texas Corporation. Under its Articles of
Incorporation, the Company is authorized to issue 30,000,000 shares of
common stock, par value $.001 per share, and 5,000,000 shares of preferred
stock, par value $.001 per share.
On June 12, 1997, the Company acquired the assets, liabilities and
shareholders' equity of Posh International, Inc. (Posh), a Texas
corporation, in a business combination of entities under common control.
This business combination has been accounted for at historical cost in a
manner similar to that in a pooling of interests accounting. The Company was
formed as a subsidiary of Posh. 15,603,400 shares of common stock were
issued to Posh. The assets, liabilities and shareholders' equity of Posh
were then transferred into the Company. Immediately after this transaction,
the Company's stock was distributed to the shareholders of Posh.
Posh International, Inc., a Texas Corporation, was organized on October 9,
1995. Prior to its formation, the Company's primary product line was
produced, marketed, and distributed by Flair Image, Inc. The Company was
organized by incorporating Posh Wash, G.P., and exchanging the new Company's
stock for Flair's rights to Posh Wash products.
The principal business of Posh International, Inc. was direct matrix
marketing of car care products. Matrix marketing relies on recruiting a
network of distributors who sell products directly to the public. In
addition to soliciting customers, each distributor attempts to recruit new
distributors. The distribution of commissions on sales is determined by the
number of layers of distributors between the Company and the point of sale.
The Company's primary products are Posh Wash car cleaning and waxing
products, and Guardian Angel, an engine additive and restorative
ingredient. Its primary market area includes Austin, Dallas, Ft. Worth and
Houston, Texas. The Company has the exclusive rights to sell Posh Wash and
non-exclusive right to sell Guardian Angel, a line of engine additive
products, throughout the United States and internationally.
Method of Accounting - The financial statements are prepared using the
accrual basis of accounting.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.
Cash and Cash Equivalents - For purposes of reporting cash flows, the
Company considers all cash accounts and petty cash on hand to be cash or
cash equivalents.
Depreciation - Software is carried at cost. Depreciation of software is
provided using the straight-line method for financial reporting.
Depreciation expense was $10,304 and $544 for 1998 and 1997, respectively.
F-10
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
(A Development Stage Company)
================================================================================
NOTES TO FINANCIAL STATEMENTS--(Continued)
- --------------------------------------------------------------------------------
June 30, 1998 and 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, continued
Other assets - Other assets consist of organization expenses and goodwill.
Goodwill is the excess of acquisition costs over the fair market value of
net assets acquired. Goodwill is amortized over 15 years and organization
expenses are amortized over 5 years, using the straight-line method of
amortization.
Allowance for Doubtful Accounts - The company considers all trade and other
receivables to be fully collectible; accordingly, no allowance for doubtful
accounts is required.
Inventory - Inventory is stated at the lower-of-cost or market on the
average cost method.
Income Taxes - Deferred income taxes are reported using the liability
method. Deferred tax assets are recognized for deductible temporary
differences and operating loss carryforwards and deferred tax liabilities
are recognized for taxable timing differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their
tax bases. Deferred tax assets are reduced by a valuation allowance when it
is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the date of enactment.
Revenue Recognition - Revenue is recognized when the product is shipped to
the customer. For the initial order on certain new customers, the Company
allows the customer to return any unsold product. The Company provides an
allowance for these returns.
Advertising Costs - Advertising costs consist mainly of the development of
an infomercial for the Company's product. Since results are unproven and
life of the product created is undetermined, all advertising costs were
expensed.
Liability for Future Royalties - The liability for future royalties
represents cash received from investors for the right to receive future
royalties. The liability is amortized as the royalties are paid in the
amount of the royalties due under the agreements.
Concentration of Credit Risk - Financial instruments which potentially
expose the Company to concentrations of credit risk consist primarily of
trade accounts receivable. The Company markets its product under a matrix
marketing plan. The primary focus of matrix marketing is the recruitment of
individuals, who serve as the Company's distributors. Each distributor is
encouraged to recruit others. The incentive to do so that they derive
commissions from the sales of each distributor they
F-11
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
(A Development Stage Company)
================================================================================
NOTES TO FINANCIAL STATEMENTS--(Continued)
- --------------------------------------------------------------------------------
June 30, 1998 and 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, continued
recruit either directly or indirectly. To maximize their income potential
each distributor strives to develop multiple layers of additional
distributors that are tied to them. As a result a loss of distributors could
result in a loss in either a geographic or demographic market.
Major Supplier - The Company is currently dependent on the sales of the Posh
Wash product which is supplied by an individual who has entered into a non-
exclusive distribution and supply agreement with the Company to provide the
product. The Company has no other source to obtain the product and the
supplier is not obligated to supply all of the product demanded by the
Company. The supply agreement was automatically renewed in January 1998,
and is automatically renewable in five year terms, thereafter.
Earnings Per Share - Earnings per share is based on the weighted average
number of shares of common stock outstanding during the period. The Company
declared a two-for-one stock split in 1996. All share and per share amounts
have been adjusted to reflect the stock splits.
Development Stage Operations - Operations since inception have been devoted
to developing markets for its products and raising capital.
2. GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying
financial statements, the Company had a net loss of $442,549 for the period
ended June 30, 1998 and had a retained deficit of $1,289,321 at that date.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this
uncertainty. The Company's ability to continue as a going concern is
dependent upon its ability to expand the market for the Posh Wash and
Guardian Angel products and to obtain additional funding to facilitate the
Company's expansion. Management believes the Company will be successful in
expanding its revenue base and obtaining additional funding in sufficient
amounts to provide for the Company's existing operating requirements and
expansion of its revenue base.
3. RELATED PARTY TRANSACTIONS
The Company incurred management fees of $120,000 under employment agreements
with its chairman of the board and president, which provide for total
monthly compensation of $10,000 plus
F-12
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
(A Development Stage Company)
================================================================================
NOTES TO FINANCIAL STATEMENTS--(Continued)
- --------------------------------------------------------------------------------
June 30, 1998 and 1997
3. RELATED PARTY TRANSACTIONS, continued
incentive compensation ranging from a total of 6% to 10% of monthly product
sales. In the event of termination, the Company could be required to pay all
amounts which would have been due under these agreements through the
expiration of the agreement, which is October, 2005.
Accounts payable to related parties consist of amounts payable to officers
and others for management fees and commissions.
The notes payable to a related party are owed to Flair Image and consist of
various unsecured notes which mature at various dates from October, 1998
through March, 1999. Each note bears interest at 7.5%, which is due at
maturity. No interest payments were made on these notes during fiscal years
1998 or 1997.
4. NOTES PAYABLE
Notes payable consist of the following:
Note payable to bank dated May 28, 1998, for $35,280, at 9.5% interest per
annum, principal and interest due in one payment on August 28, 1998.
Unsecured.
Note payable to an individual dated May 8, 1998, for $188,889, at 7.5%
interest per annum, principal and interest due in one payment on May 8,
1999. Unsecured.
Note payable to a bank, revolving line of credit, with interest at 8.5% per
annum. At June 30, 1998, the balance due was $49,805. Unsecured.
Notes payable to related parties mature at various dates from October, 1998
to March, 1999 (see Note 3).
