UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 000-30180
FRESH BREATH INDUSTRIES, INC.
(Name of small business issuer in its charter)
Nevada 88-0404404
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
#7-2316 27TH Ave., N.E., Alberta, Canada T2E7A7
(Address of principal executive offices) (Zip Code)
Issuer's telephone no.: (403) 259-6838
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Check whether the issuer (1) filed all reports required to be filed in
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure
will be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
State the issuer's revenues for its most recent fiscal year. $ 0
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding as of December 31, 1999
Common Stock, $.001 Par Value 8,748,000
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transitional Small Business Disclosure Format. Yes [ ] No [X]
FRESH BREATH INDUSTRIES, INC.
TABLE OF CONTENTS
PART I Page
Item 1. Description of Business .................... 3
Item 2. Description of Property .................... 6
Item 3. Legal Proceedings .......................... 7
Item 4. Submission of Matter to a Vote of Security
Holders.................................... 7
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters ................................ 7
Item 6. Management's Discussion and Analysis or Plan of
Operation .............................. 10
Item 7. Financial Statements ........................ 15
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .... 27
PART III
Item 9. Directors, Executive Officers, Promoters and
Control persons;Compliance with Section
16(a) of the Exchange Act ............. 27
Item 10. Executive Compensation ..................... 28
Item 11. Security Ownership of Certain Beneficial Owners and
Management ............................. 29
Item 12. Certain Relationships and Related
Transactions .......................... 29
Item 13. Exhibits and Reports on Form 8-K ........... 30
SIGNATURES ................................................. 31
PART I
Item 1. Description of Business
Business Development
Fresh Breath Industries, Inc. (the "Company") is a development stage
Company incorporated under the laws of Nevada on September 1, 1998, to
engaged in the marketing of cigars and cigar related products. As a
start up enterprise the Company had no significant business operations
in 1998.
The Company has entered into various agreements with related companies
to acquire the distribution rights of breath freshening products and
cigars and cigar accessories. The Company entered into asset purchase
agreements; (1) on October 16, 1998, the exclusive Canadian distribution
rights to Irvine Breath Products and Gel Cap Breath Freshener products
for $135,590 which consisted of $130,950 note and 500,000 shares of
common stock, (2) on October 21, 1998, bought for the sum of $130,000
the product line cigar gone
one, Coffee Gone and other breath related products, and (3) on October 25,
1998, the Company bought for the sum of $50,000 and 100,000 shares of
common stock the product lines and promotional materials of J&D Cigar
Company, Ltd. On April 21, 1999 100,000 shares were issued to Irvine
Breath Products for the cancellation of a $13,500.00 debt. 502,000
shares were issued to Irvine June 30, 1999 in lieu of debt of $125,500.
J&D Cigar 160,000 shares in lieu of debt of $40,000.00 to complete the
asset purchase Companies.
During the month of December 1998, the Company sold 4,250,000 shares
for $0.01, the gross proceeds were $42,500 of which $5,515 was received
subsequent to December 31, 1998. The offering under the provisions of
Regulation D, Rule 504 of the Securities Act of 1934, as amended (the
"Act"). The proceeds were used for working capital.
Prior to March 31, 1999 the Company sold an additional 150,000 shares
for $37,500 pursuant to Regulation D, Rule 504 of the Securities Act of
1934, as amended. These funds were also used for working capital.
Product
Breath Freshener: Cigar-Gone, a sugarless, all natural chewable gel-cap
breath freshener, considered one of the accessories, is being successfully
marketed and sold through major retail tobacco and convenience stores in
North America by Quantum Cigar in Canada, J&D Cigar Company in Canada and
the United States and by the Company in the United States. The product
Cigar Gone was first introduced at the Cigar Expo in Las Vegas, Nevada in
April 1997 and is now being distributed and marketed by several wholes
over 10,000 different retail outlets throughout North America. The
Company has three other breath products market ready, Coffee Gone,
Garlic Gone and an all natural breath spray will be available in four
flavors.
Cigars and Accessories: J&D Cigar, a subsidiary of the Company, is
located in Alberta Calgary Canada. J&D is currently carrying 45 different
cigars manufactured by 12 different companies including a full line of
Cuban Cigars. In its prior seven years in business its been able to
secure exclusive Canadian rights to many of these cigars. As a major
Canadian importer of cigars and accessories, J&D has established a
client base of about 100 wholesale and retail customers throughout Canada.
Fresh Breath Industries, Inc., will wholesale the Breath products and
the cigar products and other accessories in the United States and through
its divisions in Canada.
Marketing
Cigar smoking has always been an integral part of North American culture
with a phenomenal surge in popularity in the last few year. In the last
two years cigar sales have increased 43% from 1994 to 1995 and even larger
increased experienced from 1996 to 1997. Over 240 million cigars were sold
in the USA in 1995 and over 300 million sold in 1996. By 1997, cigars were
being sold in a variety of locations including grocery, drug and
convenience stores. Total cigars sold in 1997 were over 350 million. Cigars
have increased 18% from 1994 to 1995 with an equal increase in 1996.
