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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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Form 10-KSB
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[x]ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from .......... to ...........
Commission file number .........................
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
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(Name of Small Business Issuer in its charter)
State of Hawaii 99-0306492
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4614 Kilauea Ave., Ste. 435
Honolulu, HI 96816
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(Address of principal executive offices) (zip code)
Issuer's telephone number: (808) 735-8494
Securities registered under Section 12(b) of the Exchange Act:
NONE
Securities registered under Section 12(g) of the Exchange Act:
$.001 Common Stock
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
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
their 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of reqistrant'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 [ ]
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During the fiscal year ended December 31, 1999, the registrant's total
revenue were $616,955.
As of March 31, 2000, the aggregate market value of the voting common
stock held by non-affiliates of the registrants of was $4,102,295.
As of March 31, 2000, 8,905,995 shares of Common Stock were outstanding.
This report contains forward-looking statements which reflect the view of
Company's management with respect to future events. Although management believes
that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Important factors that could cause actual results to differ
materially from such expectations are a down turn in the current strong retail
climate and the potential for fluctuations in precious metals prices. The
forward-looking statements contained herein reflect the current views of the
Company's management and the Company assumes no obligation to update the
forward-looking statements or to update the reasons actual results could differ
from those contemplated by such forward-looking statements.
TABLE OF CONTENTS
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Page
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PART I
Item 1. Description of Business ................................................. 3
Item 2. Description of Property ................................................. 10
Item 3. Legal Proceedings ....................................................... 15
Item 4. Submission of Matters to a Vote of Security Holders ..................... 17
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis or Plan of Operation ............... 19
Item 7. Financial Statements .................................................... 19
Report of Independent Auditors .......................................... F-1
Balance sheets as of December 31, 1998 and December 31, 1999 ............ F-2
Statements of Operations for the years ended December 31, 1998 and 1999.. F-3
Statements of Changes in Shareholder's Equity for the years ended
December 31, 1998 and 1999 .............................................. F-4
Statements of Cash Flow for the years ended December 31, 1998 and 1999... F-5
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Notes to Financial Statements ........................................... F-6
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................... 20
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act............................. 20
Item 10. Executive Compensation .................................................. 21
Item 11. Security Ownership of Certain Beneficial Owners and Management .......... 21
Item 12. Certain Relationships and Related Transactions........................... 21
Item 13. Exhibits and Reports on Form 8-K
Index to Exhibits ....................................................... 27
Description of Exhibits ................................................. 28
Signatures .............................................................. 29
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ITEM 1 - DESCRIPTION OF BUSINESS:
Business Development
Hawaiian Vintage Chocolate Company, Inc. (the "Company" or "HVC") was
incorporated in July 1993 under the laws of the State of Hawaii to engage in
the development, growing, manufacturing and marketing and branding of cocoa and
chocolate products. HVC's initial corporate strategy lead to the development of
proprietary Hawaiian cocoa cultivars that were planted out either independently
or corporately on the Big Island of Hawaii. The resulting cocoa crops lead to
the development of the Company's concept of varietal chocolate. In addition,
the Company developed proprietary post harvest handling and chocolate
processing techniques.
HVC is continuing to improve its culitvars and is now planting its
third generation of trees. It has recently discontinued the use of independent
contractpartners for the planting of the trees. The Company believes that the
maturation and cultivation of these trees will be important to the future
business growth of the Company. It is the Company's plan to continue its
corporate planting program for its trees so that the Company will be able to
rely on its cocoa beans for the majority of its chocolate products. In the
interim, however, as it has done over the last two years, in part because of
tree loss due to unusual weather conditions, the Company will continue to
evolve into a retail brand development and marketing company. As a result,
the Company during fiscal 2000 will continue to produce its gourmet chocolate
products primarily from selected cocoa beans from a variety of locations
around the world.
The Company does not have any patents or patent applications pending
with respect to the selection and breeding process for its trees or for its
post harvest handling and chocolate processing techniques. The Company regards
these elements of its business as proprietary and seeks to protect its rights
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through a combination of trademark, trade secret law, internal procedures and
non-disclosure agreements. The Company believes that its success will depend,
in part, on the protection of this proprietary information from third parties.
In September 1997, the Company decided to become a public entity. The
Company decided that the most cost efficient and timely method to become a
public company was to enter into an Plan of Merger with American Graphics
Industries, Inc. (AGI), a corporation, which had filed a voluntary petition for
Reorganization under Chapter 11 of the United States Bankruptcy Code, pursuant
to an Amended Plan of Reorganization filed with and approved by the Bankruptcy
Court (the Plan). The Plan provided for a merger of the Company with AGI, which
at the time of consummation of the merger was a "shell" corporation without any
assets, with the Company remaining as the surviving corporation. The Company
decided on this merger so that shares of common stock issued in the merger
approved by the Bankruptcy Court would be unrestricted under section 1145 of
the Bankruptcy Code, and would thus facilitate qualifying the Company's common
stock for trading on the National Association of Securities Dealer's OTC
Bulletin Board (the OTC Bulletin Board). In December of 1997, public trading of
the Company's common stock began on the National Association of Securities
Dealers OTC Bulletin Board, under the stock symbol "HWVI". Presently, the
Company's common stock is quoted in the National Quotation Bureau's "Pink
Sheets".
Beginning in 1998, the Company started its transition from an
agricultural cocoa genetics and chocolate product development company to an
operating company. The Company operates as a grower, manufacturer, and marketer
of gourmet cocoa and chocolate brands. In its operations, the Company grows
cocoa trees and produces and markets gourmet cocoa and chocolate products
manufactured from cocoa beans selected from a variety of locations around the
world including beans grown by the Company in the State of Hawaii for both
wholesale and retail sale to the public. Because of drought conditions in
Hawaii over the last several years that has adversely effected the Company's
cultivation activities and the relative infancy of the Company's current
planting program, the Company presently finds it necessary to utilize more
selected cocoa beans from third party growers than it had planned. As a result,
only a small percentage of the cocoa beans used in the Company's chocolate
products are presently grown by the Company. See "Sources and Availability of
Raw Materials" below.
Business of Issuer
The Company produces branded chocolate products. It presently produces
non-vintage and varietal chocolate from selected cocoa beans from a variety of
locations around the world, including the State of Hawaii and is the only
grower of cacao in the United States. Although it is not presently producing
its Vintage product as the Company's plantings start to mature over the next
eighteen to twenty-four months, the Company intents to reintroduce its Vintage
product line dated to its Vintage year and to utilize more of its own cocoa
beans for its chocolate products.
Vintage chocolate refers to the chocolate made from a single harvest of
a single year of cocoa beans from a specific location from around the world
including Hawaii; non-vintage are products that contain a blend of beans from
different locations and varietal refers to chocolate whose flavor notes are
derived from selected varieties of cocoa from around the world including the
State of Hawaii.
The Company produces five types of basic chocolate under the Hawaiian
Vintage Chocolate brand. The Company developed and popularized the gourmet
varietial chocolate category in the United States as a flavorful gourmet
alternative to other chocolates. In 1999 the Company started marketing four
varieties of gourmet Hawaiian coffee that are independently cultivated and
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marketed by the Company under the Hawaiian Vintage Coffee brand for retail
sale. The name Hawaiian Vintage Chocolate has a high level of awareness among
gourmet chefs and food service institutions. Hawaiian Vintage Chocolate
products are sold to celebrity chefs, cooking schools, upscale restaurants,
hotels, confectioners, cruise lines and bakeries. It is also sold in 19 retail
outlets in Hawaii, 14 outlets on the West Coast and 64 outlets in the Northeast
Coast of the United States, and directly "online" through the Company's
Internet website.
The Company presently develops high quality, gourmet, chocolate
products as well as attractive, stylish and high quality packaging for its
products. The unique flavors of the Company's chocolate are a direct result of
its selected cocoa beans from around the world including Hawaii and the
environments in which they are grown and the Company's recipes for processing.
The Company's mission is to educate the consumer that chocolate is a
product of cocoa beans and the flavor of the bean determines the flavor of the
chocolate. The chocolate produced by the Company is packaged to supply the food
service industry in bulk and the retail industry in quarter pound, half pound,
and full pound gold resealable packages. The Company's solid chocolate products
include Keaau, Kona, Royal Pahoa, Snows of Mauna Kea, and Hapa gourmet
chocolates each made with a proprietary blend of varietal beans from various
environments around the world. In addition the Company has a line of Estate
grown Hawaiian coffees grown for and marketed by the Company under the Hawaiian
Vintage Coffee name, and a line of specialty ingredient chocolates. In
September of 1999, the Company opened its first retail store on the campus of
the University of Illinois in Champaign/Urbana, Illinois. This prototype store
serves products made with the coffees and chocolate of the Company as well as
other related products. For further details concerning the Company's plans for
opening additional retail stores, see the section below under the header
"Principal Products, Markets and Distribution - Retail".
Principal Products, Markets, and Distribution
The Company's chocolate products contain no artificial flavors or
preservatives, are made from high-quality, natural ingredients and are normally
offered in 48 LB, 1 LB, one-half and one-quarter pound packages. According to
the National Confectionery Association industry sales of gourmet chocolate has
grown by the rate of 12% per year for the last three calendar years. The
following table sets forth the percentages of the Company's sales for each
major market segment category during the last two years and for the first
eleven months of this calendar year; the timing of promotional activities,
consumer trends, and the development and introduction of new products will
result in the changes in percentage of the Company's products sold in each of
these market segments. Historical results may not be indicative of results in
future years.
1997 1998 1999
Bulk (Food Service) 90% 70% 17%
Retail 10% 29% 51%
Ingredient 0% 0% 13%
Internet 0% 1% 4%
Bulk (Food Service)
The Company's bulk chocolate is offered in five types of chocolates 64%
cocoa mass chocolates - Kona and Keaau, 56% cocoa mass chocolate - Royal Pahoa,
white chocolate, Snows of Mauna Kea, and milk chocolate - Hapa each made with a
proprietary blend of varietal beans from various environments around the world
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including the State of Hawaii. The channels of distribution for food services
are specialty distributors who in turn sell the product to restaurants, hotels,
cruise lines, airlines, confectioners and bakeries.
Retail
In 1998, the Company introduced its new stylish, high quality packaging
for it products in one, one-half, and quarter pound stand up pouches for sale
at retail. All the Company's chocolate, Kona, Keaau, Royal Pahoa, Snows of
Mauna Kea (white chocolate) and Hapa (milk chocolate), each made with a
proprietary blend of varietal beans from various environments around the world
including beans grown by the Company in the State of Hawaii, are available in
these retail sizes. The retail packaging was only available in Hawaii at
specialty food and gift shops until the fall of 1998 when the Company launched
a test market on the West Coast selling directly to natural food and specialty
food stores. In 1999 the Company's retail products were also sold by the
Company's sales staff and 2 brokers in the Northeast who represent the Company
in connection with sales to the supermarket and grocery trade, natural food
stores, and to distributors who service this market. The two brokers
represent the Company in presenting marketing and sales programs, supporting
retail stores, selling new items, and establishing sale promotions with the
Company's retail clients. The Company's policy is to grant its brokers the
rights to sell the Company's products within a defined territory.