5. COMMITMENTS
In June, 1995, the Company received $103,750 from various investors in
exchange for a royalty of $0.1482 per bottle on all sales in the United
States until sales reach 700,000 bottles, then a $0.1482 per bottle royalty
for all sales in the United States over 10,000 bottles per month and 1.482%
of all international sales.
The Company is obligated under a purchase agreement with the exclusive
supplier and inventor of Posh Wash to pay a royalty of 2.5% of the retail
price of each bottle sold, with a mutually agreed upon bonus arrangement to
be negotiated when retail sales reach $250,000 per month, $500,000 per month
and $1,000,000 per month. These royalties are recorded as a component of
cost of sales. Total royalties paid under this agreement for the period
ended June 30, 1998 and 1997 amounted to $5,000.00.
F-13
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
(A Development Stage Company)
================================================================================
NOTES TO FINANCIAL STATEMENTS--(Continued)
- --------------------------------------------------------------------------------
June 30, 1998 and 1997
5. COMMITMENTS, continued
On June 24, 1994, the Company sold a royalty interest on various products to
an investor for cash of $200,000. In October 1995, the Company negotiated a
reduction in the royalties originally granted in exchange for 61,250 shares
of the Company's common stock and a warrant to acquire 150,000 shares of the
Company's common stock for $.50 per share. Under the revised agreement, the
investor obtained the right to receive a $1 per bottle royalty on all future
sales of Posh Wash product.
6. CONTINGENCY
On December 31, 1996, the Company sold stock to three entities for $176,000
in cash and $260,000 to be set up as a receivable. As of June 30, 1998,
$200,000 of the receivable is still outstanding. Collection efforts have
proven successful in obtaining marketable securities in satisfaction of the
outstanding receivable balance. Any deficiency between the market prices of
the stock, when sold, and the receivable will be satisfied by the entities
owing the receivable (See Note 11).
7. PREFERRED STOCK
The Board of Directors has the authority to issue up to 5,000,000 shares of
"blank check" preferred stock with such designations, rights, and
preferences as it may determine. No preferred stock has been issued as of
October 5, 1998.
8. STOCK OPTION PLAN
In October, 1995, the Board of Directors and majority stockholders of the
Company adopted an incentive stock option plan under which 600,000 shares of
the common stock have been reserved for issuance. No stock under this plan
has been issued as of October 5, 1998.
9. INCOME TAXES
The Company's deferred tax asset relates to its current period loss,
creating a net operating loss carryforward. The deferred tax asset totals
$194,088 but due to the uncertainties related to the continuing operations
of the Company the entire asset has been offset by an asset valuation
reserve. The current year loss carryforward will expire in 2011.
F-14
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
(A Development Stage Company)
================================================================================
NOTES TO FINANCIAL STATEMENTS--(Continued)
- --------------------------------------------------------------------------------
June 30, 1998 and 1997
10. LEASE COMMITMENTS
The Company has various leases for office space and equipment all of which
are classified as operating leases. Rent expense under these leases was
$37,686 for the period ended June 30, 1998. The approximate remaining
annual minimum lease payments under these operating leases existing as of
June 30, 1998 are $5,525 for 1998 and $3,021 for 1999, which totals $8,546.
11. SUBSEQUENT EVENTS
Public Stock Offering
Subsequent to June 30, 1998, the Company plans to register as a public
company with the Securities and Exchange Commission by completing a
Regulation S-B filing for small business issuer. A small business issuer is
defined as a company that has revenue of less than $25,000,000.
Stock Subscription Receivable
Subsequent to June 30, 1998, the Company received 400,000 shares of common
stock of Titan Resources, Inc., as partial payment of the Stock Subscription
Receivable. On the day of the transfer, the stock was valued at $.359 per
share, or $143,600. As of October 14, 1998, 140,000 shares of Titan
Resources, Inc., stock have been sold for a total amount of $49,967. As of
October 14, 1998, 260,000 shares of the stock are still owned. The value of
the stock is $.21 per share, or $54,600, which would leave a balance owing
on the receivable account of $95,433, if the stock were sold today.
F-15
<PAGE>
AUDITED FINANCIAL STATEMENTS
POSH INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
Houston, Texas
For the periods October 9, 1995
(Date of Inception) to September 30, 1996
and October 1, 1996 to June 11, 1997
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Posh International, Inc.
Houston, Texas
We have audited the accompanying balance sheets of Posh International, Inc., a
Texas Corporation (the Company), as of June 11, 1997, and the related statements
of income, changes in stockholders' equity and cash flows for the periods
October 9, 1995 (date of inception) to September 30, 1996, and October 1, 1996
to June 11, 1997. These financial statements are the responsibility of the
management of Posh International, Inc. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our report dated August 7,1997, we disclaimed an opinion that the September
30, 1996 financial statements fairly presented financial position, results of
operations, and cash flows in conformity with generally accepted accounting
principles because the Company's accounting records did not permit us to extend
our auditing procedures to satisfy ourselves about ending inventory at September
30, 1996. As described in Note 11, the Company has taken the necessary steps to
allow us to perform other auditing procedures on ending inventory and has
restated its 1996 financial statements to conform with generally accepted
accounting principles. Accordingly, our present opinion on the September 30,
1996 financial statements, as presented herein, is different from that expressed
in our previous report.
In our opinion the financial statements referred to above present fairly in all
material respects, the financial position of Posh International, Inc. as of June
11, 1997, and the results of its operations and its cash flows for the periods
October 9, 1995 to September 30, 1996, and October 1, 1996 to June 11, 1997, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's significant operating loss raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Lairson, Stephens & Reimer, L.L.P.
Houston, Texas
August 7, 1997
Revised October 15, 1997
F-17
<PAGE>
POSH INTERNATIONAL, INC.
BALANCE SHEET
June 11, 1997
<TABLE>
<CAPTION>
1997
-------------
Assets
<S> <C>
Current Assets
Cash and cash equivalents $28,710
Accounts receivable-trade 2,869
Accounts receivable-other 5,000
Inventory 148,384
-------------
Total Current Assets 184,963
Fixed assets, net of accumulated depreciation 29,411
Other Assets
Goodwill, net of accumulated amortization 75,626
Organizational Costs, net of accumulated amortization 6,302
-------------
Total Other Assets 81,928
-------------
Total Assets $ 296,302
=============
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 37,513
Accrued interest payable to a related party 29,159
Accounts payable to a related party 89,050
Liability for future royalties 100,786
Current note payable 25,000
Notes payable to a related party 236,544
-------------
Total Current Liabilities 518,052
Shareholders' Equity (Deficit)
Preferred stock, $,001 par value; 2,000,000
shares authorized; none issued -
Common stock, $.0005 par value; 25,000,000
shares authorized; 15,603,400 issued 7,802
Additional paid-in-capital 845,036
Less: Stock subscription receivable (260,000)
Deficit accumulated during the development stage (814,588)
-------------
Total Shareholders' Equity (Deficit) (221,750)
-------------
Total Liabilities and Shareholders' Equity $ 296,302
=============
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
POSH INTERNATIONAL, INC.