Overall the accessory industry exploded in 1997 with an increase of 23%.
Hollywood and sports celebrities of both genders have now adopted the
cigar as a symbol of success and fashion in the 90's. Cigar bars and
emporiums have sprung up across the United States and Canada at an amazing
rate. Cigar friendly restaurants are now becoming the norm. The "Stogie"
once a bastion of the rich American male has now become a true phenomenon
for men and women across wide spectrums of North American society.
Dropping into the local cigar emporium to enjoy a night of fine cigars,
to transact business or simply to be part of the cigar culture in now
considered a very fashionable thing to do.
Cigar products took off in 1995 and kept up an even faster pace
through 1996 and 1997. Overall cigar sales are being sparked by
the popularity of premium hand made cigars. while sales of premium
cigars jumped 65% in 1996, they still account for just 6.4% of all
cigars sold in the United States. It is estimated that there are 10
million cigar smokers in the United States, many of them being occasional
smokers. Less than 4% are women and they tend to smoke the premium cigars.
The highest concentration is in the over 40 year
old category. However, more men in their mid-20's are taking to
the phenomena. Reasons for the resurgence points to the fact that
cigars have recaptured their traditional image of success, achievement
and celebration.
The current popularity of cigars can be seen in the birth of several
Cigar magazines. Although only a few years old the magazine "Cigar
Aficionado" has risen from 40,000 circulation to 440,000 paid circulation.
An estimated two million read this bible of the cigar business, which
gained its popularity by using big name stars on the cover. "Smoke" is
the newest magazine to hit the cigar market and already boasts of a paid
circulation of over 160,000 copies in less than one year.
Cigars, cigar accessories, and breath fresheners are generally sold on an
indirect basis, e.g., through jobbers and wholesalers to the retail outlets.
Some are sold in a direct basis to national accounts Cigar Gone are now
being distributed and marketed by several wholesalers and in over 10,000
different retail outlets including 7-Eleven, Circle K and AM/PM stores.
Competition
Breath Assure is the market leader for gel-cap breath cleansers. It has
approximately $40,000,000 in sales (1996) world wide, and is in 30 35
countries. Breath Assure is mostly known for its single action gel-cap
formula that is swallowed and takes up to 30 minutes to take effect.
Although Breath Assure is a very good product it does not work instantly,
thus the consumer has to wait 30 minutes before the product takes effect.
Quite often the individual does not want to wait for this length of time
before experiencing the relief of fresh breath.
Breath Assure is relatively unchallenged in its dominance of the market
place; being a premium product at a premium price. Fresh Breath, Inc.,
is able to beat Breath Assure's pricing and still maintain good profit
margins. As it stands now Breath Assure sells at retail up to $7.95 for
50 gel-caps. Cigar Gone sells at retail for $5.95 for 50 gel-caps. It
allows Fresh Breath, Inc., to sell a premium product at a more reasonable
price to the consumer. This trend will also continue with " " Gone product.
To be able to effectively combat Breath Assure and other similar products
that will undoubtedly be coming onto the market place, Fresh Breath, Inc.,
must establish a very aggressive marketing and advertising campaign. Cigar
Gone and Coffee Gone are presently in approximately in ten thousand (10,000)
accounts across North America and is expected to be in a minimum of 30,000
stores across North American by the end of 1999. Although Fresh Breath,
Inc., has been very successful in marketing its products to many wholesale
distributors throughout North America we have not had the opportunity to
market the products directly to the consumer, with the exception of a few
cigar trade magazines. We are looking forward to creating this product
awareness in the near future.
Research and Development
The Company has not allocated funds for conducting research and
development, however, with minimum funds the Company and its affiliates
have developed four (4) additional niche breath products. Garlic Gone,
Coffee Gone, Alcohol Gone in gel-caps and a line of flavor sprays.
Tobacco accessory sales have increased 188% in food stores, 192% in drug
stores and 292% with mass merchandisers.
Patents and Trademarks
All cigar products handled have trademark protected by their
manufacturers. To the issuers knowledge none of the accessory
items handled are patented.
Employees
Presently, the Company has 2 employees. Management intends to hire
additional employees in the United States and Canada only as needed and
as funds are available. In such cases compensation to management and
employees will be consistent with prevailing wages for service rendered.
The Company also will use contract services that will preclude the
necessity of hiring for packaging and processing.
Facilities
The Company has a resident agent office at 1905 South Eastern Avenue,
Las Vegas, Nevada and sales office in Calgary, Alberta, Canada, Vancouver,
B.C., Canada and sales and product office in Irvine and San Diego,
California. The Company will maintain a headquarter office in Vancouver
at 510 Burrard St., Suite 910 in the mid quarter of 1999.
Litigation
The Company is not a party to any material pending legal proceedings and
no such action by, or to the best of its knowledge, against the Company
has been threatened.
Industry Segments
No information is presented as to industry segments. The Company is
presently engaged in a single line of business, the development and
marketing of the Fresh Breath product. Reference is made to the
statements of income contained in the financial statements included
herein for a statement of the Company's revenues and operating profit
(loss) for the past two fiscal years.
