<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
------------------------
Form 10-QSB
------------------------
[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 2000
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from .......... to ..........
Commission file number 0-28045
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HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
---------------------------------------------
(Name of Small Business Issuer in its charter)
Hawaii 99-0306492
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4614 Kilauea Ave., Ste. 435
Honolulu, HI 96816
- ----------------------------------------- ----------
(Address of principal executive offices) (zip code)
Issuer's telephone number: (808) 735-8494
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 30, 2000
- ----------------------------- --------------------------------
Common Stock, $.001 par value 8,892,995
Transitional Small Business Format (Check one): Yes [ ] No [ X ]
============================================================================
<PAGE> 2
Part I. Financial Information
Item 1. Financial Statements
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,2000 December 31,1999
(Unaudited) (Audited)
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 33,905 $ 42,606
Marketable securities - 30,000
Accounts receivable - net of allowance for
doubtful accounts $59,927 in 2000
and $56,927 in 1999 38,137 253,555
Inventory 263,087 233,042
Other current assets 54,046 32,156
----------- -----------
TOTAL CURRENT ASSETS 389,175 591,359
----------- -----------
PROPERTY AND EQUIPMENT (Net of accumulated
depreciation and amortization) 237,548 222,946
----------- -----------
OTHER ASSETS
Capitalized planting cost 293,172 281,012
----------- -----------
TOTAL OTHER ASSETS 293,172 281,012
----------- -----------
TOTAL $ 919,895 $ 1,094,867
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 136,794 $ 191,170
Other payable 43,097 -
Accrued expenses 209,949 221,793
Short term loan, secured 47,980 109,793
Notes Payable 75,000 75,000
Obligation under capital lease - current portion 12,676 12,141
----------- -----------
TOTAL CURRENT LIABILITIES 525,496 609,897
LONG TERM LIABILITIES
Obligation under capital lease - net of current portion 35,211 38,587
----------- -----------
TOTAL LOAN TERM LIABILITIES 35,211 38,587
----------- -----------
TOTAL LIABILITIES 560,707 648,484
SHAREHOLDERS' EQUITY
Common stock, $.001 par value;
Shares authorized - 20,000,000;
Shares issued and outstanding -
8,659,558 in 1999 and 8,892,995 in 2000 8,894 8,661
Additional paid-in capital 3,323,482 3,145,981
Due from shareholder (422,234) (442,258)
Accumulated deficit (2,540,151) (2,272,407)
Other comprehensive income -- 9,364
----------- -----------
369,991 449,341
Less: cost of shares of common stock in treasury
(2,000 shares in 1999 and 2,700 shares in 2000) (10,803) (2,958)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 359,188 446,383
----------- -----------
TOTAL $ 919,895 $ 1,094,867
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements
<PAGE> 3
<TABLE>
<CAPTION>
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
STATEMENT OF OPERATIONS
Three Months Ended
-----------------------------
March 31, March 31,
2000 1999
(Unaudited) (Unaudited)
------------ ------------
<S> <C> <C>
Sales - net $ 99,874 $ 39,550
Cost of sales 52,014 19,273
----------- -----------
Gross Profit 47,860 20,277
----------- -----------
Operating expenses
Sales and marketing 90,183 43,023
Product development 3,251 240
General and administrative 235,508 116,881
Depreciation 10,568 4,114
----------- -----------
Total operating expenses 339,511 164,258
----------- -----------
Loss before other income and
comprehensive income (291,651) (143,981)
Other income (expense)
Interest income 22,341 17,555
Interest expense (10,022) (66)
Gain on sale of marketable securities 11,588 --
----------- -----------
Total other income 23,908 17,489
----------- -----------
Net loss $ (267,744) $ (126,492)
=========== ===========
Weighted average shares outstanding 8,750,995 7,502,843
=========== ===========
Basic and diluted net loss per share $ (0.03) $ (0.02)