STATEMENTS OF INCOME
For the Periods Ended June 11, 1997 and September 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
October 1 October 9 to
to June 11 September 30
1997 1996
----------------- -----------------
(Unaudited)
<S> <C> <C>
Sales $ 459,074 $ 205,029
Cost of sales 88,091 82,040
----------------- -----------------
Gross Profit 370,983 122,989
Operating Expenses
Selling expenses 286,128 393,981
General and administrative expenses 348,010 251,397
----------------- -----------------
Total Operating Expenses 634,138 645,378
Operating Loss (263,155) (522,389)
Non-operating Income (Expense)
Interest expense (12,888) (16,156)
----------------- -----------------
Net Loss $ (276,043) $ (538,545)
================ ================
Cummulative Revenues since Inception $ 664,103 $ 205,029
================ ================
Cummulative Expenses since Inception $ 1,478,691 $ 743,574
================ ================
Earnings (Loss) Per Share ($0.02) ($0.09)
================ ================
Weighted Average Number of Common
Shares Outstanding 13,340,475 6,209,646
================ ================
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
POSH INTERNATIONAL, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Periods Ended June 11, 1997 and September 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Common Common Additional Stock
Preferred Stock Stock Paid-In Subscription Accumulated
Stock Shares Amount Capital Receivable Deficit
--------- ----------- --------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 9, 1995
(date of inception) $ - - $ - $ - $ - $ -
Issuance of common stock - for
acquisition of assets and
assumption of liabilities of
Posh Wash G.P., October 9, 1995 - 6,000,000 6,000 - - -
Issuance of common stock to public,
May 24, 1996 - 551,700 552 410,286 -
Net Loss - - - - - (538,545)
--------- ----------- --------- ----------- ------------- ---------------
Balance at September 30, 1996 - 6,551,700 6,552 410,286 - (538,545)
(Unaudited)
Issuance of common stock to public,
December 31, 1996 - 1,250,000 1,250 434,750 (260,000)
Stock Split, 2 for 1, December 31, 1996 - 7,801,700 - - - -
Net Loss - - - - - (276,043)
--------- ----------- --------- ----------- ------------- ---------------
Balance at June 11, 1997 $ - 15,603,400 $7,802 $845,036 $(260,000) $(814,588)
======== ========== ======== ========== ============ ==============
</TABLE>
See Notes to Financial Statements
F-20
<PAGE>
POSH INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
For the Periods ended June 11, 1997 and September 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
October 1 October 9 to
to June 11 September 30
1997 1996
----------- ---------------
Unaudited
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $ (263,155) $ (555,450)
Adjustments to Reconcile Net Income to
Net Cash Used in Operating Activities:
Depreciation 2,108 -
Amortization 2,674 3,679
Interest expense accrual (12,888) (16,156)
Changes in operating assets and liabilities:
Accounts receivable 6,549 (14,418)
Inventory 69,600 (184,922)
Other assets - (9,304)
Accounts payable and accrued expenses 7,629 40,069
Accounts payable to related parties 29,456 78,566
----------- -----------
Net Cash Used in Operating Activities (158,027) (657,936)
----------- -----------
Cash Flows from Investing Activities
Acquisition of goodwill - (78,976)
Purchase of fixed assets (31,519) -
----------- -----------
Net Cash Used in Investing Activities (31,519) (78,976)
----------- -----------
Cash Flows from Financing Activities
Proceeds from issuance of common stock 176,000 416,838
Proceeds from note payable 25,000 -
Proceeds from note payable to related party - 236,544
Proceeds from future royalties - 101,305
Payments on liabilities for future royalties - (519)
----------- -----------
Net Cash Provided (Used)
by Financing Activities 201,000 754,168
----------- -----------
Net Increase in Cash and Cash Equivalents 11,454 17,256
Cash and cash equivalents at beginning of year 17,256 -
----------- -----------
Cash and Cash Equivalents at End of Year $ 28,710 $ 17,256
=========== ===========
Cummulative cash inflows since inception $1,191,017 $ 872,001
=========== ===========
Cummulative cash outflows since inception $1,162,307 $ 854,745
=========== ===========
Supplemental Schedule of Non-Cash Financing Activities:
Issuance of common stock for receivable $ 260,000
===========
</TABLE>
See Notes to Financial Statements.
F-21
<PAGE>
POSH INTERNATIONAL, INC.
(A Development Stage Company)
================================================================================
NOTES TO FINANCIAL STATEMENTS--(Contined)
- --------------------------------------------------------------------------------
June 11, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Posh International, Inc., a Texas Corporation (the Company),
was organized on October 9, 1995. Prior to its formation, the Company's
primary product line was produced, marketed, and distributed by Flair Image,
Inc. The Company was organized by incorporating Posh Wash, G.P. and
exchanging the new Company's stock for Flair's rights to Posh Wash
products.
The principal business of Posh International, Inc. was direct matrix
marketing of car care products. Matrix marketing relies on recruiting a
network of distributors who sell products directly to the public. In
addition to soliciting customers, each distributor attempts to recruit new
distributors. The distribution of commissions on sales is determined by the
number of layers of distributors between the Company and the point of sale.
The Company's primary products are Posh Wash car cleaning and waxing
products, and Guardian Angel, an engine additive and restorative
ingredient. Its primary market area includes Austin, Dallas, Ft. Worth and
Houston, Texas. The Company has the exclusive rights to sell Posh Wash and
non-exclusive right to sell Guardian Angel, a line of engine additive
products, throughout the United States and internationally.
Method of Accounting - The financial statements are prepared using the
accrual basis of accounting
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates
Cash and Cash Equivalents - For purposes of reporting cash flows, the
Company considers all cash accounts and petty cash on hand to be cash or
cash equivalents.
Depreciation - Software is carried at cost. Depreciation of software is
provided using the straight-line method for financial reporting.
Depreciation expense was $2,108 for 1997.
Other assets - Other assets consist of organization expenses and goodwill.
Goodwill is the excess of acquisition costs over the fair market value of
net assets acquired. Goodwill is amortized over 40 years and organization
expenses are amortized over 5 years, using the straight-line method of
amortization.
Allowance for Doubtful Accounts - The company considers all trade and other
receivables to be fully collectible; accordingly, no allowance for doubtful
accounts is required.
Inventory - Inventory is stated at the lower-of-cost or market on the
average cost method.
F-22
<PAGE>
POSH INTERNATIONAL, INC.
(A Development Stage Company)
================================================================================
NOTES TO FINANCIAL STATEMENTS--(Contined)
- --------------------------------------------------------------------------------
June 11, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, continued
Income Taxes - Deferred income taxes are reported using the liability
method. Deferred tax assets are recognized for deductible temporary
differences and operating loss carryforwards and deferred tax liabilities
are recognized for taxable timing differences. Temporary differences are
the differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation allowance
when it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Revenue Recognition - Revenue is recognized when the product is shipped to
the customer. For the initial order on certain new customers, the Company
allows the customer to return any unsold product. The Company provides an
allowance for these returns.
Advertising Costs - Advertising costs consist mainly of the development of
an infomercial for the Company's product. Since results are unproven and
life of the product created is undetermined, all advertising costs were
expensed.
Liability for Future Royalties - The liability for future royalties
represents cash received from investors for the right to receive future
royalties. The liability is amortized as the royalties are paid in the
amount of the royalties due under the agreements.