Item 2. Description of Property
The Company has a resident agent office at 1905 South Eastern Avenue,
Las Vegas, Nevada and sales office in Calgary, Alberta, Canada, Vancouver,
B.C., Canada and sales and product office in Irvine and San Diego,
California. The Company will maintain a headquarter office in
Vancouver at 510 Burrard St., Suite 910 in the mid quarter of 1999.
Item 3. Legal Proceedings
The Company is not a party to any material pending legal proceedings and
no such action by, or to the best of its knowledge, against the Company has
been threatened.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's Securities Holders
during the fourth quarter of the Company's fiscal year ending December 31,
1999.
PART II
Item 5. Market for Common Equity and Related Stockholders Matters
Prior to the filing of this registration statement, no shares of the
Company's Common Stock have been registered with the Securities and
Exchange Commission (the "Commission") or any state securities agency
of authority. The Company's Common Stock is eligible to be traded in
the over-the-counter market upon the filing of this Form 10SB and the
clearings and comments thereto by the Commission.
The ability of an individual shareholder to trade their shares in a
particular state may be subject to various rules and regulations of
that state. A number of states require that an issuer's securities
be registered in their state or appropriately exempted from registration
before the securities are permitted to trade in that state. Presently,
the Company has no plans to register its securities in any particular state.
Further, most likely the Company's shares will be subject to the provisions
of Section Rule 15g-9 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), commonly referred to as the "penny stock" rule.
Section 15(g) sets forth certain requirements for transactions in penny
stocks and rule 15g-9(d)(1) incorporates the definition of penny stock as
that used in Rule 3a51-1 of the d that used in Rule 3a51-1 of the Exchange
Act.
The Commission generally defines penny stock to be any equity security
that has a market price less than $5.00 per share, subject to certain
exception. Rule 3a51-1 provides that any equity security is considered
to be a penny stock unless that security is: registered and traded on a
national securities exchange meeting specified criteria set by the
Commission; authorized for quotation on the NASDAQ stock Market; issued
by a registered investment company; excluded from the definition on the
basis of price (at least $5.00 per share) of the issuers
net tangible assets; or exempted from the definition by the
Commission. If the Company's shares are deemed to be a penny
stock, trading in the shares will be subject to additional sales
practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors,
generally persons with assets in excess of $1,000,000 or annual income
exceeding $200,000, or $300,000 together with their spouse.
For transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of such security and must have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock,
unless exempt, the rules require the delivery, prior to the first
transaction, of a risk disclosure document relating to the penny stock
market. A broker-dealer also must disclose the commissions payable to
both the broker-dealer and the registered representative, and current
quotations for the securities. Finally, monthly statements must be sent
disclosing recent price information for the penny stocks held in the
account and information on the limited market in penny stocks.
Consequently, these rules may restrict the ability of broker-dealers
to trade and/or maintain a market in the Company's Common Stock and
may affect the ability of shareholders to sell their shares.
As of December 31, 1998 and March 31, 1999 there were 21 and 26 holders
respectively of record of the Company's Common Stock. Because the Company
does not presently trade, no trading history is presented herein.
As of December 31,recent three months, and who has held restricted
shares for a least two years would be entitled to sell such shares
without regard to the resale limitations of Rule 144.
Generally, the shares of restricted stock may not be sold or otherwise
transferred unless first registered under the Act or unless there is an
appropriate exemption from registration available.
Recent Sales of Unregistered Securities
On December 31, 1998 and March 31, 1999, the Company completed an offering
of its Common Stock pursuant to the provisions of Regulation D, Rule 504 of
the Act. Under the offerings, the Company sold 4,250,000 share to 15 people
for $42,500 in December 1999 and 186,000 shares for $46,500 in March 1999.
This offering was not registered under the Act, or registered or qualified
under the securities laws of any state. All purchasers of the shares reside
outside the United States. The offering of the shares were made in reliance
upon the limited offering exemption from registration with the Securities
and Exchange Commission as set in Rule 504 of Regulation D.
Each purchaser was required to complete and sign a written subscription
Agreement represnting that they has read the Disclosure Statement and that the
offering was subjected to a various risk. Pursuant to Rule 504(b)(1) of
Regulation D, the provisions of Rule 505(c) amd (d) provides that: "exempt
as provided in Rule 504(b)(1), securities acquired in a transaction under
Regulation D shall have the status of securities acquired in a transaction
under section 4(2) of the Act and cannot ne resold without resignation
under the Act of the exepmtion therefrom...."
Because the Company's intent and good faith belief was that the offering
qualified under Rule 504(b)(1) of Regulation D, purcahsers of the Company's
common stock mat be permitted to resell their shares without registration
unde the Act pursuant to Rule 502(d). As such, certificates representing these
shares to not bear any restrictive legends.
The Company also issued 100,000 shares of its common stock, to two individual
related parties in the asset acquisition of J&D Cigars on October 25, 1998
and 500,000 shares to one individual realted party for the acquisition of the
exclusive distribution rights for Canada of Irvine Products and Gel Caps
breath freashner product lines on October 16, 1998. With respect to the
issuance of the 600,000 shares, the holders would be affilicates.