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements
<PAGE> 4
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Three Months Ended March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL OTHER TOTAL
------------------ PAID-IN DUE FROM ACCUMULATED COMPREHENSIVE TREASURY SHAREHOLDERS
SHARES AMOUNT CAPITAL SHAREHOLDER DEFICIT INCOME STOCK EQUITY
--------- -------- --------- ----------- ----------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 8,659,558 $8,796 $3,145,846 $(442,258) $(2,272,407) $9,364 $(2,958) $ 446,383
Issuance of shares for cash 200,000 200 149,800 150,000
Shares issued for services 33,437 33 27,701 27,734
Repayment from shareholder 20,024 20,024
Unrealized gain on investment (9,364) (9,364)
Aquisition of shares (7,845) (7,845)
Net loss in 1st quarter 2000 (267,744)
--------- ------- ---------- ---------- ----------- ---------- -------- ---------
Balance at March 31, 2000 8,892,995 $8,894 $3,323,482 $(422,234) $(2,540,151) $ -- $(10,803) $ 359,188
========= ======= ========== ========== =========== ========== ======== =========
</TABLE>
<PAGE> 5
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
March 31, March 31,
2000 1999
(Unaudited) (Unaudited)
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (267,744) $ (126,492)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 10,568 4,114
Gain on marketable securities (11,588) -
Shares issued for services 27,734 -
Shares issued for promotional - 14,500
Allowance for doubtful accounts 3,000 3,000
Changes in Assets and Liabilities:
Accounts receivable 212,418 (4,343)
Inventory (30,045) 2,249)
Other current assets (21,890) (381)
Accounts payable -trade (54,376) 3,783
Accrued interest payable (11,844) -
Taxes payable - 10,821
Other payables 43,097 1,214
----------- -----------
NET CASH FROM OPERATING ACTIVITIES (100,670) (91,535)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipments & other properties (25,620) (402)
Investment in nursery/field planting (12,160) (37,567)
Other assets - 17,380
Treasury stock purchases (7,844) -
Proceeds from sale of marketable securities 32,223 -
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (13,401) (20,589)
CASH FLOWS FROM FINANCING ACTIVITIES
Private sales of common stocks 150,000 62,500
Short term loan on receivables (61,813) -
Obligation under capital lease (2,841) -
Shares issued to convert debt to equity - 45,505
Repayment from shareholder 20,024 -
----------- -----------
NET CASH PROVIDED FINANCING ACTIVITIES 105,370 108,005
NET DECREASE IN CASH AND CASH EQUIVALENT (8,701) (4,119)
CASH AND CASH EQUIVALENT AT BEGINNING OF THE PERIOD 42,606 (7,731)
----------- -----------
CASH AND CASH EQUIVALENT AT THE END OF THE PERIOD $ 33,905 $ (11,850)
=========== ===========
OTHER CASH INFORMATION
Interest paid $ 10,022 $ 66
=========== ===========
NON CASH TRANSACTION
Shares issued for other than cash $ 27,734 $ 60,005
=========== ===========
</TABLE> See accompanying Notes to Financial Statements
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
- ------------------------------------------------------------------------------
Basis of Presentation
The annual financial statements as of December 31, 1999 were audited by the
Company's independent auditors. The interim financial statements presented
have been prepared by the Company's management without audit.
In the opinion of management, the accompanying balance sheets and related
interim statements of income, cash flows, and stockholders' equity include all
adjustments (consisting only of normal recurring items) necessary for their
fair presentation in conformity with generally accepted accounting principles.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue,
and expenses. Examples include provisions for returns and bad debts and the
length of product life cycles and buildings' lives. Actual results may differ
from these estimates. Interim results are not necessarily indicative of
results for a full year. The information included in this Form 10-QSB should
be read in conjunction with Management's Discussion and Analysis and Financial
Statements and Notes thereto included in the Hawaiian Vintage Chocolate
Company, Inc. 1999 Form 10-KSB.