Concentration of Credit Risk - Financial instruments which potentially
expose the Company to concentrations of credit risk consist primarily of
trade accounts receivable. The Company markets its product under a matrix
marketing plan. The primary focus of matrix marketing is the recruitment of
individuals, who serve as the Company's distributors. Each distributor is
encouraged to recruit others. The incentive to do so that they derive
commissions from the sales of each distributor they recruit either directly
or indirectly. To maximize their income potential each distributor strives
to develop multiple layers of additional distributors that are tied to them.
As a result a loss of distributors could result in a loss in either a
geographic or demographic market.
Major Supplier - The Company is currently dependent on the sales of the Posh
Wash product which is supplied by an individual who has entered into a non-
exclusive distribution and supply agreement with the Company to provide the
product. The Company has no other source to obtain the product and the
supplier is not obligated to supply all of the product demanded by the
Company. The supply agreement will be renewed in January 1998, and is
automatically renewable in five year terms, thereafter.
Earnings Per Share - Earnings per share is based on the weighted average
number of shares of common stock outstanding during the period. The Company
declared a two-for-one stock split in 1996. All share and per share amounts
have been adjusted to reflect the stock splits.
F-23
<PAGE>
POSH INTERNATIONAL, INC.
(A Development Stage Company)
================================================================================
NOTES TO FINANCIAL STATEMENTS--(Contined)
- --------------------------------------------------------------------------------
June 11, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, continued
Development Stage Operations - Operations since inception have been devoted
to developing markets for its products and raising capital.
2. GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying
financial statements, the Company had a net loss of $276,043 for the period
ended June 11, 1997 and had a retained deficit of $814,588 at that date.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this
uncertainty. The Company's ability to continue as a going concern is
dependent upon its ability to expand the market for the Posh Wash and
Guardian Angel products and to obtain additional funding to facilitate the
Company's expansion. Management believes the Company will be successful in
expanding its revenue base and obtaining additional funding in sufficient
amounts to provide for the Company's existing operating requirements and
expansion of its revenue base.
3. RELATED PARTY TRANSACTIONS
The Company incurred management fees of $88,798 under employment agreements
with its chairman of the board and president, which provide for total
monthly compensation of $10,000 plus incentive compensation ranging from a
total of 6% to 10% of monthly product sales. In the event of termination,
the Company could be required to pay all amounts which would have been due
under these agreements through the expiration of the agreement, which is
October, 2005.
Accounts payable to related parties consist of amounts payable to officers
and others for management fees and commissions.
Notes payable to Flair Image consist of various unsecured notes which mature
at various dates from October, 1997 through March, 1998. Each note bears
interest at 7.5%, which is due at maturity. No interest payments were made
on these notes during fiscal year 1997.
4. NOTES PAYABLE
The Company established a revolving line of credit with a bank with interest
at 8.5%. At June 11, 1997, the balance due was $25,000.
Notes payable to related parties mature at various dates from October, 1997
to March, 1998 (see Note 3).
F-24
<PAGE>
POSH INTERNATIONAL, INC.
(A Development Stage Company)
================================================================================
NOTES TO FINANCIAL STATEMENTS--(Contined)
- --------------------------------------------------------------------------------
June 11, 1997
5. COMMITMENTS
In June, 1995, the Company received $103,750 from various investors in
exchange for a royalty of $0.1482 per bottle on all sales in the United
States until sales reach 700,000 bottles, then a $0.1482 per bottle royalty
for all sales in the United States over 10,000 bottles per month and 1.482%
of all international sales.
The Company is obligated under a purchase agreement with the exclusive
supplier and inventor of Posh Wash to pay a royalty of 2.5% of the retail
price of each bottle sold, with a mutually agreed upon bonus arrangement to
be negotiated when retail sales reach $250,000 per month, $500,000 per month
and $1,000,000 per month. These royalties are recorded as a component of
cost of sales. Total royalties paid under this agreement for the period
ended June 11, 1997 amounted to $5,000.00.
On June 24, 1994, the Company sold a royalty interest on various products to
an investor for cash of $200,000. In October 1995, the Company negotiated a
reduction in the royalties originally granted in exchange for 61,250 shares
of the Company's common stock and a warrant to acquire 150,000 shares of the
Company's common stock for $.50 per share. Under the revised agreement, the
investor obtained the right to receive a $1 per bottle royalty on all future
sales of Posh Wash product.
In October 1995, the Company issued warrants to acquire 552,000 shares of
its common stock to various members of its Board of Directors, consultants
and an investor. Warrants to acquire 402,000 shares of common stock are
exercisable at $1 per share with the remaining warrant to purchase 150,000
shares exercisable at $.50 per share.
6. CONTINGENCY
On December 31, 1996, the Company sold stock to three entities for $176,000
in cash and $260,000 to be set up as a receivable. As of June 11, 1997, the
receivable is still outstanding. Collection efforts have proven successful
in obtaining marketable securities in satisfaction of the outstanding
receivable balance. Any deficiency between the market prices of the stock,
when sold, and the receivable will be satisfied by the entities owing the
receivable (See Note 11).
7. PREFERRED STOCK
The Board of Directors has the authority to issue up to 2,000,000 shares of
"blank check" preferred stock with such designations, rights, and
preferences as it may determine. No preferred stock has been issued as of
June 11, 1997.
F-25
<PAGE>
POSH INTERNATIONAL, INC.
(A Development Stage Company)
================================================================================
NOTES TO FINANCIAL STATEMENTS--(Contined)
- --------------------------------------------------------------------------------
June 11, 1997
8. STOCK OPTION PLAN
In October, 1995, the Board of Directors and majority stockholders of the
Company adopted an incentive stock option plan under which 600,000 shares of
the common stock have been reserved for issuance. No stock under this plan
has been issued as of June 11, 1997.
9. INCOME TAXES
The Company's deferred tax asset relates to its current period loss,
creating a net operating loss carryforward. The deferred tax asset totals
$194,088 but due to the uncertainties related to the continuing operations
of the Company the entire asset has been offset by an asset valuation
reserve. The current year loss carryforward will expire in 2011.
10. LEASE COMMITMENTS
The Company has various leases for office space and equipment all of which
are classified as operating leases. Rent expense under these leases was
$25,498 for the period ended June 11, 1997. The approximate remaining annual
minimum lease payments under these operating leases existing as of June 11,
1997 are $14,546 for 1997, $11,050 for 1998 and $3,021 for 1999, which
totals $28,617.
11. REPORT REVISION
In our report dated August 7, 1997, we disclaimed an opinion that the 1996
financial statements fairly presented financial position, results of
operations, and cash flows in conformity with generally accepted accounting
principles because the Company's accounting records did not permit us to
extend our auditing procedures to satisfy ourselves about ending inventory
at September 30, 1996. The cause of this problem was that the Company did
not take physical inventories and we were not able to apply other auditing
procedures to satisfy ourselves as to inventory quantities. In lieu of a
physical inventory, the Company relied on its perpetual inventory system's
reports that valued ending inventory at $184,922.