In September of 1999 the Company opened its first Company owned retail
store on the campus of the University of Illinois in Champaign/Urbana,
Illinois. The Company chose this site due to its location in the heartland of
America, the abundance of young people that fit the demographics of the
intended market for the Company's products and, if successful, to facilitate
the opening of additional stores within a 200-mile radius that includes
Chicago. This store is designed to serve as a prototype for further expansion.
The store features the Company's coffees, chocolates as truffles, bars, other
finished chocolates, baked goods, ice cream, coffee/chocolate smoothies, and
other related products in a Hawaiian setting. The store serves as an
educational center for the story of the Company. The store also provides a
training ground for new store personnel and managers and is a testing ground
for new Company products such as the sale of its Estate coffees which are
available only through the store and the Company's Internet site. It also
serves as a test center for promotions, operating and training methods and
merchandising techniques planned by the Company. The Company's plans for
additional retail stores project five new corporate stores to be opened in
2000. Based on the results of these retail stores further expansion plans will
be considered in 2001.
Ingredient Chocolate
In 1999, the Company decided to develop its co-branded business where
the Company's would formulate unique non-vintage chocolate products each made
with a proprietary blend of varietal beans from various environments around the
world to be used as a branded ingredient by other manufacturers. These products
will carry the name of the Company as well as the name of the primary
manufacturer. The Company believes that this will provide the Company with
additional exposure to the public and will inform them that the chocolate used
in health bars, ice creams, and baked goods is a natural gourmet alternative to
existing products. The Company's sales staff services this market directly. The
Company's sole customer during 1999 for this market was New Chapter, Inc. which
has used the Company's chocolate as a coating for their nutritional bars
marketed under their name.
Internet
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The Company opened its Internet website in December of 1998 as an
informational site and as an Internet store where all the Company's retail
chocolate and coffee products could be offered for sale to the online retail
customer. The site offers information on how the chocolate is used, grown, and
is cross-linked to over 200 other chefs and chocolate related sites on the
Internet so the consumer finds it easy to access the Company's information even
while visiting other web destinations. The website also features the current
news on the Company, its celebrity chefs, and serves as a direct communication
link to the Company.
Marketing
The Company's marketing strategy is based upon emphasizing the
consistently superior quality of its branded products. It sponsors a number of
events where excellence in the food industry is recognized such as sponsoring
the James Beard Foundation's Pastry Chef of the Year Award which has been
renamed the "Hawaiian Vintage Chocolate Pastry Chef of the Year". It also
sponsors a variety of food events throughout the year designed to educate the
consumer to the qualities of the Company's unique products and to raise the
level of understanding of chocolate in general. The Company employs chef
support programs at various times during the year to highlight the efforts of
key chefs and institutions in promoting the Company products. In 1999 the
Company developed and employed a variety of advertising and promotional
programs designed to support the sell-through of its retail products at the
consumer level. These include, but are not limited to, store personnel
training, co-promotions with local restaurants, radio campaign and contests.
Competitive Business Conditions
The retailing of confectionery products is highly competitive. The
Company competes with numerous businesses that offer confectionery products.
Many of these competitors have greater name recognition and financial,
marketing and other resources than the Company. Hershey and Mars have dominated
the 12 billion-dollar per year domestic chocolate industry. Utilizing branding
strategies, these producers have emphasized their name and advertised
extensively to compliment their retail sales activities targeted at the mass-
market consumer. In the gourmet chocolate segment Godiva is the industry leader
having evolved from an upscale gift chocolate into a branded product, sold
through its own stores or department stores as primarily a gift item. The
National Confectionery Association predicts that sales of gourmet chocolate is
presently at $1 billion dollars in the United States and predicts these sales
will rise 12% per annum while total chocolate sales are expected to rise by 2-
3% per annum.
The Company believes that its principal competitive strengths lie in its
name recognition and its reputation as the leader in varietal chocolates and in
the quality of its products. With its emphasis on the quality of its chocolate,
the Company has demonstrated in its food service markets and lately at retail
that there is a niche for its gourmet varietal chocolate. Nevertheless, past
successes are no guarantee that the Company will be able to compete on a
national scale successfully. The Company believes that the overall market for
its chocolate products is significant in size.
Sources and Availability of Raw Materials
The principal ingredients used by the Company are cocoa beans and sugar.
Cocoa beans are produced around the world with West Africa accounting for
approximately 65% of the world's crop. Cocoa beans are not uniform, and the
various grades and varieties reflect the diverse agricultural practices and
natural conditions found in the many growing areas. The Company purchases beans
from a variety of select locations around the world. In the past two years the
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Company has had to increase these purchases, in part, because of unusual
weather conditions in Hawaii that have caused a material loss of 250,000 of the
Company's tree stock. For details on the Company's measures to prevent future
tree loss see "Item 6 - MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS - Year 2000 Outlook" below. No single source represents more than
10% of the Company's raw material purchases. The availability of beans from any
specific location is not a limiting factor on Company sales. The Company has
113 acres under cultivation with cocoa tree plantings for that acreage of
169,500 trees. In its two acre production area its has 4136 adult cocoa trees
that are producing beans that are used in Company's products. In addition the
Company plans to lease and plant an additional 150 acres with 225,000 cocoa tree
plantings in 2000.
The Company continues to endeavor to expand its cocoa growing activities,
to increase its capacity to develop new cultivars, new products and to develop
a more efficient and cost effective basis for sale of its products. It is the
Company's intent to continue to expand these activities so that the Company
will be able ultimately to rely primarily on its domestically grown cocoa beans
for a majority of its products. The Company considers the success of the
Company's planting program to be of material importance to the long term
success of the Company. The Company believes that it may be at least two years
before the Company can begin to realize these objectives. In addition, the
successful accomplishment of these operating goals are subject to factors which
could cause results to be adversely effected including, but not limited to:
changes in the chocolate, confectionery and grocery business environment,
including actions of competitors and changes in consumer preferences; changes
in governmental laws and regulations; market demand for new and existing
products; the availability and pricing of raw materials and weather or other
environmental problems, including diseases that could adversely effect the
cultivation and availability of cocoa or coffee beans used in the Company's
products. Such factors could cause a drain on the capital of the Company and
could adversely effect its future expansion and/or business operations. The
table below sets forth the annual percentage of the beans used in the company's
products.
Percentage by origin of cocoa beans and chocolate type
1997 1998* 1999*
Chocolate % Of Origin % Of Origin % Of Origin
Type Hawaii/Other Hawaii/Other Hawaii/Other
Keaau 30/70 10/90 7/93
Kona 30/70 10/90 5/95
Snows n/a 0/100 0/100
Pahoa n/a 10/90 5/95
Hapa n/a n/a 0/100
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* The decrease in the use of Hawaii cocoa beans in the past two years has been
primarily caused by increased sales and adverse weather conditions that have
resulted in the loss of Company trees.
The Company follows organic guidelines while growing its cocoa beans.
Due to the confusion of the ultimate consumer between organically grown products
and organically processed foods and certified organic food products the Company
has ceased to include any organic reference on its advertising or packaging.
The Company's does not produce a certified organic chocolate. In addition the
third party facilities utilized in the manufacturing of the Company's products
are not certified as organic nor are the blended beans, sugar and vanilla used
in the manufacturing process. The Company will continue its practice of organic
farming methods in Hawaii, but will not label its products or utilize any
future advertising that will imply that the Company's products are organic
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unless the Company has developed a fully organic final product. USDA
regulations to sort out this confusion will be implemented within the next
twelve months and at that time the Company will review the situation.
The table below sets forth the average annual cocoa prices as well as
the highest and lowest monthly averages for the calendar years indicated. The
prices are the monthly average of the quotations at noon of the three active
futures trading contracts closest to maturity on the New York Coffee, Sugar and
Cocoa Exchange. Because of the premiums paid for its flavor beans these average
futures contract prices are not necessarily indicative of the Company's cost of
cocoa beans or cocoa products.
Cocoa Futures Contract Prices*
(Cents per Pound)
1996 1997 1998
Annual Average 62.1 70.0 72.7
High 64.4 77.2 78.3
Low 57.4 59.1 65.5
*Source: International Cocoa Organization Quarterly Bulletin of Cocoa
Statistics.
The price of sugar, the Company's second most important commodity for
its chocolate production is subject to price supports under the Federal
Agricultural and Improvement Reform Act of 1996. Due to import quotas and
duties imposed to support the price of sugar established by that legislation,
sugar prices paid by United States users are currently substantially higher
than prices on the world sugar market. The average wholesale list price of
refined sugar has remained relatively stable in the range of $.28 to $.35 per
pound for the past ten years.
Manufacturing
The Company has its selected beans roasted, ground and turned into bulk
chocolate products based on the Company's proprietary formulas by a contracted
supplier in California and uses a variety of firms on the mainland to produce
its finished chocolate. If, any of these suppliers should become unavailable,
the Company believes there are numerous companies that could provide these
services without any adverse business impact on the Company's operations. As
indicated above, the Company considers the recipes, procedures, and process
whereby the Company's selected beans are ultimately manufactured into the
Company's finished products to be proprietary and seeks to protect its rights
through a combination of trademark and trade secret law and internal procedures
and non-disclosure agreements.
Dependence upon a single customer; or a few customers
As of December 31, 1999, 44% of the Company's net sales were derived
from sales to three customers. An ingredient chocolate customer accounted for
14% and two retail customers accounted for 30%.
Patents, trademarks, licenses, franchises, concessions, royality agreements or
labor contracts.
The Company has a license Plan for the sale of its products through
kiosks in the Midwest states of Missouri, Illinois, Wisconsin, and Michigan
with Hobson Global Marketing. The Company's rights under this Plan are
extendible on a long-term basis at the Company's option, which obligates the
licensee to maintain a minimum inventory level. The license is subject to a
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minimum sales requirement for 1999. The Corporation owns various unregistered
trademarks and service marks, which are of material importance to the Company's
business and which are in the process of being registered Federally and at the
state level where it is appropriate.
The following trademarks are registered with the State of Hawaii:
Hawaiian Vintage Chocolate, Hot Lava Chocolate, Kona Chocolate, Lava Chocolate,
White Lava Chocolate, Golden Hawaiian Chocolate, Golden Hawaiian Cocoa, Hawaii
Cocoa Estates, Hawaii Estate Grown, Hawaiian Vintage Estates, Island Cocoa,
Little bits of Aloha, Tropical cocoa, Unforgettable Hawaiian Chocolate, Snows
of Mauna Kea, Hodge's Estate, Keaau, Estate, Keaau Cocoa Plantation, Keaau
chocolate, Kona Estate.
The costs associated with the development of these trademarks and names
such as registration fees and legal fees are expensed as incurred.
Regulation
The Company's and its suppliers' production facilities are subject to
inspection by the Foods and Drug Administration and various other governmental
agencies, and its products must comply with regulations under the Federal Food,
Drug and Cosmetic Act and various comparable state statues regulating the
manufacturing and marketing of food products. A finding of a failure to comply
with one or more regulations could result in the imposition of sanctions. The
Company's product labeling is subject to and complies with the Nutrition
Labeling and Education Act of 1990. The Company believes it is operating in
compliance with all applicable laws and regulations.