Shareholders Equity
In March 2000, the Company sold 200,000 shares of common stock at $.75 per
share to one of its directors. During 1st quarter 2000, the Company issued
33,437 shares of common stock for services. These shares were valued at $.75
to $1.00 per share. The Board of Directors approved the extension of the
expiration date of Class B and Class C warrants to November 14, 2000.
Leases
On February 15, 2000, the Company leased its 2nd chocolate store space - a
2,000 square foot retail space at 1505 N. Veterans Parkway, Unit B,
Bloomington, McLean County, State of Illinois.
As of March 31, 2000, the Company has committed non-cancelable operating and
capital leases ranging from two years to four years with optional terms to
extend. The total non-cancelable lease payment and penalty in the next five
years are as follows:
Fiscal Year Non-Cancelable
Lease Liability
----------- ---------------
2000 $88,105
2001 $96,631
2002 $72,205
2003 $ 8,226
2004 $ -
Segment Information
The Company operates in one industry segment,that being the development,
manufacture and marketing of chocolate products. The Company's reportable
<PAGE> 7
segments are strategic business segments due largely to where and how the
sales were made.
The Company has two principal reportable business segments: its
corporate wholesale/retail operation and its store retail operation. The
corporate operation's sales were made by corporate office through its sales
force on U.S. mainland and Hawaii or through its Web site. The store retail
operation's sales were made at its chocolate store's floor spaces located
outside of Company's corporate office.
Segment Information for the first quarter 2000 are as follows:
Corporate Store Consolidated
Operation Operation
---------------- ---------------- ----------------
Net sales $59,038 $40,836 $99,874
Loss from Operation ($257,215) ($23,869) ($281,084)
Assets $466,790 $126,028 $592,818
Reconciliation from the segment information to the consolidated balances
for loss from operations and assets is set forth below:
Segment loss from operation ($281,084)
Depreciation and amortization (10,568)
Other income 23,908
----------
Consolidated net loss ($267,744)
==========
Segment assets $592,818
Cash and cash equivalent 33,905
Capitalized planting cost 293,172
----------
Consolidated total assets $919,895
==========
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations ---
Quarter ended March 31, 2000 compared to
Quarter ended March 31, 1999
"Net Sales." Net sales increased by 153% to $99,874 from $39,550 in same
period of 1999. The increase was primarily attributable to the expansion of
the Company's wholesale and especially retail sales on the U.S. mainland as
well as the Company's direct retail sales on the Internet.
<PAGE> 8
"Cost of Sales" Cost of sales as percentage of sales in the first quarter
2000 increased to 52% from 49% in the first quarter of 1999. This increase
is partially attributable to the costs of the new products developed by the
Company as well as the cost of expanded distribution, and partially because
of decreased margins of its ingredient business and discounts necessary for
securing retail distribution.
"Gross Profit Margin" The Company's gross profit margin in the first quarter
2000 decreased 3% from the same period of 1999 due to the increase in cost of
sales as a percentage of sales.
"Selling and Marketing Expenses." Selling and marketing expenses in first
three months of 2000 increased 110% to $90,183 from $43,023 in 1999 and as a
percentage of net sales it decreased to 90% from 109% in 1999. 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 first quarter 2000 increased by 101% to $235,508 from $116,881 in 1999
and decreased as a percentage of sales to 236% from 296%. 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 2000, the Company sold its marketable securities and
realized a gain of $11,588.
"Operating Income or Loss" Operating loss for the first quarter 2000
increased 103% to $291,651 from $143,981 in 1999 and the loss decreased as a
percentage of sales to 292% from 364% in 1999. 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.
"Interest Expense." Interest expense for the first quarter 2000 increased to
$10,022 from $66 in 1999 primarily due to accounts receivable factoring.
"Net Income." Net losses for the first quarter 2000 increased 112% to
$267,744 from $126,492 in 1999 and the loss decreased as percentage of sales
to 280% from 320%. 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.