After the issuance of our report, the Company had a physical inventory
performed in July 1997. Based on the counts provided from this physical
inventory, and our observation of this inventory, we were able to apply
other auditing procedures that allowed us to determine the value of ending
inventory at September 30, 1996. As a result of this work, the Company
restated its ending inventory to $217,984, an increase of $33,061. As a
result of this adjustment, the Company restated its cost of
F-26
<PAGE>
POSH INTERNATIONAL, INC.
(A Development Stage Company)
================================================================================
NOTES TO FINANCIAL STATEMENTS--(Contined)
- --------------------------------------------------------------------------------
June 11, 1997
11. REPORT REVISION, continued
goods sold from $115,101 to $82,040, and net loss and deficit retained
earnings were from $571,606 to $538,545.
12. SUBSEQUENT EVENTS
Subsequent to June 11, 1997, the Company received 400,000 shares of common
stock of Titan Resources, Inc., as partial payment of the Stock Subscription
Receivable. On the day of the transfer, the stock was valued at $.359 per
share, or $143,600.
F-27
<PAGE>
UNAUDITED FINANCIAL STATEMENTS
The pro forma statements of income and statement of cash flows for the
twelve months ended June 30, 1997 reflect financial information from Posh for
the period from July 1, 1996 through June 10, 1997 and reflect the company for
the period from June 11, 1997 through June 30, 1997. These financial statements
have been prepared by the company and are unaudited; however, in the opinion of
management, such statements include all adjustments (consisting solely of normal
recurring adjustments) necessary to a fair presentation of the financial
position, results of operations and changes in financial position of the
company. These unaudited financial statements have been prepared by the company
solely for comparison purposes.
F-28
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
PROFORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED JUNE 30, 1997
1997
----------
SALES $ 532,335
COST OF SALES 105,797
----------
GROSS PROFIT 426,538
OPERATING EXPENSES
Selling Expenses 346,995
General and administrative expenses 472,535
----------
Total Operating Expenses 819,530
OPERATING LOSS (392,992)
NON-OPERATING INCOME (EXPENSE)
Interest expense (13,925)
----------
Net Loss $(406,917)
==========
Earnings (Loss) Per Share $(0.03)
==========
Weighted Average Number of Common
Shares Outstanding 15,603,400
==========
F-29
<PAGE>
CLASSIC TRENDS INTERNATIONAL, INC.
(A DEVELOPMENT STAGE COMPANY)
PROFORMA STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1997
1997
--------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (405,880)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Depreciation 2,652
Amortization 5,060
Accrual of interest expense (1,037)
Changes in operating assets and liabilities:
Investments (42)
Accounts receivable 8,417
Inventory (13,939)
Goodwill (78,977)
Accounts payable and accrued expenses (11,222)
Accounts payable to related parties 92,883
Due from related parties --
--------
NET CASH USED IN OPERATING ACTIVITIES (402,085)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (31,519)
NET CASH USED IN INVESTING ACTIVITIES (31,519)
--------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 176,000
Costs of stock offering paid from proceeds (121,316)
Proceeds from note payable 50,156
Proceeds from note payable to related party 125,944
Proceeds from future royalties 101,260
Payments on liabilities for future royalties --
--------
NET CASH PROVIDED BY FINANCING ACTIVITIES 332,085
NET INCREASE IN CASH (101,519)
Cash Balance, Beginning of Year 141,935
--------
Cash Balance, End of Year 40,416
========
F-30
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Texas law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The Articles of the
Incorporation of Company limit the liability of directors of the Company (in
their capacity as directors but not in their capacity as officers) to the
Company or its stockholders to the fullest extent permitted by Texas law.
Specifically, directors of the Company will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director, except
for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Article 2.41 under the Texas Business Corporation Act, or (iv) for any
transaction from which the director derived an improper personal benefit,
whether the benefit resulted from an action taken in the person's official
capacity. Section 2.41 of the Texas Business Corporation Act relates to
directors' liability for unlawful dividends and stock issuances.
The inclusion of this provision in the Articles of Incorporation may have
the effect of reducing the likelihood of derivative litigation against
directors, and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefitted the Company and its
stockholders.
The Company's Articles of Incorporation provide for the indemnification of
its executive officers and directors, and the advancement to them of expenses in
connection with any proceedings and claims, to the fullest extent permitted by
the Texas Business Corporation Act. The Articles include related provisions
meant to facilitate the indemnities' receipt of such benefits. These provisions
cover, among other things: (i) specification of the method of determining
entitlement to indemnification and the selection of independent counsel that
will in some cases make such determination, (ii) specification of certain time
periods by which certain payments or determinations must be made and actions
must be taken, and (iii) the establishment of certain presumptions in favor of
an indemnitee. Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that, in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities being registered. The
expenses shall be paid by the Registrant.
SEC Registration Fee $ 79.03
Printing and Engraving Expenses... 2,000.00
Legal Fees and Expenses........... 15,000.00
Accounting Fees and Expenses...... 5,000.00
==========
TOTAL......................... $27,079.03
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In June 1997 the company issued 15,603,400 shares of company common stock
to Posh in consideration for all the right, title and interest in and to the
assets of Posh. The company believes that the above-captioned transaction is
exempt from registration pursuant to Section 4(2) of the Securities Act as a
transaction by an issuer not involving a public offering.
Part II-1
<PAGE>
ITEM 27. EXHIBITS
INDEX TO EXHIBITS
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- -------------------------
3.1/(1)/ Articles of Incorporation
3.2/(1)/ By-Laws of the company
4.1/(1)/ Form of Specimen of Common Stock
10.1/(1)/ Assignment of Assets from Posh International, Inc. to the company
10.2/(2)/ Consultant Agreement between Posh International, Inc. and
Donald L. Shriver
10.3/(2)/ Employment Agreement between Posh International, Inc. and
Frederic G. Hindle
10.4/(1)/ Stock Option Plan of Classic Trends International, Inc.
10.5/(2)/ Product Supplier Agreement with Mr. Tisman, as amended
10.6/(1)/ Product Supplier Agreement with Sun Coast
10.7/(3)/ Loan Agreement with third party
10.8/(3)/ X-1R Independent Testing
10.9/(3)/ Trademark
10.10/(3)/ Line of Credit with Southwest Bank of Texas
23.1/(3)/ Consent of Lairson, Stephens and Reimer, LLP
23.2/(3)/ Consent of Brewer & Pritchard , P.C.
___________________________________
(1) Filed with the company's original registration statement on Form SB-2, File
No. 333-65059 on October 28, 1998 and incorporated herein by reference.
(2) The information required by this exhibit is incorporated by reference to
the exhibits filed in connection with the company's parent company's (Posh)
Form 1-A (Commission File No. 24D-3842).
(3) Filed herewith.
ITEM 28. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i. To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
ii. To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered
Part II-2
<PAGE>
would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) of this chapter) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration
statement; and
iii. To include any additional or changed material information with
respect to the plan of distribution.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) i. That, for the purpose of determining liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared
effective.
ii. That, for the purpose of determining liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Part II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Houston, State of Texas, on the 14th day of June, 1999.
CLASSIC TRENDS INTERNATIONAL, INC.