Environmental Considerations
The Company is in compliance with environmental laws and regulations.
Accordingly, the costs and effects of compliance with environmental laws
(federal, state and local) has not been material to the Company's operations.
Research and Development
Despite the fact that there can be no assurance that the Company can
successfully produce new products, nor that such products will be profitable,
the Company will be required to continue to spend substantial sums on research
and development in the foreseeable future in order to enhance its existing
genetics, products, and to develop new products. New technology developed, or
products introduced by other entities could adversely affect the marketability
of the Company's products. Consequently, the Company is compelled to continue
development of new technologies and the implementation of new technologies in
order to remain competitive. In Fiscal 1998 the Company spent $21,000 in
product development and in 1999 the Company has spent $125,000 on Company-
related research and development.
Employees
As of December 31, 1999, the Company employed 17 full time workers of
whom 5 were in corporate administration, 2 in sales and marketing, 3 in
fieldwork and 7 in its retail location. The Company also hires a varying number
of part-time seasonal workers for work in its fields.
ITEM 2. DISCRIPTION OF PROPERTIES
The Company occupies office space for its executive offices of 1500
square feet for $1.25 per sq. ft on a six-month renewable lease in downtown
Honolulu, Hawaii that it will continue to lease until it builds permanent
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facilities. The Company leases 134 acres of land on the Big Island of Hawaii for
the growing and cultivation of its cocoa beans that is on a six-year Plan
that is planned to be converted into a 26 year term lease at $250.00 per
acre/year. A factory site in Hawaii of 1 acre and up to an additional 1000 farm
acres is planned to be leased or purchased in 2000/2001.
ITEM 3. LEGAL PROCEEDINGS
The Company has no material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock presently is quoted in the National
Quotation Bureau's "Pink Sheets" under the symbol "HWVI". The following table
sets forth for the period indicated, the per share high and low bid quotations
for the common stock as reported by the Over The Counter Market Report. The bid
quotations are inter-dealer bid prices and do not include mark-ups, mark-downs,
or commissions. The number of record holders of the Company's common stock at
December 31, 1999 was 121. The company has not declared any dividends with
respect to its common stock. The Company intends to retain all earnings to
finance future growth; accordingly, it is not anticipated that cash dividends
will be paid to holders of the common stock in the foreseeable future.
High and low stock prices for the last two years were:
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1999 1998 1997
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High Low High Low High Low
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First Quarter 3 3/8 1 3 3/8 1 1/4 -- --
Second Quarter 1 15/16 1 3/32 3 7/8 1 3/4 -- --
Third Quarter 2 3/8 1 1/4 3 1/4 1 27/32 -- --
Fourth Quarter 1 3/4 1 2 3/8 1 13/16 2 1 1/2
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On December 31, 1999 the representative bid for the Company's common
stock, as reported by the OTC Bulletin Board was 1 3/4.
The company's transfer agent is Registrar and Transfer Company, 311 Cox
Street, Roselle, NJ 07203.
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This discussion should be read in conjunction with the audited and
unaudited financial statements and the related Notes to the Company's Financial
Statements included elsewhere in this registration statement. The Management's
Discussion and Analysis of Financial Condition and Results of Operations contain
forward-looking statements that involve risks and uncertainties. Readers are
cautioned not to place undue reliance on the forward-looking statements in this
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registration statement.
Results of Operations --- 1999
Fiscal 1999 compared to Fiscal 1998
"Net Sales." Net sales increased by 213% to $616,955 from $196,993 in 1998. The
increase was primarily attributable to the expansion of the Company's wholesale
and retail efforts on U.S. mainland as well as direct retail sales on Internet.
The Company retained experienced independent marketing and sales personnel on
the U.S. mainland and developed a wholesale clientile on the West Coast. In
addition, the Company opened its first retail chocolate shop in the State of
Illinois in September 1999.
"Cost of sales" Cost of sales in 1999 increased to $300,648 from $47,429 in 1998
partly because of the increase in net sales volume and partially because of the
costs of new products developed, as well as the cost of expanded distribution.
"Gross Profit." As a result of the Company's increase in net sales, gross profit
for 1999 increased 111% to $316,307 from $149,564 in 1998. The Company's gross
profit margin dropped 25% from 1998 primarily due to the decreased margins of
itsingredient business and discounts necessary for securing retail
distribution.
"Selling and Marketing Expenses." Selling and marketing expenses for 1999
increased 83% to $331,000 from $180,953 in 1998 and as a percentage of net
sales it was reduced to 54% from 92% in 1998. The increase in selling and
marketing expenses was primarily due to an increase in advertising expenses,
distributor support programs, and retail test market introductions. This
increase was partially offset by the increase in sales.
"General and Administrative expenses." General and administrative expenses for
1999 increased by 66% to $731,329 from $439,683 in 1998 and decreased 107% as a
percentage of sales to 116% from 223%. The primary reason for the increase of
the general and administrative expenses is the increased staffing by the Company
as part of its conversion from a development company to an operating company
and to support its expansion program.
"Other Income." In 1999, there is no other operating income except interest
income.
"Operating Income or loss" Operating loss for 1999 increased 62% to $848,766
from $523,411 in 1998 and the loss decreased as a percentage of sales to 137%
from 265% in 1998. The increase in the dollar amount of the operating loss was
due to the additional staffing by the Company and the increased selling and
marketing expenses incurred by the Company as part of its conversion into an
operating company and to support its expansion program.
"Income Taxes." The Company has a net loss for the year therefore incurring no
income tax liability.
"Interest Expense." Interest expense for 1999 increased 35% to $20,204 from
$14,949 in 1998 primarily due to accounts receivable factoring.
"Net Income." Net losses for 1999 increased 63% to $833,344 from $510,405 in
1998 and the loss decreased as percentage of sales to 135% from 259%. This
increase is due to the additional staffing by the Company and the increased
selling and marketing expenses incurred by the Company as part of its
conversion into an operating company and to support its expansion program.
"Cash and cash equivalent" The ending cash balance of 1999 was $42,606 as
opposed to a negative $7,731 in 1998. This increase was due to the increased
<PAGE>
<PAGE> 13
sales of the Company in 1999.
"Accounts Receivable" Accounts receivable increased from $42,282 at the end of
1998 to $253,000 as of December 31, 1999. This increase was due to increase in
sales in 1999.
"Inventory" To support increased sales, the Company increased its
inventory level from $21,475 in 1998 to $233,042 as of December 31, 1999.
"Capitalized Planting Costs" and "Orchard": In 1999, the Company continued
investing in cocoa tree planting. Therefore capitalized planting costs
increased from $243,361 to $281,012.
Seasonality and Stores Openings
The Company's business is seasonal and its quarterly results of
operations reflect seasonal trends resulting from increased demand for the
Company's chocolate products during the Christmas and Valentine's Day seasons.
The Company has experienced quarterly fluctuations in sales volume and operating
results when compared to previous years due to a number of factors, including
the timing of trade promotions, advertising and consumer promotional
expenditures. The Company, as is common in the chocolate industry, offers trade
promotions for limited time periods on specific items in order to provide
incentives for the purchase and promotion of products. The impact on chocolate
sales from period to period due to the timing and extent of such trade
promotions can be significant. In addition, the Company believes that quarterly
results will be affected by the timing of new store openings; therefore results
for any quarter are not necessarily indicative of results that may be achieved
in other quarters or for a full fiscal year.
Liquidity and Capital Resources
As of December 31, 1999, working capital was ($18,538). There was an
$114,368 increase in working capital compared to the working capital of
($132,906) at the end of 1998. This increase was primarily due to the private
sale of the Company's common stock in 1999. Cash and cash equivalent balances
increased from ($7,731) on December 31, 1998 to $72,626 on December 31, 1999
as a result of cash flows in excess of operating and financing costs. The
Company's current ratio was 0.97 on December 31, 1999 as compared to 0.36 on
December 31, 1999.
The Company's long-term debt was $38,587 as of December 31, 1999, which
was due to the equipment lease at its store location in Illinois.
The operations of the Company historically have been funded with a
combination of internally generated funds and external private sales of equity.
Purchases of inventory, marketing expenditures and support of account receivable
have been, and are expected to remain, the Company's principal recurring uses of
funds for the foreseeable future. The Company's other principal use of funds in
the future will be the development of new products, the possible acquisition of
brands, product lines or other business activities, the development of corporate
stores and increased staffing costs. The Company has incurred significant
operating loss from its operations through December 31, 1999. The Company's
working capital requirements have been and will continue to be significant. The
Company expects its primary sources of financing for its future business
activities will be funds from operations and the additional sale of common
stock. The Company currently believes that funds from operations and the
possible sale of equity are likely to be sufficient to meet operating and
capital requirements unless a significant acquisition or store expansion is made
during fiscal 2000 beyond the projected new store expansion described in this
report. The Company cautions, however, that there is no assurances that these
assumptions will prove to be accurate.
<PAGE>
<PAGE> 14
ITEM 7. FINANCIAL STATEMENTS
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors F-1
Balance Sheets as of December 31, 1998 and 1999 F-2
Statements of Operations and Comprehensive Income
for the years ended December 31, 1998 and 1999 F-3
Statements of Shareholders' Equity for the years ended December 31, 1998 and 1999 F-4
Statements of Cash Flows for the years ended December 31, 1998 and 1999 F-5
Notes to Financial Statements F-6
</TABLE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Hawaiian Vintage Chocolate Company, Inc.