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
<PAGE> 9
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
During 1st quarter of 2000, the Company raised $150,000 through equity
financing in order to meet its working capital requirements. In the three-
month period, management successfully collected over $178,000 of accounts
receivables from three major customers. As a result, short term loan was
reduced by $61,000, accounts payable and accrued expenses were reduced by
$23,000 compared to their balances at December 31, 1999. Management is
planning to convert approximately $100,000 worth of short term debt into
equity to improve its working capital position. Further, the Company has
been working on additional equity and debt financing through private sources
to meet its immediate working capital requirements.
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 March 31, 2000. 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 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.
Part II. Other Information
Item 2. Changes in Securities
(c) Following securities were sold in the reporting period to a director of
the Company for cash pursuant to Section 4(2) of the Securities Act of 1933.
Date Sold To Class of Number of Offering Cost
Security Shares sold Price
- --------- -------------- -------- ----------- --------- ----
3/13/2000 Tyrie Jenkins Common 200,000 $150,000 $0
The following are the date, title and amount of securities issued for
services provided by the Company's affiliates and the consideration received
by the Company pursuant to Section 4(2) of the Securities Act of 1933.
Date Issued To Class of Number of Consideration Dollar
Security Shares Issued Value
- --------- ------------------- -------- ------------- ------------- ------
1/27/2000 Roth Financial Group Common 9,812 Commission $7,359
1/31/2000 Unicor, Inc. Common 5,000 Consulting $5,000
1/31/2000 Roth Financial Group Common 5,625 Marketing $5,625
3/21/2000 Unicor, Inc. Common 10,000 Consulting $7,500
3/21/2000 Vince DeBono Common 3,000 Consulting $2,250
<PAGE> 10
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
10.8 Bloomington Store Lease Store space lease of Company's soly-
owned retail shop in Bloomington, Illinois with H.O.S. Partnership dated
January 24, 2000.
27 Financial Data Schedule
(B) Reports on Form 8-K - None
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Hawaiian Vintage Chocolate Company, Inc.
Date: May 22, 2000 By: /s/ JAMES P. WALSH
---------------------------------
James P. Walsh, Chairman and
Chief Executive Officer
<PAGE>
- -----------------------------------------------------------------------------
L E A S E
1. Premises. H.O.S. Partnership, (Hereinafter called Landlord)
hereby leases to Hawaiian Vintage Chocolate Company, (hereinafter called
Tenant) the subject premises which are owned by Landlord, described as a
2,000 square foot retail space at 1505 N. Veterans Parkway, Unit B,
Bloomington, McLean County, State of Illinois.
2. Useof Premises. Tenant shall use and occupy the premises for full
chocolatier Dessert shop featuring Hawaiian Vintage Chocolate products,
Hawaiian Vintage Estate Coffee and Espresso, Hawaiian Vintage cakes/pastries
/baked goods, ice creams, shakes and smoothies, assorted treats, gift baskets,
and pre-packaged gift items and accessories and for other such purposes as are
usual in connection therewith and for any other lawful purpose. Tenant's use
of the premises shall not violate any ordinance, law or regulations of any
governmental body, or the reasonable rules and regulations of Landlord herein
provided for. All signs and the location thereof shall be approved in advance
by Landlord.
3. Term. The term of the Lease shall commence upon the
issuance of a certificate of occupancy permit and shall end seven years
after. Hawaiian Vintage may terminate the Lease at any time after second
year anniversary with three months notice and a penalty consisting of 50% of
the non-amortized improvements provided by Landlord per final agreement and
three months rent at the then current rental rate.
4. Rent. Tenant agrees and covenants to pay the Landlord based on the
following schedule:
Year 1 @$39,700.00 per year Or $19.85 psf($3,308.33 per month)
Year 2 @$41,700.00 per year Or $20.85 psf($3,475.00 per month)
Year 3-4 @$43,700.00 per year Or $21.85 psf($3,641.67 per month)
Year 5-7 @$45,700.00 per year Or $22.85 psf($3,808.33 per month)
Tenant shall pay the sum of $3,308.33 upon signing this agreement for the
first month's rent. Thereafter, rent shall be paid to Landlord on the first
day of each month. Tenant shall pay a late charge of $150.00 for any rent
payment not received by Landlord within fourteen (14) days after said payment
is due.