The Company relied on the exemption from registration under the Act
provided by Sections 4(2) and 4(6) of the Act in the issuance of the
total of 3,350,000 share issued in the fourth quarter of 1998 said
3,550,000 being all the restricted share issued.
Dividend Policy
The Company has not declared or paid cash dividends or made distributions
in the past, and the Company does not anticipate that it will pay cash
dividends or make distributions in the foreseeable future. The Company
currently intends to retain and invest future earnings to finance its
operations.
Item 6. Management's Discussion and Analysis or Plan of Operation
The following information should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere
in this Form 10-KSB.
Plan of Operation
The Company became incorporated in September 1998. The Company began
operations by consolidating a distribution operation and acquiring
various rights and licenses. Although, the Company did not realize
revenues as of the date hereof, management anticipates sales to start
by the end of first quarter or early in the second quarter of 1999.
The Company's current capital was provided by the founders of the
Company and by two private placements for sale of common stock.
Management believes that the Company's cash requirement can be satisfied
with existing capital for ninety days, if sales are sufficient to handle
current operating costs. Management anticipates the Company will require
further capital of approximately $400,000 within the next Ninety days in
order to properly facilitate production and distribution channels. This
additional capital is expected to come from the sales of products in
inventory or already ordered, however, of intital marketing is delayed or
revenues are not adequare to satisfy its capital needs, the Company will have
to explore other alternatives for funding.
In the event, outside funding is necessary, the Company will
investigate the possibility of interim financing, either debt
or equity, to provide capital. Although, management has not
made any arrangements or definitive agreements, the Company would
consider private funding or the private placements of its securities
and/or a public offering. If the Company experiences a substantial
delay in marketing revenues and is unable to secure public financing
from the sale of its securities or from private lenders, the continuation
of the Company as a going concern would be seriously jeopardized.
Most of the research and development of the Breath Fresheners additional
products has been completed. Management does not intend to consider new
products until such time as revenues are realized from the sale of the
existing products and lines of cigars and accessories. All of the present
lines have an established line of distribution, therefore, no immediate
funds have to be expended in that area. Management would consider products
that would fit in their distribution channel, but are manufactured by others.
The Company has an inventory of 1700 units with wholesale value of
approximately $36,000.00 that was transferred in the acquisitions.
Management does not anticipate hiring additional employees until
recruited by sales and that is further dependent on the Company
having sufficient capital.
Net Operating Loss
The Company became incorporated in September 1998. The Company began
operations by consolidating a distribution operation and acquiring
various rights and licenses. Although, the Company did not realize
revenues as of the date hereof, management anticipates sales to start
by the end of first quarter or early in the second quarter of 1999.
The Company's current capital was provided by the founders of the Company
and by two private placements for sale of common stock. Management believes
that the Company's cash requirement can be satisfied with existing capital
for ninety days, if sales are sufficient to handle current operating costs.
Management anticipates the Company will require further capital of
approximately $400,000 within the next Ninety days in order to properly
facilitate production and distribution channels. This additional cap
ted to come from sales of products in inventory or already ordered,
however, if initial marketing is delayed or revenues are not adequate
to satisfy its capital needs, the Company will have to explore other
alternatives for funding.
In the event, outside funding is necessary, the Company will investigate
the possibility of interim financing, either debt or equity, to provide
capital. Although, management has not made any arrangements or definitive
agreements, the Company would consider private funding or the private
placements of its securities and/or a public offering. If the Company
experiences a substantial delay in marketing revenues and is unable to
secure public financing from the sale of its securities or from private
lenders of the Company as a going concern would be seriously jeopardized.
Most of the research and development of the Breath Fresheners additional
products has been completed. Management does not intend to consider new
products until such time as revenues are realized from the sale of the
existing products and lines of cigars and accessories. All of the present
lines have an established line of distribution, therefore, no immediate
funds have to be expended in that area. Management would consider products
that would fit in their distribution channel, but are manufactured by others
The Company has an inventory of 1700 units with wholesale value of
approximately $36,000.00 that was transferred in the acquisitions.
Management does not anticipate hiring additional employees until
recruited by sales and that is further dependent on the Company having
sufficient capital.
Net Operating Loss
The Company has accumulated approximately $37,026 of net operating loss
carryforwards as of December 31, 1998, which may be offset against taxable
income and income taxes in future years. The use of these losses to reduce
income taxes will depend on the generation of sufficient taxable income
prior to the expiration of the net operating loss carryforwards. The
carryforwards expire in the year 2013. In the event of certain changes
in control of the Company, there will be an annual limitation on the amout
rating loss carryforwards which can be used. No tax benefit has
been reported in the financial statements for the year ended December
31, 1998 or the four month ended March 31, 1998.
Inflation
In the opinion of management, inflation will not have a material effect on
the operations of the Company.