We have audited the accompanying balance sheets of Hawaiian Vintage Chocolate
Company, Inc. as of December 31, 1998 and 1999 and the related statements of
operations and comprehensive income, shareholders' equity, and cash flows for
years ended December 31, 1998 and 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
misstatements. 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 Hawaiian Vintage Chocolate
Company, Inc. as of December 31, 1998 and 1999, and the results of its
operations and its cash flows for the years ended December 31, 1998 and 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 2 to the
financial statements, the Company's significant operating losses, working
caiptal deficiency and significant capital requirements raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
HOLLANDER, LUMER & CO. LLP
<PAGE> 15
Los Angeles, California
April 7, 2000
F-1
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ -- $ 42,606
Marketable securities 30,000
Accounts receivable - net of allowance for
doubtful accounts $30,273 in 1998
and $56,927 in 1999 42,282 253,555
Inventory 21,475 233,042
Other current assets 10,099 32,156
----------- -----------
TOTAL CURRENT ASSETS 73,856 591,359
----------- -----------
PROPERTY AND EQUIPMENT (Net of accumulated
depreciation and amortization) 36,776 222,946
----------- -----------
OTHER ASSETS
Capitalized planting cost 243,361 281,012
----------- -----------
TOTAL OTHER ASSETS 243,361 281,012
----------- -----------
TOTAL $ 353,993 $ 1,094,867
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 7,731 $ --
Accounts payable - trade 105,452 191,170
Accrued expenses 89,077 221,793
Short term loan, secured -- 109,793
Notes Payable -- 75,000
Obligation under capital lease - current portion -- 12,141
Other payable 4,502 --
----------- -----------
TOTAL CURRENT LIABILITIES 206,762 609,897
LONG TERM LIABILITIES
Notes Payable 75,000 --
Obligation under capital lease - net of current portion -- 38,587
----------- -----------
<PAGE>
<PAGE> 16
TOTAL LOAN TERM LIABILITIES 75,000 38,587
TOTAL LIABILITIES 281,762 648,484
----------- -----------
SHAREHOLDERS' EQUITY
Common stock, $.001 par value;
Shares authorized - 20,000,000
Shares issued or to be issued and outstanding -
7,479,843 in 1998 and 8,659,558 in 1999 7,482 8,661
Additional paid-in capital 1,850,052 3,145,981
Due from officer (355,604) (442,258)
Accumulated deficit (1,429,699) (2,272,407)
Other comprehensive income -- 9,364
----------- -----------
72,231 449,341
Less: cost of shares of common stock
in treasury (2,000 shares in 1999) -- (2,958)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 72,231 446,383
----------- -----------
TOTAL $ 353,993 $ 1,094,867
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements
F-2
<PAGE> 20
<TABLE>
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
STATEMENTS OF OPERATIONS
Years Ended
-----------------------------
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
Sales - net $ 196,993 $ 616,955
Cost of sales 47,429 300,648
----------- -----------
Gross Profit 149,564 316,307
----------- -----------
Operating expenses
Sales and marketing 180,953 331,000
Product development 21,209 17,367
General and administrative 454,357 774,595
Depreciation 16,456 42,121
----------- -----------
Total operating expenses 672,975 1,165,083
----------- -----------
Loss before other income and
comprehensive income (523,411) (848,776)
Other income (expense)
Other income 6,010 --
Interest income 21,945 26,272
Interest expense (14,949) (20,204)
<PAGE> 17
----------- -----------
Total other income (expense) 13,006 6,068
----------- -----------
Net loss (510,405) (842,708)
Other comprehensive income:
Unrealized gain from marketable
securities -- 9,364
----------- -----------
Comprehensive income $ (510,405) $ (833,344)
=========== ===========
Weighted average shares outstanding 7,051,472 8,193,784
=========== ===========
Basic and diluted net loss per share $ (0.07) $ (0.10)
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements
F-3
<PAGE> 21
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC
STATEMENT OF SHAREHOLDERS' EQUITY
For years ended December 31, 1998 and 1999
<TABLE>
<CAPTION>
COMMON STOCK OTHER
TOTAL
------------------------ ADDITIONAL DUE ACCUMULATED COMPREHENSIVE
TREASURY SHAREHOLDERS
SHARES AMOUNT PAID-IN CAPITAL FROM OFFICER DEFICIT INCOME
STOCK EQUITY
--------- ------------ --------------- ------------ ------------ -------------
- - --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
Balance at January 1, 1998 6,781,178 $ 6,781 $ 1,332,506 $ (342,145) $ (919,294) $ -- $
- - -- $ 77,848
--------- ----------- -------------- ------------ ------------ -------------
- - --------- -------------
Shares surrendered at $.50 per share (11,350) (11) (5,664)
(5,675)
Issuance of shares for debenture
conversion at $.385 per share 134,828 135 51,774
51,909
Issuance of shares in exchange
of trees at $2.00 per share 62,500 63 124,937
125,000
<PAGE>
<PAGE> 18
Issuance of shares for cash 442,667 443 289,067
289,510
Issuance of shares for services 22,134 23 14,453
14,476
Issuance of share for warrant
exercised at $2.50 per share 9,542 10 23,845
23,855
Issuance of share for promotional
purposes at $.50 per share 38,344 38 19,134
19,172
Additional due from officer (13,459)
(13,459)
Net loss for year ended 12/31/1998 (510,405)
(510,405)
--------- ----------- -------------- ----------- ----------- -----------
- - ----------- -----------
Balance as of December 31, 1998 7,479,843 7,482 1,850,052 (355,604) (1,429,699) --
- - -- 72,231
--------- ----------- -------------- ----------- ----------- -----------
- - ----------- -----------
Issuance of shares for cash 1,042,400 1,177 1,187,523
1,188,700
Shares surrendered at $.50 per share (500) (1) (249)
(250)
Issuance of shares for debt
settlement 43,634 44 56,711
56,755
Issuance of shares for
promotional at $.50 94,181 94 51,809
51,903
Additional due from officer (86,654)
(86,654)
Unrealized gain on investment 9,364
9,364
Aquisition of shares investment
(2,958) (2,958
Net loss in 1999 (842,708)
(842,708)
--------- ----------- -------------- ----------- ----------- -----------
- - ----------- -----------
Balance as of December 31, 1999 8,659,558 $ 8,796 $ 3,145,846 $ (442,258) $(2,272,407)
$ 446,383
========= =========== ============== =========== =========== ===========
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements
F-4
<PAGE> 22
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
-----------------------------
December 31, December 31,
<PAGE>
<PAGE> 19
1998 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (510,405) $ (842,708)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 16,456 42,121
Shares issued to convert debenture
interest to equity 1,903 56,755
Shares issued for services 14,476 --
Shares issued for promotional 13,506 51,653
Changes in Assets and Liabilities:
Accounts receivable 95,424 (211,273)
Advances -- --
Inventory (18,475) (211,567)
Other current assets (1,223) (22,057)
Bank overdraft 7,731 (7,731)
Accounts payable -trade 74,374 85,718
Accrued expenses 52,384 132,716
Other payables (431) (4,502)
----------- -----------
NET CASH FROM OPERATING ACTIVITIES (254,280) (930,875)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (14,075) (184,584)
Purchase of marketable securities -- (20,636)
Capitalized planting cost (42,018) (80,908)
Advances to officer (13,459) (86,654)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (69,552) (372,782)
CASH FLOWS FROM FINANCING ACTIVITIES
Private sales of common stocks 313,365 1,188,700
Purchase of treasury stocks (2,958)
Obligation under capital lease 50,728
Short term loan 109,793
----------- -----------
NET CASH PROVIDED FINANCING ACTIVITIES 313,365 1,346,263
NET DECREASE IN CASH AND CASH EQUIVALENT (10,467) 42,606
CASH AND CASH EQUIVALENT AT BEGINNING OF THE YEAR 10,467 --
----------- -----------
CASH AND CASH EQUIVALENT AT END OF THE YEAR $ -- $ 42,606
=========== ===========
OTHER CASH INFORMATION
Interest received $ -- $ 3,973
=========== ===========
Interest paid $ 10,318 $ 5,749
=========== ===========
NON CASH TRANSACTION
Shares issued for other than cash $ 210,557 $ 108,408
=========== ===========
Unrealized gain on investment $ -- $ 9,364
=========== ===========
</TABLE>
<PAGE>
<PAGE> 20
See accompanying Notes to Financial Statements
F-5
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principal Business: Hawaiian Vintage Chocolate Company, Inc. (the Company) was
formed in July 14, 1993 as a Hawaiian corporation to develop and grow unique
genetic cocoa beans on the Hawaiian Islands. Beginning 1998, the Company started
its transition from a research and development company to an operating company.
The principal business of the Company is to continue developing and growing
America's only homegrown cocoa beans, and to manufacture and sell aged cold
bean chocolate through distributors and its own retail stores.
Use of Estimates: The financial statements and related notes have been prepared
in conformity with generally accepted accounting principles and include some
amounts and disclosures which are estimated based on currently available
information and management's judgment of current facts and circumstances. Actual
results could differ from those estimates.
Allowance for Bad Debts: Allowance for doubtful accounts is provided on the
basis of the evaluation of the collectability of the accounts at the end of the
year.
Inventories: Inventories are stated at the lower of cost or market. Cost is
determined based on the weighted average cost method.
Advertising Costs: Advertising expenditures relating to marketing are expensed
in the period the advertising initially takes place.
Fair Value of Financial Instruments: The Company's financial instruments consist
of cash equivalents, receivables, accounts payable, accrued expenses, notes
payable and due to related parties. The fair values of the Company's financial
instruments approximate the carrying value of the instruments.
Stock-Based Compensation: Statement of Financial Accounting Standard ("SFAS")
No. 123, "Accounting for Stock-Based Compensation", encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method as prescribed in
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", and related Interpretations, under which no compensation cost
related to stock options has been recognized as the exercise price of each
option at the date of grant was equal to the fair value of the underlying common
stock.
Revenue Recognition: Sales are recognized net of promotional and trade
discounts, when goods are shipped.
Property and Equipment: Property and equipment are stated at cost less
accumulated depreciation. Depreciation of property and equipment is computed
using double-declining balance methods based on the estimated useful lives of
the assets between 5 to 7 years.
The cost of maintenance and repairs is charged to income as incurred;
significant renewals and betterment are capitalized. When assets are retired or
<PAGE>
<PAGE> 21
otherwise disposed of, their carrying values and the related accumulated
depreciation are removed from the accounts and any resulting gains or losses are
reflected in operations for the year.
Capitalized Planting Cost: The cost of cacao tree nursery and field planting,
including direct labor and other related expenses are capitalized as incurred.
During the year the trees become producing, usually two to three years after
planting, they will then be reclassified as orchard and will be amortized over
40 years of the trees' useful lives.
Impairment of Long-lived Assets: The Company evaluates the carrying value of
long-lived assets whenever events or changes in circumstances indicate that the
carrying value of the asset may be impaired. An impairment loss is recognized
when estimated future cash flows expected to result from the use of the
assets including disposition, is less than the carrying value of the asset.
Comprehensive Income: Components of comprehensive income for the Company
include net income and changes in the value of available-for-sale securities.
Segment Information: The Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information", ("SFAS No. 131") issued by the FASB. SFAS No. 131 requires that
public companies report certain information about operating segments, products,
services and geographical areas in which they operate and their major customers.
The adoption of SFAS No. 131 did not affect results of operations or financial
position but did affect the disclosure of segment information, as presented in
Note 3.
Share Valuation: Shares issued without cash consideration are accounted for
based on the fair value of the consideration received or the fair market value
of the shares issued, whichever is more reliably measurable.
Treasury Shares: the costs of the acquired shares are shown as a deduction from
shareholders' equity. When treasury shares are reissued, the Company uses a
first-in, first-out method and the excess of repurchase cost over reissuance
price is treated as a reduction of retained earnings.
Basic and Diluted Net Loss per Common Share: Basic EPS is calculated by
dividing income available to common stockholders (the "numerator") by the
weighted-average number of common shares outstanding (the "denominator") during
the period. The computation of diluted EPS is similar to the computation of
basic EPS except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the dilutive
potential common shares (that is, securities such as options, warrants,
convertible securities, or contingent stock agreements) had been issued. In
addition, in computing the dilutive effect of convertible securities, the
numerator is adjusted to add back (a) any convertible preferred dividends and
(b) the after-tax amount of interest recognized in the period associated with
any convertible debt. The computation of diluted EPS does not assume
conversion, exercise, or contingent issuance of securities that would have an
antidilutive effect on EPS.