By /S/ Frederic G. Hindle
-----------------------------------
FREDERIC G. HINDLE,
President, Chief Executive Officer and
Chief Financial Officer
____________________________
This prospectus has been signed by the following persons in the capacities
and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/S/ Donald L. Shriver Chairman of the Board June 14, 1999
- -----------------------------
DONALD L. SHRIVER
/S/ Frederic G. Hindle President, Chief Executive June 14, 1999
- ----------------------------- Officer, Chief Financial
FREDERIC G. HINDLE Officer and Director
/S/ Donald L. Shriver, Jr. Secretary and Director June 14, 1999
- -----------------------------
DONALD L. SHRIVER, JR.
Part II-4
<PAGE>
EXHIBIT 10.7
PROMISSORY NOTE
$188,889.00 Date: May 8, 1999
For value received, the undersigned Classic Trends International, Inc. (The
"Promisor") promises to pay to the order of John Green, (the "Payee"), at The
Ocean Isles, Unit 11, 3507 Main Beach Parade, Main Beach, Queensland, Australia
4217, (or such other place as the Payee may designate in writing) the sum of
$188,889.00 with interest from May 8, 1998, on the unpaid principal at the rate
of 7.5% per annum.
The unpaid principal and accrued interest shall be payable in full on May
8, 2000 (the "Due Date").
All payments of this Note shall be applied first in payment of accrued
interest and any remainder in payment of principal.
If any one or more of the provisions of the Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining shall remain
fully operative.
All payments of principal and interest on this Note shall be paid in the
legal currency of the United States. Promisor waives presentment for payment,
protest, and notice of protest and nonpayment of this Note.
No renewal or extension of this Note, delay in enforcing any right of the
Payee under this Note, or assignment by Payee of this Note shall affect the
liability of the Promisor. All rights of the Payee under this Note are
cumulative and may be exercised concurrently or consecutively at the Payee's
option.
This Note shall be construed in accordance with the laws of the State of
Texas.
Signed this ______ day of ______________, 1999, at Houston, Texas. This
note is an extension of the original note signed on May 8, 1998.
Promisor
Classic Trends International, Inc.
By: ___________________________________
Frederic G. Hindle
President
<PAGE>
EXHIBIT 10.8
X-1R INDEPENDENT TESTING
DR. MICKLOW REPORT: An ASTM conformed comprehensive test plan for the
validation of fuel economy improvements. (18 pages - revised from 328 page
report) Dr. Micklow credentials.
OAKLAND UNIVERSITY, DEPARTMENT OF MECHANICAL ENGINEERING: Under the supervision
of Dr. Gary Barber, a consulting engineer for Detroit Diesel, tests were
performed between August 12, 1991 and July 6, 1992. His conclusions proved X-1R
reduced wear up to 47%. (7 pages)
HERGUTH LABORATORIES, INC.: Spectrochemical data shows compatibility of X-1R
with name-brand lubricants and shows X-1R does not affect viscosity of oil.
DYNO TEK RACING ENGINES: X-1R mixed with Kendall 50W racing oil increased torque
by 3 ft. lbs. and resulted in a gain of 3 horsepower for the 355 cubic inch
racing engine. (1 page)
MERLINS MARINE DYNO TEST: X-1R mixed with oil in a Ford II, 6 cylinder 7.8L, 474
CU Diesel speed boat engine resulted in a gain of 8 horsepower. (1 page)
U.E.C. ELECTRICAL TEST REPORT: This test shows X-1R is non-conductive of
electricity up to 100 k.v. (1 page)
KENNEDY SPACE CENTER: The predictive engineering technology group proved X-1R
will significantly reduce operating temperatures in rotating equipment.
DELCO REMY: Controlled maintenance users group performed vibration analysis
testing. The results shows adding X-1R to Valvoline motor oil and grease
significantly reduced vibration in rotating equipment.
ARTHUR D. LITTLE LABORATORIES (X-1R VS SLICK 50): In Comparison Pin & Disc High
Temperature Friction Wear Test X-1R reduced friction 41% compared to Slick 50
friction reduction of 7%.
U.S. ARMY REPORT ON TEFLON: Report shows Teflon products cannot justify claims
they make on friction reduction and 50,000 miles protection.
SWEDISH NATIONAL TESTING AND RESEARCH INSTITUTE: Confirms tri-biological testing
with Falex machine that X-1R added to oil increased the case hardness of the
metal, therefore preventing more wear.
QC LABORATORIES: Confirms and validates X-1R impregnates the surface of ferrous
metals, thereby increased the Rockwell-B-Hardness from 35 Rb to 72 Rb.
<PAGE>
EXHIBIT 10.9
INT. CL.: 1
PRIOR U.S. CLS.: 1, 5, 6, 10, 26 AND 46
REG. NO. 2,208,607
UNITED STATES PATENT AND TRADEMARK OFFICE REGISTERED DEC. 8, 1998
- --------------------------------------------------------------------------------
TRADEMARK
PRINCIPAL REGISTER
GUARDIAN ANGEL
CLASSIC TRENDS INTERNATIONAL, INC. FIRST USE 4/1/1996; IN COMMERCE 4/1/1996
(TEXAS CORPORATION)
10696 HADDINGTON, SUITE 117
HOUSTON, TX 77043
SER. NO. 75-346,375, FILED 8/25/1997
FOR: CHEMICAL OIL ADDITIVE USED FOR
ENGINE PROTECTION, IN CLASS 1
(U.S. CLS. 1, 5, 6, 10, 26 AND 46).
OLLIE GREEN, EXAMINING ATTORNEY
<PAGE>
EXHIBIT 10.10
CHANGE IN TERMS AGREEMENT
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<CAPTION>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer
$150,000 05-05-2000 839914 021 C010845 GEJ
<S> <C>
Borrower: Classic Trends International, Inc. Lender: Southwest Bank of Texas N.A.
(TIN: 76-0540287) Galleria
10696 Haddington Dr., Suite 117 P. O. Box 27459
Houston, Texas 77043 5 Post Oak Par/4400 Post Oak Parkway
Houston, TX 77227-7459
</TABLE>
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PRINCIPAL AMOUNT: $150,000 DATE OF AGREEMENT: MAY 5, 1999
DESCRIPTION OF EXISTING INDEBTEDNESS. Original Promissory Note (the "Note")
dated March 5, 1996, in the principal sum of $50,000.00 executed by Borrower,
payable to Lender, as modified as applicable.
DESCRIPTION OF CHANGE IN TERMS. The Note is being modified in accordance with
the terms and provisions stated herein.
PROMISE TO PAY. CLASSIC TRENDS INTERNATIONAL, INC. ("BORROWER") PROMISES TO PAY
TO SOUTHWEST BANK OF TEXAS N.A. ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE
UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF ONE HUNDRED FIFTY THOUSAND &
00/100 DOLLARS ($150,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH
INTEREST ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST
SHALL BE CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH
ADVANCE OR MATURITY, WHICHEVER OCCURS FIRST.