5. Responsibility for Services. Tenant shall pay actual
prorata expenses for real estate taxes, insurance on the land and the
building, and common area maintenance. Tenant shall maintain the interior of
the building (including replacement of furnace filter, light bulbs,
ballast's, plumbing service calls and fire extinguisher). Tenant shall keep
the interior of the building clean and in good repair. Landlord shall
maintain the exterior of the building. Landlord shall be solely responsible
for snow removal and lawn maintenance. Tenant shall be responsible for own
garbage/waste removal. Tenant shall pay all utilities. However, expenses
relating to snow removal and lawn maintenance are part of common area
maintenance charges payable by Tenant.
Landlord shall not be liable to anyone for interruption in
or cessation of any service rendered to the premises or building or agreed to
by the terms of this Lease, due to any accident, making of repairs,
alterations or improvements, labor difficulties, trouble in obtaining fuel,
or supplies from the sources from which they are usually obtained for said
building, or any cause beyond the Landlord's control if such interruption or
cessation shall be for less than ten (10) consecutive days. If such
<PAGE> 2
interruption or cessation shall be for more than ten (10) consecutive days,
Tenant may abate all the rent after the first ten (10) days and other
obligations of the Tenant under this Lease until such time as that service
returns to normal, but if such cessation shall continue past thirty (30)
days, then Tenant shall have the option to terminate this lease by written
notice thereof to Landlord. If the building services are interrupted by
power, fire, gas or tornado, or any other cause, Tenant agrees to pay rent
for ten (10) days maximum while services are interrupted.
6. Tenant's Care.
A. Tenant will take good care of the premises and the
fixtures and appurtenances therein, and will suffer no active or permissive
waste or injury thereof. Tenant shall at Tenant's expense but under the
direction of the Landlord, promptly repair any damage to the premises caused
by the negligence of Tenant, or by persons permitted on the premises by
Tenant, or by Tenant moving in or out of the premises. Tenant shall be
allowed to remove Tenants trade fixtures and equipment, subject to the repair
of any damage caused by such removal.
B. Tenant will not, without Landlord's prior written
consent, which consent may not be unreasonably withheld, make any structural
change or other alterations, additions or improvements that cost $10,000 or
more in or about the premises, and will not do anything to or on the premises
which will increase the rate of fire insurance on the building. All
alterations, additions or improvements of a permanent nature made or
installed by Tenant to the premises shall become the property of Landlord at
the expiration of this Lease.
C. No later than the last day of the term, Tenant will
remove all Tenant's personal property and repair all injury done by or in
connection with installation or removal of said property, and surrender the
premises (together with all keys to the premises) in as good a condition as
they were at the beginning of the term, reasonable wear and tear and damage
by fire, the elements or other casualty excepted.
D. In doing any work related to the installation of
Tenant's furnishings, fixtures, or equipment in the premises, Tenant may use
contractors or workmen of his choice. Tenant shall promptly remove any lien
for material or labor claimed against the premises by such contractors for
workmen if such claim should arise, and hereby indemnifies and holds Landlord
harmless from any and all cost, expenses or liability incurred by Landlord as
a result of such liens.
E. Tenant agrees that all personal property brought into
the premises by Tenant, its employees, licensees, and invitees shall be at
the sole risk of Tenant and Landlord shall not be liable for theft thereof or
of money deposited therein for any damage thereto, such theft or damage being
the sole responsibility of Tenant unless caused by the negligence of
Landlord, his agents, employees or assigns.
7. Access. Landlord may enter the premises during normal
business hours upon reasonable notice during the last nine (9) months of this
Lease to exhibit the premises. Landlord may enter the premises during normal
business hours to inspect the premises, upon reasonable notice.
8. Indemnity. Tenant shall indemnify, pay and save harmless
Landlord from all liability, damage, reasonable expense, cost of actions,
suits, reasonable legal fees, claims and/or judgments arising from injury to
person or property upon the premises, unless caused by Landlord's negligence
or the negligence of Landlord's agents, employees or assigns.