Income Taxes: The Company utilizes the asset and liability method for income
taxes. Under this method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. In assessing the realizability of deferred tax
<PAGE>
<PAGE> 22
assets, the Company considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
2. DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
Significant Operating Losses: For the fiscal years ended December 31, 1998 and
1999, the Company experienced net losses of $510,405 and $825,708, respectively.
The Company anticipates that it will continue to experience losses as it
continues working on its expansion including the establishment of additional
retail stores. Even after the Company's expansion plans are completed, there can
be no assurance that the Company will be profitable.
Significant Capital Requirements: The Company's capital requirements have been
and will continue to be significant. At December 31, 1999, the Company had cash
and cash equivalents of $72,626 and a working capital deficit of $12,788. The
Company will need additional financing, which the Company may raise through the
private placements of its securities. There can be no assurance that additional
financing will be available to the Company on acceptable terms, or at all.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The financial statements do not
include any adjustments relating to the recoverability of the recorded assets
or the classification of the liabilities that might be necessary should the
Company be unable to continue as a going concern.
Dependence Upon Key Personnel: The success of the Company is largely dependent
on the personal efforts of Mr. Walsh, the President and Chief Executive Officer.
Mr. Walsh has entered into an executive employment Plan with the Company
that, among other things, precludes Mr. Walsh from competing with the Company
for a period of three years following termination of his employment with the
Company. The loss of the services of Mr. Walsh would have a material adverse
effect on the Company's business and prospects (See Note 7).
Delinquent of personnel income tax: The Company has withheld but has not
remitted personnel income tax approximately $78,317. The Company has accrued
potential penalty and interest that might be assessed by the IRS.
Major Customers: The Company sold its product to several major customers. In
1998, 34% of the total net sales was derived from one customer. In 1999, 44% of
net sales were derived from three customers (22%, 14% and 8%). As of
December 31,1998, 82% of accounts receivable were from one customer. As of
December 31, 1999, 77% of accounts receivable were from three customers
(45%, 20%, and 12%).
Dependence on Supplier: Because Hawaiian Vintage Chocolates are produced from
unique cocoa beans, the Company is highly dependent on the farmers who grow and
harvest these unique cocoa trees. In 1998, the Company started planting its own
cocoa trees, but the trees will not be productive for at least two years.
3. SEGMENT INFORMATION
The Company's main operation is to develop and grow cocoa beans, and to
manufacture and sell chocolate through distributions and its own retail stores.
In the fourth quarter of 1999 the Company opened its first retail store in
Champaign, Illinois. Due to the fact that in 1999, the store was operating for
one quarter, disclosing financial information from such store on comparative
and seasonal basis will be misleading.
<PAGE>
<PAGE> 23
4. MARKETABLE SECURITIES
As of December 31, 1999, the Company had 5,000 shares of Dallas Gold and Silver'
s common stock. Mr. Walsh is the Director of this company. The Company
accounted for this investment as available for sale security. At December 31,
1999, the quoted market value of these shares was $30,000. The Company recorded
changes of the market value in other comprehensive income. The valuation
represents a mathematical calculation based on the closing quotation at NASDAQ
and is not necessarily indicative of the amounts that could be realized upon
sale.
5. INVENTORY
As of December 31, 1998 and 1999, inventories consisted of the following:
<TABLE>
<CAPTION>
1998 1999
------------ ----------
<S> <C> <C>
Bulk primary products
Chocolate wafers $19,715 $ 3,734
Cocoa beans 1,760 2,474
Coffee beans -- 5,743
Packaging materials -- 77,071
Pack and ship materials -- 31,563
Retail packed primary products
Retail packed chocolate wafers -- 75,914
Retail packed coffee beans -- 28,252
Finished chocolate products -- 2,244
Secondary chocolate products -- 2,011
Bakery, deserts and beverages -- 4,036
------- --------
TOTAL INVENTORY $21,475 $233,042
======= ========
</TABLE>
F-8
At December 31, 1999, 71% of the Company's inventory were located in a
California warehouse distribution center, 8% of the inventory were located at
the Company's retail store in Illinois and the rest of the inventory were
located either at chocolate processing companies in California and Arizona, or
at Honolulu home office and warehouse.
6. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1998 and 1999 consisted of the
following:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<.> <C> <C>
Automobiles $ 17,024 $ 31,790
<PAGE>
<PAGE> 24
Office equipment 11,315 23,849
Office furniture 21,234 24,487
Computer equipment 10,849 22,169
Warehouse equipment -- 25,281
Store furniture -- 13,029
Store equipment -- 51,648
Leasehold improvement -- 52,753
Orchard -- 43,257
-------- ---------
60,422 288,263
Less: accumulated
depreciation (23,646) (65,767)
-------- ---------
Total Property & Equipment $ 36,776 $ 222,496
========= =========
</TABLE>
Depreciation expenses charged to operation for the year ended December 31, 1998
and 1999 were $16,456 and $41,038, respectively.
7. RELATED PARTY TRANSACTION
Employment Agreements: The Company is party to a seven-year employment agreement
with Mr. Walsh, the President and Chief Executive Officer. Based on the revised
Plan entered into as of September 24, 1997 his minimum base salary is
$175,000 per annum. As of December 31, 1999, Mr. Walsh has forgiven all prior
accrued salary. In recognition of his important role in the Company, he was
granted an exclusive preemptive right to acquire a number of common shares or
other securities of the Company at 75% of the net purchase price of any such
securities offered to any third party. This right extends for a period of
five-years from the conclusion of any third party offering. Should any
transaction be concluded involving options or warrants or other contingent
instruments, he can be granted an equal number of such instruments with an
exercise price equal to 75% of the exercise price offered to third-parties and
such instruments shall be exercisable at any time during the same term as the
third party, in whole or in part, on a cashless basis. Should he elect to
purchase shares or exercises options for cash or the equivalent, he is entitled
to pay for such purchases in the form of a 10-year term promissory note fully
amortized at 6% annual interest.
Stock Option Plan: On September 28, 1998 the Board of Directors of the Company
adopted a stock option Plan. This Plan grants Mr. Walsh nontransferable option
to purchase up to 500,000 shares of common stock during the option term at
the option price of $2.00 per share which was approximately the fair market
value of the stock at the grant date. The option term isdetermined starting
from the grant date until 7 years from the date Mr. Walsh ceases to be an
employee of the Company. The option becomes exercisable in installments of
25% per year from the grant date through the third anniversaryof the grant
date. The issuance of the stock will not be registered with the Securities
and Exchange Commission pursuant to the Securities Act of 1933 and
are restricted securities. As of December 31 1999, none of these options have
yet been exercised.
The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
stock options. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans. The compensation cost of the Company's stock
option Plan with Mr. Walsh and other issued stock options have been
determined based upon the fair value at the grant date consistent with the
methodology prescribed under SFAS No. 123, "Accounting for Stock-Based
<PAGE>
<PAGE> 25
Compensation", the Company's net loss and loss per share would have been
increased by approximately $87,500 or $.01 per share in 1999. The fair value of
the options granted during 1999 is estimated to be $0.70 on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
dividend yield of 0%, volatility of 67.5%, risk-free rate of 5.25%, and an
expected life of 3 years. Because changes in the subjective input assumptions
can materially affect the fair value estimate, in the opinion of the management,
the existing models do not necessarily provide a reliable single measure of the
fair value of the option.
Due from officer: Interest at 5% is charged at the beginning of each year for
the loan balances at the end of the prior year, including accrued interest.
Commencing January 1, 2000, the amount outstanding, principal and accrued
interest will be repaid in equal annual installments. The entire outstanding
balance will be due and payable in full on or before December 31, 2004.
<TABLE>
<CAPTION>
AS OF LOAN AMOUNT INTEREST BALANCE
- - - ------------------ ----------- -------- -------
<.> <C> <C> <C>
December 31, 1993 $ 7,789 0 $ 7,789
December 31, 1994 56,346 $ 389 64,524
December 31, 1995 90,678 3,227 158,429
December 31, 1996 59,664 7,921 226,014
December 31, 1997 104,830 11,301 342,145
December 31, 1998 (3,648) 17,107 355,604
December 31, 1999 68,874 17,780 442,258
</TABLE>
8. SHORT-TERM LOAN
In November 1999, the Company entered into Account Receivable purchase and
Security Plan with Trinity Capital Inc. (Trinity). According to the
Plan, Trinity will advance to the Company up to 65% of the gross amount
of account receivable with a maximum of $300,000. The amount of such advance
is subject to interest of prime rate plus 2.5%. The Company is responsible
for collection of the invoices pledged. As of December 31, 1999, the Company
pledged $174,275 of accounts receivables with recourse and received $109,793
(63% of the face amount of all invoices pledged) in cash. Of the total amount
pledged, $172,280 was collected by February 1, 2000.
9. SHAREHOLDERS' EQUITY
Debt to equity conversion: The Company had issued unsecured convertible
debentures beginning May 1993. By the end of 1998, a total of 827,795 shares
were issued in connection with the conversion of $740,372 worth of debenture
principal plus $177,739 of accrued interest.
As of December 31, 1999, the outstanding convertible debentures were as follows:
Debt No. Issued Date Principal
- - ----------- ---------------- ---------
965281 May 6, 1996 $ 25,000
965282 May 6, 1996 25,000
119 December 2, 1994 25,000
--------
<PAGE>
<PAGE> 26
Total $ 75,000
========
These debentures carry a 13% annual interest rate with an initial term of
180-days from first issuance. Subsequently these debentures were extended to
September 2000.
During 1999, the Company issued 43,634 shares of common stock to convert
$56,755 of accounts payable. The shares were valued at fair market value
of $1.125 to $1.35 per shares.
Issuance of shares for promotional: During 1999, the Company issued 94,181
shares of common stock for promotional services. The shares were valued at
fair market value of $0.50 to $1.50 per shares.
Private placements: During 1999, the Company, from various private placements,
raised $1,188,700 through the sale of the Company's common stock of 1,027,400
shares for $.75 to $1.125, per share. In relation to these private placements,
the Company also issued 11,995 shares of the Company's common stock for
financing services. These shares were valued at $7,299.
Regulation D offering: In February 1999, the Company commenced an offering
pursuant to Rule 504 of Regulation D pursuant to which 693,000 shares were
sold at prices of $1.125 and $1.25 per share.
Exercised warrants: During 1998, 9,542 shares of Class Warrants were excised for
the purchase of 9,542 shares of common stock at $2.50 per share. As of December
31, 1999, the Company's stock warrants' balance was as follows:
<TABLE>
<CAPTION>
WARRANTS
------------------------------------------------------------------------------------
Class A Class B* Class C* Total
------------------ ----------------- ----------------- ------------
<.> <C> <C> <C> <C>
Strike Price $2.50 $4.00 $6.00
Expiration Date* November 14, 2000 March 14, 2000 March 14, 2000
Number Outstanding 190,455 399,996 399,994 990,445
* On March 14, 2000, Board of Directors of Hawaiian Vintage Chocolate Co. approved
the extension of the expiration date of company's Class B and Class C warrants to
November 14, 2000.