Year 2000
Year 2000 issues may arise if computer programs have been written using
two digits (rather than four) to define the applicable year. In such cases,
programs that have time-sensitive logic may recognize a date using "00" s
the year 1900 rather than the year 2000, which could result in
miscalculations or system failures.
The Company had completed its assessment of the year 2000 issue and
believed that any costs of addressing the issue will not have a material
adverse impact on the Company's financial position. The Company believed
that its existing accounting computer systems and software will not need to
be upgraded to mitigate the Year 2000 issues. The Company has not incurred
any costs associated with its assessment of the Year 2000 problem. In the
event that Year 2000 issued impact the Company's a accounting system
erations aided by its computer system, the Company believes, as part
of the contingency plan, that it has access to adequate personnel or
consultants to perform those functions manually until such time that
any Year 2000 issues are resolved.
The Company believes that third parties with whom it has material
relationships will not materially be affected by the Year 2000 issued
as those third parties are relatively small entities which do not rely
heavily on information technology ("IT") systems and non- IT systems for
their operations. However, if the Company and third parties upon which
it relies are unable to address any Year 2000 issued in a timely manner,
it could result in a material financial risk to the Company, including
loss of revenue unanticipated costs. Accordingly, the Company plans
to devote all resources required to resolve an significant Year 2000
issues in a timely manner.
As of March 31, 2000 the Company had not experienced any Y2K problem
themselves or with suppliers.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard ("SFAS") No. 128, "Earnings Per Share" and Statement
of Financial Accounting Standards No. 129 "Disclosures of Information About
an Entity's Capital Structure." SFAS No. 128 provides a different method of
calculating earnings per share than is currently used in accordance with
Accounting Principles Board Opinion No. 15, "Earnings Per Share." SFAS No.
128 provides for the calculation of "Basic" and "Dilutive" earnings per share
Basic earnings per share includes no dilution and is computed by dividing
income available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution of securities that could share in the
earnings of an entity, similar to fully diluted earnings per share.
SFAS no. 129 establishes standards for disclosing information about an
entity's capital structure. SFAS no. 128 and SFAS no. 129 are effective
for financial statements issued for periods ending after December 15, 1997.
Their implementation is not expected to have a material effect on the
financial statements.
The Financial Accounting Standards Board has also issued SFAS No. 131, No.
130, "Reporting Comprehensive Income" and SFAS no. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 130
establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributors to owners. Among other disclosures, SFAS no. 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in
a financial statement that displays with the same prominence as other
financial statements. SFAS no. 131 supersedes SFAS no. 14 "Financial
Reporting for Segments of a Business Enterprise." SFAS no. 131 establishes
standards on the way that public companies report financial information about
operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for
disclosure regarding products and services, geographic areas and major
customer. SFAS no. 131 defines operating segments as components of a
company about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how
to allocate resources and in assessing performance.
SFAS 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and requires comparative information
for earlier years to be restated. Because of the recent issuance of the
standard, management has been unable to fully evaluate the impact, if any
the standard may have on future financial statement disclosures. Results
of operations and financial position, however, will be unaffected by
implementation of the standard.
Risk Factors and Cautionary Statements
This Registration Statement contains certain forward-looking statements.
The Company wishes to advise readers that actual results may differ
substantially from such forward-looking statements. Forward-looking
statements involve risks and uncertainties that could cause actual
results to differ materially from those expressed in or implied by the
statements, including, but not limited to, the following: the ability of
the Company to meet its cash and working capital needs, the ability of
the Company to successfully market its product, and other risks detailed
in the Company's periodic report filings with the Securities and Exchange
Commission.
Item 7. Financial Statements
The Company's financial statements as of and for the fiscal years
ended December 31, 1999 and 1998 have been examined to the extent
indicated in their report by Jones, Jensen and Company independent
certified accountants, and have been prepared in accordance with
generally accepted accounting principles and pursuant top Regulation
S-B as promulgated by the Securities and Exchange Commission. The
aforementioned financial statements are included herein in response
to Item 7 of this Form 10-KSB
FRESH BREATH INDUSTRIES, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
December 31, 1999
C O N T E N T S
Independent Auditors' Report 3
Balance Sheet 4
Statements of Operations 5
Statements of Stockholders' Equity (Deficit) 6
Statements of Cash Flows 7
Notes to the Financial Statements 8
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Fresh Breath Industries, Inc.
Vancouver, British Columbia
We have audited the accompanying balance sheet of Fresh Breath
Industries, Inc. (a development stage company) as of December 31,
1999 and the related statements of operations, stockholders' equity
(deficit) and cash flows for the years ended December 31, 1999 and
1998 and from inception on September 1, 1998 through December 31, 1999.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our 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 Fresh
Breath Industries, Inc. (a development stage company) as of December
31, 1999 and the results of its operations and its cash flows for the
years ended December 31, 1999 and 1998 and from inception on September
1, 1998 through December 31, 1999 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 3 to the
financial statements, the Company is a development stage company with no
significant operating revenues to date which together raise substantial
doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
April 20, 2000
FRESH BREATH INDUSTRIES, INC.