CHOICE OF USURY CEILING AND INTEREST RATE. The interest rate on this Agreement
has been implemented under the "Weekly Rate" as referred to in Section 303.210
of the Texas Finance Code and Articles 1D.002 and 1D.003 of the Texas Credit
Title. The terms, including rate, or index, formula, or provision of law used to
compute the rate on the Agreement, will be subject to revision as to current and
future balances, from time to time by notice from Lender in compliance with
Section 303.403 of the Texas Finance Code.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ONE
PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON MAY 5,
2000. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID
INTEREST BEGINNING JUNE 5, 1999, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON
THE SAME DAY OF EACH MONTH AFTER THAT. The annual interest rate for this
Agreement is computed on a 365/360 basis; that is, by applying the ratio of the
annual interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal balance
is outstanding, unless such calculation would result in a usurious rate, in
which case interest shall be calculated on a per diem basis of a year of 365 or
366 days, as the case may be. Borrower will pay Lender at Lender's address shown
above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to accrued unpaid interest, then to principal, and any remaining amount to any
unpaid collection costs and late charges. Notwithstanding any other provision of
this Agreement, Lender will not charge interest on any undisbursed loan
proceeds. No scheduled payment, whether principal or interest or both, will be
due unless sufficient loan funds have been disbursed by the scheduled payment
date to justify the payment.
VARIABLE INTEREST RATE. The interest rate on this Agreement is subject to change
from time to time based on changes in an index which is the Southwest Bank of
Texas N.A. prime rate (the "Index"). Southwest Bank of Texas N.A. prime rate of
interest is the rate of interest established by the Bank from time to time as
its prime rate. The rate is set by the Bank as a general reference rate of
interest, taking into account such factors as the Bank may deem appropriate, it
being understood that many of the Bank's consumer and other loans are priced in
relation to such rate,
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that it is not necessarily the lowest or best rate actually charged any customer
and that the Bank may make various consumer or other loans at rates of interest
having no relationship to such rate. Lender will tell Borrower the current Index
rate upon Borrower's request. Borrower understands that Lender may make loans
based on other rates as well. The interest rate change will not occur more often
than each day. THE INDEX CURRENTLY IS 7.750% PER ANNUM. THE INTEREST RATE TO BE
APPLIED PRIOR TO MATURITY TO THE UNPAID PRINCIPAL BALANCE OF THIS AGREEMENT WILL
BE AT A RATE EQUAL TO THE INDEX, RESULTING IN AN INITIAL RATE OF 7.750% PER
ANNUM. NOTICE: Under no circumstances will the interest rate on this Agreement
be more than the maximum rate allowed by applicable law. For purposes of this
Agreement, the "maximum rate allowed by applicable law" means the greater of (a)
the maximum rate of interest permitted under federal or other law applicable to
the indebtedness evidenced by this Agreement, or (b) the "Weekly Rate" as
referred to in Section 303.201 of the Texas Finance Code and Articles 1D.002 and
1D.003 of the Texas Credit Title.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
POST MATURITY RATE. The Post Maturity Rate on this Agreement is the lesser of
the maximum rate allowed by applicable law or 18.00% per annum. The bank may
charge interest on all sums due after final maturity, whether by acceleration or
otherwise, at that rate, with the exception of any amounts added to the
principal balance of this Agreement based on Lender's payment of insurance
premiums, which will continue to accrue interest at the pre-maturity rate.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this
Agreement or any agreement related to this Agreement, or in any other agreement
or loan Borrower has with Lender. (c) Borrower defaults under any loan,
extension of credit, security agreement, purchase or sales agreement, or any
other agreement, in favor of any other creditor or person that may materially
affect any of Borrower's property or Borrower's ability to repay this Note or
perform Borrower's obligations under this Note or any of the Related Documents.
(d) Any representation or statement made or furnished to Lender by Borrower or
on Borrower's behalf is false or misleading in any material respect either now
or at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower make an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Agreement. (h) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the indebtedness is impaired. (i) Lender
in good faith deems itself insecure.
If any default, other than a default in payment, is curable, it may be cured
(and no event of default will have occurred) if Borrower, after receiving
written notice from lender demanding cure of such default: (a) cures the
default within fifteen (15) days; or (b) if the cure requires more than fifteen
(15) days, immediately initiates steps which Lender deems in Lender's sole
discretion to be sufficient to cure the default and thereafter continues and
completes all reasonable and necessary steps sufficient to produce compliance as
soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire indebtedness,
including the unpaid principal balance on this Agreement, all accrued unpaid
interest, and all other amounts, costs and expenses for which Borrower is
responsible under this Agreement or any other agreement with Lender pertaining
to this loan, immediately due, without notice, and then Borrower will pay that
amount. Lender may hire an attorney to help collect this Agreement if Borrower
does not pay, and Borrower will pay Lender's reasonable attorneys' fees.
Borrower also will pay Lender all other amounts actually incurred by lender as
court costs, lawful fees for filing, recording, or releasing to any public
office any instrument securing this loan; the reasonable cost actually expended
for repossessing, storing, preparing for sale, and selling any security; and
fees for noting a lien on or transferring a certificate of title to any motor
vehicle offered as security for this loan, or premiums or identifiable charges
received in connection with the sale of authorized
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insurance. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN
THE STATE OF TEXAS. IF THERE IS A LAWSUIT, AND IF THE TRANSACTION EVIDENCED BY
THIS AGREEMENT OCCURRED IN HARRIS COUNTY, BORROWER AGREES UPON LENDER'S REQUEST
TO SUBMIT TO THE JURISDICTION OF THE COURTS OF HARRIS COUNTY, THE STATE OF
TEXAS. SUBJECT TO THE PROVISIONS ON ARBITRATION, THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND
APPLICABLE FEDERAL LAWS.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Agreement against any and all such accounts.
LINE OF CREDIT. This Agreement evidences a revolving line of credit. Advances
under this Agreement may be requested orally by Borrower or by an authorized
person. Lender may, but need not, require that all oral requests be confirmed in
writing. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line of
credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: DONALD L. SHRIVER, PRESIDENT.
Borrower agrees to be liable for all sums either; (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender. The unpaid principal balance owing on this
Agreement at any time may be evidenced by endorsements on this Agreement or by
Lender's internal records, including daily computer print-outs. Lender will have
no obligation to advance funds under this Agreement if: (a) Borrower or any
guarantor is in default under the terms of this Agreement or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Agreement; (b) Borrower or any guarantor
ceases doing business or is insolvent; (c) any guarantor seeks, claims or
otherwise attempts to limit, modify or revoke such guarantor's guarantee of this
Agreement or any other Agreement with Lender; (d) Borrower has applied funds
provided pursuant to this Agreement for purposes other than those authorized by
Lender; or (e)Lender in good faith deems itself insecure under this Agreement or
any other agreement between Lender and Borrower. THIS REVOLVING LINE OF CREDIT
SHALL NOT BE SUBJECT TO SEC. 346 OF THE TEXAS FINANCE CODE.
ARBITRATION. The undersigned agree(s) that all disputes, claims and
controversies between the undersigned or between the undersigned and any lender
or the holder of this instrument, whether individual, joint, or class in nature,
arising from this instrument, or any document executed in connection herewith or
otherwise, including without limitation contract and tort disputes, shall be
arbitrated pursuant to the Rules of the American Arbitration Association, upon
request of any party. No act to take or dispose of any collateral securing the
Note or covered by this instrument shall constitute a waiver of this arbitration
provision or be prohibited by this arbitration provision. This includes, without
limitation, obtaining injunctive relief or a temporary restraining order;
invoking a power of sale under any deed of trust or mortgage; obtaining a writ
of attachment or imposition of a receiver; or exercising any rights relating to
personal property, including taking or disposing of such property with or
without judicial process pursuant to Article 9 of the Uniform Commercial Code.