</TABLE>
F-11
On December 30, 1999, the Company received $11,250 from a shareholder to
purchase 15,000 shares of common stock. The shares were subsequently issued on
February 8, 2000.
10. COMMITMENTS AND CONTINGENCIES
Promotional Agreements: The Company has a contractual agreement with its
director, Shep Gordon, for the promotion of its chocolate products among the
<PAGE>
<PAGE> 27
celebrity chefs represented by or known by Mr. Gordon or his firm, Alive Events.
As compensation, he receives an annual grant of stock that varies depending on
the level of sales to these chefs.
License Agreement: In August and November 1998, The Company entered into
three-year license agreement (with options to extend) with The Trustees of the
Estate of Bernice Pauahi Bishop to utilize a total of 115 acres of land located
at Umauma, North Hilo, Hawaii, for planting cocoa trees. Minimum annual payments
as of December 31, 1999 are as follows:
Years Ending December 31, Amount
------------------------- ---------
2000 $ 3,625
2001 5,438
2002 7,250
In addition to the license fee, the Company also has to pay certain royalty fees
based on the Company's adjusted gross income as defined by the Plan.
Leases: The Company leased corporate office and retail stores under operating
leases with original terms ranging from six months to three years with renewal
options. The Company also leased store equipment under capital leases.
Minimum lease payments required under noncancelable leases at December 31, 1999
are as follows:
Fiscal Year Ending Amount
2000 $121,395
2001 $128,358
2002 $130,358
2003 $118,841
2004 $112,615
Rent expense for 1998 and 1999 were $63,112 and $74,679, respectively.
11. INCOME TAXES
At December 31, 1999, the Company had net operating loss carryforwards for
Federal Income Tax purposes approximately $1.6 million which will expire in
2010 to 2012. The Company had provided 100% allowance on all of its deferred
income taxes benefits.
F-12
ITEM 8. CHANGES IN AND DISAGREEMNTS WITH ACCOUNTANTS
The company's principal accountant is Hollander, Lumer & Co., LLP of Los
Angeles, California. The firm's report for the period from January 1, 1998
through December 31, 1999 did not contain any adverse opinion or disclaimer, nor
were there any disagreements between management and the Company's accountants.
<PAGE>
<PAGE> 28
PART III.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following list identifies the Company's directors and executive
officers, Directors are elected annually at the Company's annual meeting of
stockholders and hold office until their successors are elected and qualified.
The Company's officers are appointed annually by the Board of Directors and
serve at the pleasure of the Board.
Directors and Executive Officers:
<TABLE>
<S> <C>
Director: Tyrie Jenkins, 45
Director: Shep Gordon, 55
Director: Barry Zwick, 65
Director, Chairman, CEO: James Walsh, 48
CFO and Vice President: Charles Cheng, 43
Secretary of the Company: Kristine Simonds, 32
</TABLE>
Dr. Tyrie Jenkins, 45 has a BS degree from Mount Holyoke College and a
MD from Jefferson Medical School. Dr. Jenkins has been the Medical
Director
of Laser Eye Institute of Hawaii since 1994. She has served on the Board
of Directors since September of 1997.
Shep Gordon, 55 is the founder and has served as the Chairman and CEO of
Alive Enterprises, Inc., an entertainment and culinary management
company, since 1980. Mr. Gordon has over 30 years of experience in the
entertainment and culinary industries. Mr. Gordon has served as a member
of the Board of Directors since September of 1997.
Barry Zwick, 65 has a BS degree from the U.S. Military Academy at West
Point and has an MBA from the University of Southern California. Mr.
Zwick has over 25 years experience in the securities business. Mr. Zwick
has been a member of the Midwest Stock Exchange and the Chicago Board of
trade. Since 1989 he has been a private investor. Prior to this period
Mr. Zwick was a Managing Director of Ladenburg, Thalman & Co., Inc. He
has been a member of the Board of Directors since September of 1997.
James Walsh, 48 founded Hawaiian Vintage Chocolate in 1993. He has
served as CEO and Chairman of the Board since the inception of the
Company. From 1986 - 1992 Mr. Walsh was the managing partner of a cocoa
research joint venture with Amfac Sugar and Hershey Foods. Prior to that
Mr. Walsh owned and operated CI, Inc., a full service communication
conglomerate that included an advertising company, three printing firms,
an merchandise and travel incentive company and a computer service firm
<PAGE>
<PAGE> 29
in Chicago. Mr. Walsh also serves as a Director for Dallas Gold and
Silver Exchange, Inc., a NASDAQ listed corporation.
Mr. Cheng joined the Company as Chief Financial Officer in September
1999. Prior the joining the Company, Mr. Cheng was the Executive
Vice-President of UniChinal, Inc., a private firm providing
international financing, investment consulting, and business services
from 1996 through 1999. From 1991 to 1996, he served as Chief Accountant
and Comptroller of Marc Hotels and Resorts, Inc. - Hawaii's third
largest condominium hotel management company. Mr. Cheng received a MBA
degree from Chaminade University of Honolulu.
Ms. Simonds has been the Secretary of the Company and Director of
Operations since 1997. For the past year she has split her time between
the development of the Company's operations and it's Internet presence.
For the preceding three years she was employed as a web designer and
developer by a private engineering firm. Ms. Simonds has a Bachelor's
Degree in Fine Arts from the University of Hawaii.
Significant Employees
Stuart Hersch, 54 has acted in the capacity of advisor to the Chairman.
His responsibilities include assisting in strategic development,
acquisitions, and corporate development. Mr. Hersch is Chairman and CEO
of aka.com, a web portal site he developed in 1999. His prior work
experience includes executive positions as Vice President of Universal
Records from 1996 through 1999, Executive Vice President of Time-Warner
from 1993 through 1996 and CEO of King World from 1988 through 1993.
ITEM 10. EXECUTIVE COMPENSATION
Executive Officers
On September 1, 1997, the Company entered into a seven-year employment
contract with James Walsh, its founder and Chief Executive Officer. This
Plan was amended on September 24, 1997 providing for, among other things, a
base salary of $175,000, annual bonuses to be determined by the Board of
Directors, contractual stock rights to match any additional purchases by third
parties of the Company's Common Stock at seventy-five percent (75%) of the
offering price, and $5000 per year for costs and expenses for professional,
legal and/or accounting services. It also provides a schedule for Mr. Walsh to
annually receive options for the purchase of 125,000 shares of the Company's
Common Stock starting in 1997 at $2.00 per share. To date because of the
financial operations of the Company, Mr. Walsh has not drawn any salary or
bonuses from the Company and has forgiven the Company of its obligation. In
fiscal 1997, 1998 and 1999, Mr. Walsh was granted options for the purchase of
125,000 shares of the Company's common stock at an exercise price of $2.00 per
share. He has taken advances as described in Note 5 of the Financial Statements
of the Company included in this Registration Statement which are scheduled to be
liquidated over a five year period starting in fiscal 2000.
No other executive officer of the Company has an annual salary and
bonuses in excess of $100,000.
Directors:
Members of the Board of Directors do not receive cash compensation for
their services as Directors. Directors are not presently reimbursed for expenses
incurred in attending Board meetings. Starting in 1999, Board members receive
5000 shares of common stock annually for their services.
<PAGE>
<PAGE> 30
Employment Contracts, Termination of Employment and Change-in -Control
Arrangements:
Other than the employment contract of Mr. Walsh as referenced above in
the description of executive compensation, the Company has no other such
contracts.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and notes thereto set forth information regarding
beneficial ownership as of December 31, 1999 of the Company's outstanding common
stock by any person who is known to the Company to be the beneficial owner of 5%
or more of the Company's common stock.
<TABLE>
<CAPTION>
Name and Address Class Amount and Nature Percent
Of Beneficial Owner of Security of Beneficial Owner (1)(2) of Class(2)
- - - ------------------- ----------- -------------------------- -----------
<S> <C> <C> <C>
James Walsh Common 4,689,500 (3) 54.15%(3)
615 Elepaio Street
Honolulu, HI 96816
DLS Financial Services Common 1,143,318 (4) 13.20%(4)
519 Interstate 30
Suite 243
Rockwall, TX 75087
</TABLE>
(1) To the best knowledge of the Company, all shares are held of record with
sole voting and investment power. All calculations, unless otherwise
noted, are based on 8,659,558 shares of common stock outstanding as of
December 31, 1999.
(2) Under Rule 13-d of the Exchange Act, shares not outstanding but subject
to options, warrants, rights, conversion privileges pursuant to which
shares may be acquired in the next 60 days are deemed outstanding for
the purpose of computing the percentage of outstanding shares owned by
the persons having such rights but not deemed outstanding for the
purpose of computing the percentage for such other persons.
(3) Total includes 5,000 shares owned solely by Mr. Walsh, 4,434,500 shares
owned by WF Trust, an irrevocable trust of which Mr. Walsh is acting as
sole trustee on behalf of his family as beneficiaries, and 250,000
options currently exercisable by Mr. Walsh at $2.00 per share. The
calculation of percent ownership includes the addition of the options to
the total number of shares outstanding, as if they were exercised.
(4) Total includes 643,318 shares owned by DLS Financial Services and
100,000 Class A Warrants exercisable at $2.50 per share, 200,000 Class B
Warrants exercisable at $4.00 per share, and 200,000 Class C Warrants
exercisable at $6.00 per share. The warrants have been added to the
shares outstanding for the purpose of computing the percentage ownership
as if the warrants have been exercised.
The following table and notes thereto set forth certain information
regarding beneficial ownership as of December 31, 1999 of the Company's
outstanding common stock held by each director and executive officers of the
Company and by executive officers and directors of the Company as a group.
<TABLE>
<PAGE> 31
<CAPTION>
Name and Address Class of Amount and Nature Percent
Of Beneficial Owner of Security of Beneficial Owner (1)(2) of Class (2)
- - - ------------------- ----------- -------------------------- ------------
<S> <C> <C> <C>
Barry Zwick Common 342,501(3) 3.96%
925 De La Vina Street
Suite 102
Santa Barbara, CA 93101
Tyrie Jenkins Common 80,066 0.92%
1060 Young Street
Suite 216
Honolulu, HI 96814
Shep Gordon Common 10,500 0.12%
3274 S. Kihei Road
Kihei, HI 96753
James Walsh Common 4,689,500(4) 54.15 %
615 Elepaio Street
Honolulu, HI 96816
Charles Cheng Common 0 0
330 Saratoga Drive
Honolulu, HI 96830
Kristine Simonds Common 10,000 0.12%
3212 Loulu
Honolulu, HI 96822
Executive Officers and Common 5,132,567(5) 59.27%
</TABLE>
Directors As a Group
Consisting of 5 Persons
(1) Except as otherwise noted, to the best knowledge of the Company,
all shares are held of record with sole voting and investment
power. All calculations, unless otherwise noted, are based on
8,659,558 shares of common stock outstanding as of December 31,
1999.