(A Development Stage Company)
Balance Sheet
ASSETS
December 31,
1999
CURRENT ASSETS
Cash $ 2,581
Total Current Assets 2,581
FIXED ASSETS (NET) Note 6 4,606
TOTAL ASSETS $ 7,187
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 1,801
Notes payable -
related parties (Note 5) 134,440
Accrued interest (Note 5) 13,445
Total Current Liabilities 149,686
Total Liabilities 149,686
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.001 par value,
authorized 50,000,000 shares; 8,748,000
shares issued and outstanding 8,748
Additional paid-in capital 298,146
Stock subscription receivable (15)
Deficit accumulated during the
development stage (449,378)
Total Stockholders' Equity (Deficit) (142,499)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 7,187
The accompanying notes are an integral part of these financial statements
FRESH BREATH INDUSTRIES, INC.
(A Development Stage Company)
Statements of Operations
From
Inception on
September 1,
For the Years 1998 Through
Ended December 31, December 31,
1999 1998 1999
REVENUE $ - $ - $ -
OPERATING EXPENSES
Depreciation and
amortization expenses 280,010 9,032 289,042
Professional services 24,102 5,787 29,889
General and administrative 60,937 16,225 77,162
Total Operating Expenses 365,049 31,044 396,093
OTHER EXPENSES
Loss on inventory
discontinuation 30,967 - 30,967
Interest expense 16,336 5,982 22,318
Total Other Expenses 47,303 5,982 53,285
NET LOSS $ (412,352) $ (37,026 ) $ (449,378)
BASIC LOSS PER
SHARE $ (0.05) $ (0.01)
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 8,483,227 7,800,000
The accompanying notes are an integral part of these financials
FRESH BREATH INDUSTRIES, INC.
(A Development Stage Company)
Statements of Stockholders' Equity
Deficit
Accumulated
Additional Stock During the
Common Stock Paid-in Subscriptions Development
Shares Amount Capital Received Stage
From inception
of development stage,
August 31, 1998 - $ - $ - $ - $ -
September 15, 1998,
common stock issued
for cash at $0.01
per share 400,000 400 3,600 - -
September 15, 1998,
common stock issued
for services at
$0.01 per share 2,550,000 2,550 22,950 - -
November 15, 1998,
common stock issued
for services at
$0.01 per share 600,000 6,000 5,400 - -
December 1, 1998,
common stock issued
for cash at
$0.01 per share 4,250,000 4,250 38,250 (5,515) -
Net loss for the
year ended
December 31,
1998 - - - - (37,026)
Balance, December
31, 1998 7,800,000 7,800 70,200 (5,515) (37,026)
February 10, 1999,
common stock issued
for conversion
of debt at $0.17
per share 100,000 100 16,794 - -
Receipt of subscription
receivable - - - 5,500 -
March 15, 1999,
common stock issued
for cash at
$0.25 per
share 186,000 186 46,314 - -
April 29, 1999,
common Stock
issued for
conversion of debt
at $0.25 per
share 662,000 662 164,838 - -
Net loss for the
year ended
December 31,
1999 - - - - (412,352)
Balance, December
31, 1999 8,748,000 $ 8,748 $ 298,146 $ (15) $ (449,378)
The accompanying notes are an integral part of these financials
FRESH BREATH INDUSTRIES, INC.
(A Development Stage Company)
Statements of Cash Flows
From
Inception on
September 1,
For the Years 1998 Through
Ended December 31, December 31,
1999 1998 1999
CASH FLOWS FROM OPERATING ACTIVITIES
(Loss) from operations $ (412,352) $ (37,026) $ (449,378)
Adjustments to reconcile net (loss)
to net cash provided
(used) by operating activities:
Depreciation and
amortization expense 280,010 9,032 289,042
Common stock issued for services - 31,500 31,500
Changes in operating assets and liabilities:
Decrease in goodwill 41,063 - 41,063
Increase (decrease) in
accounts payable (3,199) 5,000 1,801
Increase (decrease) in
interest payable 7,462 5,982 13,444
Increase (decrease) in notes
payable - related 3,650 - 3,650
Net Cash Provided (Used)
by Operating Activities (83,366) 14,488 (68,878 )
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (5,726) - (5,726 )
Purchase of distribution rights - (15,800) (15,800)
Net Cash (Used) by
Investing Activities (5,726) (15,800) (21,526)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock 52,000 40,985 92,985
Net Cash Provided by
Financing Activities 52,000 40,985 92,985
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (37,092) 39,673 2,581
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 39,673 - -
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,581 $ 39,763 $ 2,581
NON-CASH FINANCING ACTIVITIES
Issuance of stock for
payment on notes $ 179,394 $ - $ 179,394
Purchase of distribution
rights for notes payable $ - $ 300,790 $ 300,790
Cash Paid For:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
The accompanying notes are an integral part of these financials
FRESH BREATH INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
On September 1, 1998, Fresh Breath Industries, Inc. (the Company) was
incorporated under the laws of Nevada to engage in marketing cigars and
cigar-related products.