Any disputes, claims, or controversies concerning the lawfulness or
reasonableness of any act, or exercise of any right concerning any collateral
securing the Note or covered by this instrument, including any claim to rescind,
reform, or otherwise modify any agreement relating to the collateral securing
the Note or covered by this instrument, shall also be arbitrated, provided
however that no arbitrator shall have the right or the power to enjoin or
restrain any act of any party. Judgment upon any award rendered by any
arbitrator may be entered in any court having jurisdiction; provided, however,
that nothing contained herein shall be deemed to be a waiver by any party that
is a bank of the protections afforded to it under 12 USC Section 91, Texas
Banking Code art. 342-8.002, or any other protection provided banks under the
laws of Texas or the United States. The statute of limitations, estoppel,
waiver, laches, and similar doctrines which would otherwise be applicable in an
action brought by a party shall be applicable in any arbitration proceeding, and
the commencement of an arbitration proceeding shall be deemed the commencement
of an action for these purposes. The Federal Arbitration Act shall apply to the
construction, interpretation, and enforcement of this arbitration provision. If
the Federal Arbitration Act is inapplicable to any such claim or controversy for
any reason, such arbitration shall be conducted pursuant to the Texas General
Arbitration Act and in accordance with this arbitration provision and the
Commercial Arbitration Rules of the American Arbitration Association.
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CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of
the original obligation or obligations, including all agreements evidenced or
securing the obligation(s), remain unchanged and in full force and effect.
Consent by Lender to this Agreement does not waive Lender's right to strict
performance of the obligation(s) as changed, nor obligate Lender to make any
future change in terms. Nothing in this Agreement will constitute a satisfaction
of the obligation(s). It is the intention of Lender to retain as liable parties
all makers and endorsers of the original obligation(s), including accommodation
parties, unless a party is expressly released by Lender in writing. Any maker or
endorser, including accommodation makers, will not be released by virtue of this
Agreement. If any person who signed the original obligation does not sigh this
Agreement below, then all persons signing below acknowledge that this Agreement
is given conditionally, based on the representation to Lender that the non-
signing party consents to the changes and provisions of this Agreement or
otherwise will not be released by it. This waiver applies not only to any
initial extension, modification or release, but also to all such subsequent
actions.
FACSIMILE PROVISION. All Parties agree that any executed facsimile (faxed) copy
of this document shall be deemed to be of the same force and effect as the
original, manually executed document.
NOTICE OF FINAL AGREEMENT. THIS DOCUMENT AND ALL OTHER DOCUMENTS RELATING TO
THIS LOAN CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OR PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THIS LOAN.
MISCELLANEOUS PROVISION. This Agreement is payable on demand. The inclusion of
specific default provisions or rights of Lender shall not preclude Lender's
right to declare payment of this Agreement on its demand. If any part of this
Agreement cannot be enforced, this fact will not affect the rest of the
Agreement. In particular, this section means (among other things) that Borrower
does not agree or intend to pay, and Lender does not agree or intend to contract
for, charge, collect, take, reserve or receive (collectively referred to herein
as "charge or collect"), any amount in the nature of interest or in the nature
of a fee for this loan, which would in any way or event (including demand,
prepayment, or acceleration) cause Lender to charge or collect more for this
loan than the maximum lender would be permitted to charge or collect by federal
law or the law of the State of Texas (as applicable). Any such excess interest
or unauthorized fee shall, instead of anything stated to the contrary, be
applied first to reduce the principal balance of this loan, and when the
principal has been paid in full, be refunded to Borrower. The right to
accelerate maturity of sums due under this Agreement does not include the right
to accelerate any interest which has not otherwise accrued on the date of such
acceleration, and Lender does not intend to charge or collect any unearned
interest in the event of acceleration. All sums paid or agreed to be paid to
Lender for the use, forbearance or detention of sums doe hereunder shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of the loan evidenced by this Agreement until payment
in full so that the rate or amount of interest on account of the loan evidenced
hereby does not exceed the applicable usury ceiling. Lender may delay or forgo
enforcing any of its rights or remedies under this Agreement without losing
them. Borrower and any other person who signs, guarantees or endorses this
Agreement, to the extent allowed by law, waive presentment, demand for payment,
protest, notice of dishonor, notice of intent to accelerate the maturity of this
Agreement, and notice of acceleration of the maturity of this Agreement. Upon
any change in the terms of this Agreement, and unless otherwise expressly stated
in writing, no party who signs this Agreement, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length of
time) this loan, or release any party or guarantor or collateral; or impair,
fail to realize upon or perfect Lender's security interest in the collateral
without the consent of or notice to anyone. All such parties also agree that
Lender may modify this loan without the consent of or notice to anyone other
than the party with whom the modification is made.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE AGREEMENT AND ACKNOWLEDGES RECEIPT OF A COMPLETED
COPY OF THE AGREEMENT.
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BORROWER:
Classic Trends International, Inc.
By: _______________________
Donald L. Shriver, President
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EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Classic Trends International, Inc.:
We hereby consent to the use in this Registration Statement on Form SB-2 of our
reports dated October 5, 1998, and August 7, 1997, relating to the financial
statements of Classic Trends International, Inc., and Posh International, Inc.,
respectively. We also consent to the reference to our firm under the caption
`Experts' in the Prospectus.
Houston, Texas
January 11, 1999
<PAGE>
EXHIBIT 23.2
June 14, 1999
Board of Directors
Classic Trends International, Inc.
10696 Haddington, Suite 117
Houston, Texas 77043
Gentlemen:
As counsel for Classic Trends International, Inc., a Texas corporation
("Company"), you have requested our firm to render this opinion in connection
with the Registration Statement of the Company on Form SB-2 filed under the
Securities Act of 1933, as amended ("Act"), with the Securities and Exchange
Commission relating to the registration of the distribution of 15,603,400
shares of Company common stock ("Shares").
We are familiar with the registration statement and the registration
contemplated thereby. In giving this opinion, we have reviewed the registration
statement and such other documents and certificates of public officials and of
officers of the Company with respect to the accuracy of the factual matters
contained therein as we have felt necessary or appropriate in order to render
the opinions expressed herein. In making our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents presented to us
as originals, the conformity to original documents of all documents presented to
us as copies thereof, and the authenticity of the original documents from which
any such copies were made, which assumptions we have not independently verified.
Based upon all the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas.
2. The Shares are duly authorized common shares in the capital of the
Company.
3. The Shares are issued and, when sold in the manner described as in the
Registration Statement, will be validly issued, fully paid and
nonassessable
<PAGE>
Board of Directors
June 14, 1999
Page 2
We consent to the filing of this opinion as an exhibit to the Registration
Statement and the use in the registration statement of the reference to Brewer &
Pritchard, P.C. under the heading "Legal Matters."
Very truly yours,
BREWER & PRITCHARD, P.C.