(2) Under Rule 13-d of the Exchange Act, shares not outstanding but
subject to options, warrants, rights, conversion privileges
pursuant to which shares may be acquired in the next 60 days are
deemed outstanding for the purpose of computing the percentage
of outstanding shares owned by the persons having such rights
but not deemed outstanding for the purpose of computing the
percentage for such other persons.
(3) Total includes 5000 shares owned solely by Mr. Zwick, 233,334
shares owned by Zwick Financial Corp. Profit Sharing Plan, of
which Mr. Zwick is sole trustee and 91% beneficiary, 79,167
shares owned by Zwick Financial Corporation, and the following
amount owned by Mr. Zwick's minor children: 25,000 shares.
(4) Total includes 5000 Common Shares owned solely by Mr. Walsh,
4,100,000 Common Shares owned by WF Trust, an irrevocable trust
of which Mr. Walsh is acting as sole trustee act on behalf of
his family as beneficiaries and 250,000 options currently
exercisable by Mr. Walsh at $2.00 per share. The calculation of
<PAGE>
<PAGE> 32
percent ownership includes the addition of the options to the
total number of shares outstanding, as if they were exercised.
(5) Total includes Mr. Walsh's 250,000 options exercisable at $2.00
per share as if they were exercised and added to the total
number of shares outstanding as referenced in footnote (4).
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has a contractual Plan with its director, Shep Gordon,
for the promotion of its chocolate products among the celebrity chefs
represented by or known by Mr. Gordon or his firm, Alive Events. He receives an
annual grant of stock that varies depending on the level of sales to these
chefs. Since the inception of the Company he has received 20,040 shares of
common stock under this Plan.
Shares Issued to Corporate Directors
The Company has issued 5,000 shares to each director during 1999 as
director's compensation.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Index to Exhibits
3.1 Articles of Incorporation - the Articles of Incorporation of Hawaiian
Vintage Chocolate Company, Inc.*
3.2 Articles of Amendment - The July 1994 Amended Article of Incorporation
for Hawaiian Vintage Chocolate Company, Inc.*
3.3 Bylaws of the Company - The Bylaws of Hawaiian Vintage Chocolate
Company, Inc.
4.1 Specimen Stock Certificate*
4.2 Specimen Class A Warrant*
4.3 Specimen Class B Warrant*
4.4 Specimen Class C Warrant*
10.1 License Plan - Bishop Estate - License Plan for use of land
for cocoa planting on Hamakua Coast between the Company and the trustees
of the Bishop Estate dated August 1, 1998*
10.2 License Plan - Bishop Estate - License Plan for use of land
for cocoa planting on Hamakua Coast between the Company and the trustees
of the Bishop Estate dated November 1, 1998*
10.3 Harbor Court Lease - the lease of Hawaiian Vintage Chocolate Company's
offices in Honolulu between Harbor Court Associates and the Company
dated December 5, 1997.*
10.4 Employment Plan - the employment Plan as amended between James
Walsh and the Company dated September 24, 1997*
10.5 Stock Option Plan - the stock option Plan between James Walsh
and the Company dated September 24, 1997*
10.6 License Plan with Hobson Marketing - the licensing Plan with
Hobson Global Marketing and the Company to establish retail kiosks in
five Midwest states dated June 2, 1999.*
10.7 Champaign Store Lease - the lease of Company's soly-owned retail shop
in Champaign, Illinois with Leon Bankier dated August 6, 1999.
27 Financial Data Schedule.
- - ------------
* Previously filed with the Company's Form 10SB, filed on November 12,
<PAGE>
<PAGE> 33
1999 which is hereby incorporated by reference.
Description of Exhibits
3.1 Articles of Incorporation - the Articles of Incorporation of Hawaiian
Vintage Chocolate Company, Inc.*
3.2 Articles of Amendment - The July 1994 Amended Article of Incorporation
for Hawaiian Vintage Chocolate Company, Inc.*
3.3 Bylaws of the Company - The Bylaws of Hawaiian Vintage Chocolate
Company, Inc.*
4.1 Specimen Stock Certificate*
4.2 Specimen Class A Warrant*
4.3 Specimen Class B Warrant*
4.4 Specimen Class C Warrant*
10.1 License Plan - Bishop Estate - License Plan for use of land
for cocoa planting on Hamakua Coast between the Company and the trustees
of the Bishop Estate dated August 1, 1998.*
10.2 License Plan - Bishop Estate - License Plan for use of land
for cocoa planting on Hamakua Coast between the Company and the trustees
of the Bishop Estate date November 1, 1998.*
10.3 Harbor Court Lease - the lease of Hawaiian Vintage Chocolate Company's
offices in Honolulu between Harbor Court Associates and the Company
dated December 5, 1997.*
10.4 Employment Plan - the employment Plan as amended between James
Walsh and the Company dated September 24, 1997.*
10.5 Stock Option Plan - the stock option Plan between James Walsh
and the Company dated September 24, 1997.*
10.6 License Plan with Hobson Marketing - the licensing Plan with
Hobson Global Marketing and the Company to establish retail kiosks in
five Midwest states June 2, 1999.*
10.7 Champaign Store Lease - the lease of Company's soly-owned retail shop
in Champaign, Illinois with Leon Bankier dated August 6, 1999.
27 Financial Data Schedule
- - ----------------
* Previously filed with the Company's Form 10SB, filed on November 12,
1999 which is hereby incorporated by reference.
(b) REPORTS
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Hawaiian Vintage Chocolate Company, Inc.
<PAGE>
<PAGE> 34
Date: April 14, 2000 By: /s/ JAMES P. WALSH
---------------------------------
James P. Walsh, Chairman and
Chief Executive Officer
In accordance with the Exchange Act, this report has been duly signed
below by the following persons on behalf of the Registrant and in the capacities
and on the date indicated.
Date: April 14, 2000 By: /s/ JAMES P. WALSH
---------------------------------
Chairman of the Board
Chief Executive Officer
Date: April 14, 2000 By: /s/ CHARLES X. CHENG
---------------------------------
Charles X. Cheng
Chief Financial Officer
Date: April 14, 2000 By: /s/ TYRIE JENKINS
---------------------------------
Tyrie Jenkins
Director
Date: April 14, 2000 By: /s/ SHIP GORDON
---------------------------------
Ship Gordon
Director
Date: April 14, 2000 By: /s/ BARRY ZWICK
---------------------------------
Barry Zwick
Director
Lessor : Leon Bankier Subject Property:
- - -----------------------------------------------------------------------
Commercial lease
- - ----------------
THIS COMMERCIAL LEASE, hereafter referred to as the "Lease" executed
this 6th day of August, 1999 between Leon Bankier, hereinafter referred
to as "Lessor" and Hawaiian Vintage Chocolate Company, Inc. hereinafter
referred to as "Lessee".
<PAGE> 35
WITNESSETH:
Lessor for and in consideration of the rent herein to be paid by lessee,
and in consideration of the covenants herein to be kept and performed by
Lessee, does hereby lease and demise unto Lessee the following described
premises, situated lying and being in Champaign County, State of Illinois
for the term of three years beginning on the 1st day of September,1999 and
ending on the 31st day of August 2002.
Location of Premises:
Lessee will yield and pay to Lessor the following rentals: $2,500.00 per
month for the year of this lease, totaling a first year 's rental of
$30,000.00 (approximately $15.50 per sq.ft.gross). Each subsequent year
will be adjusted upward on the anniversary of lease commencement by 4% or
by the Consumer Price Index, (as published in the most recent Wall Street
Journal), whichever is higher. Rental payments are due on the first day
of each month, in advance, payable to: Leon Bankier, 410- East Green St.
Champaign, IL., or to any other location specified by Lessor. Hawaiian
Vintage may terminate the lease with a six-month notice at any time after
the first anniversary. HVC will pay a six month penalty upon early
termination.
Option to Extend: Lessee shall have the option to extend the original term
of this lease for an additional term of six years, with two consecutive
three year options, by giving to Lessor written notice of the intention to
extend at least six months prior to the expiration of the original term of
this lease or any option period. All terms and conditions of the original
lease, including annual increases, would still apply during the options.
Use of Premises: The premises hereby leased shall be used and occupied by
the Lessee and the Lessee's employees for the business of: all types
of food products, excluding products served by competing restaurant
businesses; Bagelmans, Chinese, Thai and or Japanese. HVC may also sell
non-alcoholic beverages, apparel, gift books, gift baskets, candies and
confections, nutritional supplements, internet time and custom gifts, and
shall conduct the business during all usual working hours for related
business activities, excepting therefrom periods when prevented by acts of
God or other causes beyond the control of Lessee.
Lessee may not assign Lessee's interest in this lease, nor sublet the whole
or any part of the demised premises, nor shall the same be used for any
other purpose without first having obtained the written consent to such
assignment or reletting, or to such change of purpose of the use of the
demised premises, from Lessor. If Lessor shall consent to the assignment
of this Lease or to a subletting of all or a part of the demised premises,
no further assignment or subletting shall be made without written consent
of the Lessor first being obtained. Lessor's consent will not be unreasonably
withheld.
Lessee and Lessor, where applicable, agree to keep, conform to and abide by
each and every of the following which are hereby made conditions of this
Lease:
1. Lessee will not permit or allow any noise, disturbance or nuisance
whatsoever in the demised premises detrimental to same or annoying to the
other adjoining properties. Lessee acknowledges that the demised premises
have been received in thoroughly good order, tenable condition and repair,
of which the execution of this Lease, and taking possession thereunder
shall be conclusive evidence; and that no representation except as may be
attached hereto or set forth herein, as to the condition of the demised
premises have been made by Lessor or Lessor's agents. No obligations,
<PAGE>
<PAGE> 36
except as may be attached hereto or set forth herein, as to the repairing,
adding to, or improving the demised premises have been assumed by Lessor.
No oral arrangements have entered into consideration of making this Lease
and said Lease contains a full statement of the obligations of both parties
hereto. Lessee shall not allow any waste or nuisance of the demised
premises or use or allow the premises to be used for any unlawful purposes.
2. Lessor, or lessor's agent, may at any reasonable time enter and view
the demised premises, and make repairs, if Lessor should elect to do so.
3. If Lessee (1) shall not pay the rents herein reserved at the time and
in the manner stated, or (2) shall fail to keep and perform any other
condition, stipulation or agreement herein contained, on the part of the
Lessee to be kept and performed, or if Lessee (3) shall suffer to be filed
against Lessee an involuntary petition in bankruptcy, or (4) shall be
adjudged a voluntary or involuntary bankrupt, or (5) make an assignment for
the benefit of creditors, or (6) should there be appointed a receiver to
take charge of the demised premises either in the State Courts, or in the
Federal Courts, then, in any of such events, Lessor may, at Lessor's option
and upon proper notice, terminate and end this Lease and re-enter upon the
demised premises whereupon the term hereby granted and, at Lessor's option
, all right, title and interest under it shall end and Lessee shall become
a tenant at sufferance; or else Lessor may at Lessor's option, and upon
proper notice, elect to declare the entire rent for the balance of the
term, or any part thereof, due and payable forthwith and may proceed to
collect the same by distress or otherwise, and thereupon said term shall
terminate, at the option of Lessor, or else upon proper notice, Lessor may
take possession of the demised premises and rent the same for the account
of Lessee, the exercise of any of which options herein contained shall not
be deemed to be Lessor's exclusive remedy. The phrase "entire rent for
the balance of the term" as used herein, shall mean all of the fixed rental
with Consumer Price Index adjustments to that date, required to be paid by
Lessee to Lessor for the full term of the Lease, less, however, any
payments that shall have been made on account of and pursuant to the terms
of the Lease.