The Company has authorized 50,000,000 shares of $0.001 par value
common stock.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year end.
b. Cash Equivalents
The Company considers all highly liquid investment with a maturity of
three months or less when purchased to be cash equivalents.
c. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
d. Income Taxes
No provision for federal income taxes has been made at December 31, 1999
due to accumulated operating losses. The minimum state franchise tax has
been accrued.
The Company has accumulated approximately $412,000 of net operating losses
as of December 31, 1999, which may be used to reduce taxable income and
income taxes in future years through 2019. The use of these losses to
reduce future income taxes will depend on the generation of sufficient
taxable income prior to the expiration of the net operating loss
carryforwards.
FRESH BREATH INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1999
In the event of certain changes in control of the Company, there will be an
annual limitation on the amount of net operating loss carryforwards which
can be used. The potential tax benefits of the net operating loss
carryforwards have been offset by a valuation allowance of the same amount.
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course
of business. The Company has not established revenues sufficient to cover
its operating costs and allow it to continue as a going concern. Management
believes that the Company will soon be able to generate revenues sufficient
to cover its operating costs through the sales of products under its
distribution rights. Currently, management is committed to covering all
operating and other costs until sufficient revenues are generated.
NOTE 4 - COMMON STOCK TRANSACTIONS
During the month of December 1998, the Company had a 504 Common Stock
issuance. 4,250,000 shares were issued at $0.01; the gross proceeds of
which totaled $42,500. $5,500 was received subsequent to December 31,
1998. In September 1998, 2,550,000 shares were issued at $0.01 for
services, and 400,000 shares were issued for cash at $0.01. In November
1998, 600,000 additional shares were issued at $0.01 for services rendered,
totaling 7,800,000 shares outstanding at December 31, 1998.
During 1999, the Company issued 762,000 shares at an average price of
$0.24 per share for payment on notes payable and related interest totaling
$182,394.
The Company had a 504 common stock issuance. 186,000 shares were issued
at $0.25, the gross proceeds of which totaled $46,500.
NOTE 5 - RELATED PARTY TRANSACTIONS
An officer of Quantum Cigar Corporation and 545-205 B.C. Ltd., who is
also an officer of the Company, which held the distribution rights of
Irvine Breath Products, sold these rights to the Company (Note 4). The
officer is owed $134,440 at December 31, 1999. The note is due on demand,
unsecured and bears interest at 10%
FRESH BREATH INDUSTRIES, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1999
NOTE 6 - FIXED ASSETS
During 1999, the Company received office equipment from J&D Cigar. The
equipment is depreciated over a five year life using the straight-line
method of depreciation. The equipment is valued as follows:
December 31,
1999
Office equipment $ 4,283
Computer equipment 1,152
Leasehold improvements 291
Total 5,726
Less: accumulated depreciation (1,120)
Total Net Equipment $ 4,606
Total depreciation expense for the years ended December 31, 1999
and 1998 was $1,120 and $-0- respectively.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The executive officers and directors of the Company are as follows:
Name Age Position
Kenneth Trociuk 44 CEO / Director
Jeffery Walters 34 President/Director
Catherine Edwards 39 Secretary/Treasurer/
Director
All directors hold office until the next annual meeting of stockholders
and until their successors have been duly elected and qualified. Directors
will be elected at the annual meetings to serve for one year terms. There
are no agreements with respect to the election of directors. The Company
has not compensated its directors for service on the Board of Directors or
any committee thereof. Any non-employee director of the Company shall be
reimbursed for expenses incurred for attendance at meetings of the Board of
rectors and any committee of the Board of Directors. The Executive
Committee of the Board of Directors, to the extent permitted under
Nevada law, consists of the two directors and exercises all of the
power and authority of the Board of Directors in the management of
the business and affairs of the Company between meetings of the Board
of Directors. Each executive officer is appointed by and serves at the
discretion of the Board of Directors.
None of the officers and/or directors of the Company are officers or
directors of any other publicly traded corporation, nor have any of the
affiliates or promoters of the Company filed any bankruptcy petition, been
convicted in or been the subject of any pending criminal proceedings, or
the subject or any order, judgment, or decree involving the violation of
any state or federal securities laws within the past five years.
The directors will initially devote their time to the Company's affairs
on an "as needed" basis, the exact amount of which is undetermined at this
time. Jeff Walters approximately to hours per week to the Company's
business. If the Company begins to generate revenues, the Company's
Secretary/Treasurer, Catherine Edwards, will devote approximately20 to 3
30 hours a week primarily as the Company's Controller persons are prepared
to increase the time they devote to the Company should such a need arise.
Presently ther are no other persons whose activities are material to the
Company's operations other than the Company's corporate counsel.
The business experience of each of the persons listed below during the
past five years is as follows:
Kenneth Trociuk, age 44, is the president and CEO of three companies,
Kenrich Mining (V.S.E.),and Blue Gold. He has a Business Diploma in
Administration, Economics and Advertising. As a co-owner of Canadian
Oilfield Directory until 1996, and Sales manager for Parklane Publications
for five years, Mr. Trociuk brings valued marketing experience to the
company. Mr. Trociuk is an avid super-pro quarter mile drag racer.