4. The Lessee covenants that all personal property placed on the premises
shall be at the risk of the Lessee, and the Lessor shall not be liable for
any damage to the property or person at any time in the Leased premises or
in said building from gas, electricity, water, rain, whether they may leak
into, issue or flow from any part of said building, or from the pipes or
plumbing works of the same or from any other place or quarter, or
irrespective of the foregoing, for any damage from any cause, whether or
not any such damage may result from any act of omission or commission by
any of the Lessor's agents, employees, servants or contractors. The Lessee
shall give the Lessor, or to its agent, prompt written notice of any
accident to or defect in, the water pipes, gas pipes, warming apparatus or
electric wires, and the same will be remedied by the Lessor with due
diligence, subject to the provisions of paragraphs #11 and #12.
5. Lessee shall indemnify and save harmless Lessor from and against any
and all claims, suits, actions, damages, or causes of action arising during
the term of this Lease and any renewals and extensions thereof, for any
personal injury, loss of life, damage to property sustained in or about the
demised premises, or otherwise resulting from Lessee's occupancy thereof
(except those matters which Lessor has obligations or any liability under
this Lease, including without limitation thereof the negligence of Lessor
by acts of commission or omission.)
6. This Lease shall be subject and subordinate to any mortgage or deed of
trust on the property, or which may hereafter be made on account of any
future loan to be placed on the property by Lessor to the full extent of
<PAGE> 37
any debts and charges secured thereby; and to any renewals and extensions
of all or any part thereof, which Lessor may hereafter, at any time, elect
to obtain. Lessee agrees, upon request to hereafter execute any paper or
papers which council for the Lessor may deem necessary to accomplish that
end, and in default of Lessee's so doing, Lessor is hereby empowered to
execute such paper or papers in the name of Lessee and as the act and deed
of Lessee, and this authority is declared to be coupled with an interest
and not revocable.
7. Lessee will use the demised premises in conformity with all laws and
ordinances and fire regulations now or hereinafter applicable, and will
exercise all reasonable care in the use of parking areas and which may be
necessary for the preservation of the property of Lessor and the comfort of
the other tenants.
8. Lessee, without the expressed written consent of the Lessor, shall make
no improvements whatsoever to the premises. Any building code change that
may be required during the course of such improvements will be made at the
expense of the Lessee. Lessee shall make no agreements, improvements, or
take part in any dealings whatsoever which might lead to the filing of a
mechanic's lien against the demised premises or the property, and nothing
in this paragraph or in any other part of this Lease shall be construed so
as to mean that Lessee shall have the right or obligation to make any
improvements to the demised premises, or have done any other work to the
demised premises, or have furnished any materials to the demised premises
which would subject the interest of Lessor to any lien, mechanics or
otherwise. Lessor will tile floor with terre cotta tile, and will do all
neccessary preparation to floor level.
9. Lessor agrees to insure the property at his own expense, keep the
demised premises insured against loss or damage by fire, together with
extended coverage to the extent of the insurable value thereof. Lessee
agrees that during the term hereof he will at his own expense, carry Owners
Landlord and Tenant Public Liability Insurance in minimum liability amount
of $100,000/$300,000 naming Lessor as additional insured thereunder, such
company to be approved by the Lessor or its agent. Any additional
insurance premium that Lessor may have to pay, due to premises being
classified as a "restaurant" or other high-risk business, will be
reimbursed to Lessor by Lessee when premium is due. Lessee must purchase
his own plate glass and flood insurance.
10. Lessee further agrees that if any property owned by Lessee and located
in the demised premises shall be damaged or destroyed by any insured
peril, Lessor shall not have any liability to Lessee nor to any insurer of
Lessee, for or in respect of such damage or destruction and Lessee shall
require all policies of risk insurance carried by lessee under this Lease
to contain or be endorsed with a provision in and by which insurer
designated therein shall waive its rights of subrogation against Lessor.
11. Lessee will keep in good condition during the continuation of the
term herein described the interior of the demised premises, and every part
thereof, including the plumbing, doors and windows, air conditioning and
heating and will keep the same in good, sound, clean condition and repair,
ordinary wear or other Act of God alone excepted, and will not suffer or
permit any strip or waste of the demised premises.
12. The Lessor covenants to keep the said building in good structural
repair, so far as concerns the Lessor, except, as herein otherwise
provided, but no liability to the Lessor shall accrue under this covenant
until after the Lessee has given reasonable notice in writing to the Lessor
or its agent of the specific repairs which are so required to be made.
Nothing herein contained shall affect the so required repairs to be made.
<PAGE> 38
Nothing herein contained shall affect the liability of the Lessor in case
of the destruction of the building or the demised premises or injury to the
same by fire or other cause. The Lessor shall provide at its own expense
the following services: the Lessor shall be responsible for roof and other
structural repairs not occasioned by the Lessee's negligence.
13. All notices required to be given under this Lease to Lessor shall be
given at the mailing address of Leon Bankier, 410 East Green Street,
Champaign, Illinois, or at such other place as the Lessor shall from time
to time specify, by written notice to Lessee, mailed to:4614 Kilauea
Avenue, Suite 435, Honolulu, Hawaii 96816, or at such other places as
Lessee shall specify by written notice to Lessor. Any such notice properly
mailed by United States registered or certified mail, postage and fees
prepaid, shall be deemed delivered when mailed.
14. Time is of the essence of this Lease and this applies to all terms and
conditions contained herein.
15. The failure of Lessor to insist upon strict performance or observance
of one or more of the covenants or conditions hereof or to exercise any
remedy, privilege or option herein conferred upon or reserved to Lessor,
shall not operate or be construed as a relinquishment or waiver for the
future of such covenant or condition or the right to enforce the same or to
exercise such privilege, option, or remedy, but the same shall continue in
force and effect. The receipt by Lessor of rent, or additional rent or any
other payment required to be made by Lessee, or any part thereof, shall not
be waiver of any other additional rent or payment then due, nor shall such
receipt, though with knowledge of the breach of any covenant or condition
hereof, operate as or be deemed to have made unless made by Lessor, in
writing. No surrender of the demised premises for the remainder of the
term hereof shall be valid unless accepted by Lessor in writing.
16. The Lessor may encumber the premises by mortgage or mortgages,
securing each sum or sums and upon such terms and conditions as the Lessor
may desire, and any such mortgage or mortgages so given shall be a first
lien on the land and buildings superior to the rights of the Lessee herein.
The Lessor may further sell the premises and assign its right as Lessor in
this lease without first notifying Lessee.
17. The undersigned Lessee further agrees to pay reasonable attorney's
fees should it become necessary for the Lessor or its agent, Miriam Booth,
to secure the services of an attorney to enforce any of the provisions of
this Lease, whether it was necessary for the attorney to institute legal
action or enforce the terms of the Lease without the institution of a
legal action, such as the necessity of a demand letter from an attorney.
(Fees shall include legal service, court costs, etc., comprising any and
all of Lessor's additional expenses to recover moneys due.)
18. All sums of money required to be paid by the Lessee to the Lessor
shall bear interest from due date, or maturity thereof, at the rate of
eighteen percent(18%) per annum until paid, which interest shall be due
and payable to the Lessor upon its written demand.
19. In case of injury to the demised premises or appurtenances by fire or
other cause, the Lessee shall give immediate notice thereof to the Lessor.
If the demised premises shall be damaged by fire or other cause without
the fault or neglect of the lessee, or the agents, clerks, servants or
visitors of the Lessee, the injury shall be repaired at the expense of the
Lessor as speedily as possible after such notice. If, without such fault
or neglect, the demised premises shall be rendered untenable by the
elements or any other cause, the rent shall cease until the same shall be
repaired as aforesaid. If without such fault or neglect, the building
<PAGE> 39
shall be destroyed as to require rebuilding, the rent shall be paid up to
the time of such destruction and from thenceforth this Lease shall cease
and come to an end. No compensation or claim will allowed by the Lessor by
reason of inconvenience, annoyance, or injury to business arising from the
necessity of repairing any portion of the building or its plant or
appurtenances, however the necessity may occur.
20. It is further understood and agreed that any signs or advertising to
be used including awnings in connection with the premises leased thereunder
shall be first submitted to the Lessor for approval before installment of
same. Also, the Lessee shall be responsible for interior maintenance of
the demised premises, including the maintenance of all lighting, plumbing,
heating and air conditioning equipment and plate glass. Lessee shall be
responsible for all interior remodeling, redecorating, painting, and
maintenance.
21. The Lessee agrees that he will pay all charges for rent, gas,
electricity, or other illuminations, sanitary district and for all water
used on said premises or any other expenses Lessee may incur or contract.
22. The terms "Lessor", "Lessee" and "Assignor" as herein contained shall
include singular and plural, masculine, feminine and neuter, heirs,
successors, personal representatives and assigns whenever the context so
requires or admits.
23. A security deposit equal to one month's rent shall be paid to Lessor
by Lessee upon execution of this Lease. In addition the first month's rent
shall also be paid to Lessor upon execution of this Lease. Release of the
security deposit is subject to the following provisions: The full term of
rental agreement has expired; no damage to property beyond normal wear and
tear; no unpaid late charges; no unpaid utility bills; no unpaid rent.
Security shall be held by owner in a non-interest bearing account at owners
bank. Security will be refunded no later than fifteen (15) days after
premises have been vacated in clean and satisfactory condition; ordinary
wear and tear excepted.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
signed, sealed and delivered on the day and year first above written.
/s/ MIRIAM BOOTH Aug 6, 1999
- - --------------------------- ------------------
Leon Bankier, Lessor Date
By: Miriam Booth, his Agent
Lessee: Hawaiian Vintage Chocolate Co., Inc. Aug 6, 1999
------------------------------------ ------------------
Date
By: /s/ ANTHONY ROTH
------------------------------------
Anthony Roth
<PAGE>
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 42,606
<SECURITIES> 30,000
<RECEIVABLES> 310,482
<ALLOWANCES> 56,927
<INVENTORY> 233,042
<CURRENT-ASSETS> 591,359
<PP&E> 288,261
<DEPRECIATION> 65,765
<TOTAL-ASSETS> 1,094,867
<CURRENT-LIABILITIES> 609,897
<BONDS> 0
0
0
<COMMON> 8,661
<OTHER-SE> 440,680
<TOTAL-LIABILITY-AND-EQUITY> 1,094,867
<SALES> 616,955
<TOTAL-REVENUES> 652,591
<CGS> 300,648
<TOTAL-COSTS> 1,165,083
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,204
<INCOME-PRETAX> (833,344)
<INCOME-TAX> 0
<INCOME-CONTINUING> (833,344)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (833,344)
<EPS-BASIC> (0.10)
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