Catherine Edwards, age 39, has worked in the medical profession for ten
years, and more recently manages commercial real estate. She has run her
own business for the past 10 years. First a cattle ranch, and then a retail
wholesale business which she is currently operating. She has been involved
in financing for public companies. Ms. Edwards is a director of Thorlow
Resources, and is currently serving her sixth year on the board of a
non-profit society. Ms. Edwards has a College Business Diploma and a
Bachlor of Science degree form the University of British Columbia.
Jeffrey Walters, age 34, has an extensive and varied business background.
He is the founder and owner of several businesses in Canada. He has been
an entrepreneur throughout his career with over seven years experience in
the tobacco and liquor industry. Mr. Walters brings his varied experience
along with several designations to Fresh Breath Inc. Mr. Walters was born
in Calgary, Alberta where he completed high school and attended the
University of Calgary. He is the owner of several retail and wholesale
in the province of Alberta. Jeff will manage all aspects of the breath
freshener and cigar business.
Section 16(a) Beneficial Ownership Reporting Compliance
Each of the Company's officers and directors are required to file a
Form 3, Annual Statement of Changes in Beneficial Ownership on or before
the 45th day after the end of the fiscal year. These reports were not
filed on a timely basis, but were submitted to the Securities and Exchange
Commission on March 1, 2000
Item 10. Executive Compensation
The Company does not have a bonus, profit sharing, or deferred compensation
plan for the benefit of its employees, officers or directors. Since the
Company's inception, it has not paid any salaries or other compensation to
its officers, directors or employees. Further, the Company has not entered
into an employment agreement with any of its officers, directors or any
other persons and no such agreements are anticipated in the immediate future.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information, to the best of the Company's
knowledge, as of March 31, 1999, with respect to each person known by the
Company to own beneficially more than 5% of the outstanding Common Stock,
each director and all directors and officers as a group.
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership of Class (1)
Kenneth Trociuk* 1,000,000 12.5%
Ste. 910-510 Burrard St.
Vancouver, B.C., Canada
V6C 3A8
Jeff Walter* 1,050,000 13.5%
139 Sackville Dr. S.W
Calgary, Albert, Canada
T2W 0W4
Catherine Edwards* 900,000 11%
40 Hymar Place
Vernon, B.C., Canada
V1B 2X5
Doug McPhee* 50,000 .006%
#3 Sierra Vista Circle
Calgary, Alberta, Canada
T2W 0W4
*Management As A Group 3,550,000 45%
Mounier Sallman 450,000 5.6%
1860 Crois Salvador
Brossard, Quebec
V4X 1V2
Peter Shield 400,000 5%
1757 N. 40th Avenue
Vancouver, B.C. Canada
V6M 1W3
* Director and/or Officer
(1) Based upon 86,000 shares of Common Stock outstanding on March 31, 1999.
Item 12. Certain Relationships and Related Transactions
The Company has entered into various agreements with related companies to
purchase the distribution rights of breath freshening products.
On October 16, 1998, the Company bought for the sum of $135,590 which
consists of $130,590 and 500,000 shares of its Common Stock equaling
$5,000, the exclusive Canadian distribution rights to Irvine Breath
Products and Gel Cap Breath Freshener product-lines. On October 21,
1998, the Company bought for the sum of $130,000 the product-line called
Cigar Gone, Coffee Gone and other breath-related products. October 25, 1998,
the Company bought for the sum of $50,000 and 100,000 shares of its Common
Stock, the product-line rights which include the assets, exclusive
distributor rights, and promotional materials of J&D Cigar Company, Ltd.
The Company's officers and directors are subject to the doctrine of
corporate opportunities only insofar as it applies to business opportunities
in which the Company has indicated an interest, either through its proposed
business plan or by way of an express statement of interest contained in the
Company's minutes. If directors are presented with business opportunities
that may conflict with business interests identified by the Company, such
opportunities must be promptly disclosed to the Board of Directors and made
vailable to the Company. In the event the Board shall reject an opportunity
so presented and only in that event, any of the Company's officers and
directors may avail themselves of such an opportunity. Every effort will
be made to resolve any conflicts that may arise in favor of the Company.
There can be no assurance, however, that these efforts will be successful.
PART V
Item 13. Exhibits and Reports on From 8-K
(a) Exhibits
* Articles of Incorporation, filed as Exhibit to Form 10-SB
* By Laws, filed as Exhibit to Form 10-SB
27 Financial Data Schedule
* Exhibits so marked have heretofore been filed with the Securities and
Exchange Commission as part of the filing indicated are incorporated herein
by reference.
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act. The Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Fresh Breath Industries, Inc.
By:/s/ Catherine Edwards
Catherine Erdwars, Secretary
Dated: March 31, 2000
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature Title Date
Jeffery Walters President, Director March 31, 2000
Kenneth Trociuk CEO, Director March 31, 2000
Catherine Edwards Secretary/Treasurer March 31, 2000
/Director
15
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