9. Insurance. Landlord shall provide all risk fire and
extended coverage and liability insurance upon the leased premises, with
coverage in limits of at least $450,000.00 for the building, said amount to
increase every third year by at least ten percent (10%) (see Paragraph 5).
<PAGE> 3
Tenant shall provide liability insurance in the amount of $500,000 for
property damage and $1,000,000 in liability.
10. Waiver of Subrogation. Provided and so long as the
following provisions of the paragraph do not result in the invalidation or
cancellation of the fire and extended coverage or additional perils insurance
policies on the premises constituting a part of the building or do not
constitute a defense to any claim for loss under said policies, Landlord and
Tenant agree to and do hereby waive all rights of recovery and causes of
action against Tenant and Landlord respectively, and their officers,
employees, servants, agents, and all parties claiming through or under the
Lease, for any damage to or destruction of the premises caused by any of the
perils embraced within fire and extended coverage and additional perils
insurance policy of Landlord and/or Tenant respectively, notwithstanding the
fact that said damage shall be due to the negligence of any or all of the
parties in whose favor this Agreement operates.
11. Destruction of Premises. If the premises are partially or
totally damaged or destroyed by fire, other casualty or any other cause
whatsoever, Tenant shall give immediate notice thereof to Landlord.
Within fifteen (15) days of the date of such damage or
destruction, Landlord shall advise Tenant whether or not it intends to
rebuild and when such rebuilding or repairing shall be completed.
If the premises or the building of which the premises are a
part are totally destroyed or so damaged by fire, other casualty, or any
other cause whatsoever (except condemnation) that the premises are
substantially untenable and that rebuilding or repairing cannot be completed
within one hundred twenty (120) days from the date of the occurrence of such
damage or destruction, then Tenant may terminate this Lease and the rent and
any portion of the Lease term, effective as of the date of the damage or
destruction.
If the leased premises are damaged by fire, other casualty,
or any other cause whatsoever (except condemnation), but not to such an
extent that rebuilding or repairs cannot be completed within one hundred
twenty (120) days from the date of the occurrence of such damage, then this
Lease shall not terminate. Landlord shall, at Landlord's cost, utilizing its
best efforts and due speed and diligence, proceed to build, rebuild, or
repair the damaged premises or building to substantially the same condition
in which the premises or building existed prior to such damage. Tenant's
rent charges shall be reduced by an amount proportionate to the area of the
subject premises which is unusable during the period of repair.
12. Eminent Domain. If the entire premises shall be taken,
leased, or condemned (either temporarily or permanently) for public purposes,
or in the event Landlord shall convey or lease the property to any public
authority in settlement of a threat of condemnation or taking, the rent shall
be adjusted to the date of such taking or leasing or conveyance, and this
Lease shall thereupon terminate. If only a portion of the premises shall be
taken, leased, or condemned, and as a result of such partial taking, Tenant
is reasonably able to use the remainder of the premises for its intended
purposes, then this Lease shall not terminate but, effective as of the date
of such taking, leasing or condemnation, the rent and any other charges shall
be abated in an amount thereof proportionate to the area of the premises so
taken, leased, or condemned. If, following such partial taking, Tenant shall
not be reasonably able to use the remainder of the premises for its intended
purposes, then this Lease shall terminate as if the entire premises had been
taken, leased or condemned.
13. Default by Tenant. Each of the following shall be deemed a
default by Tenant under this Lease and a breach thereof:
<PAGE> 4
A. Rent. Failure of Tenant to make any rental payment
with fifteen (15) days after receipt of written notice that same is due.
B. Other Obligations. Failure of Tenant to comply with
any term or condition or fulfill any obligation of this lease (other than
payment of rent or other charges) within thirty (30) days after written
notice by Landlord specifying the nature of the default with reasonable
particularity. If the default is of such a nature that it cannot be
completely remedied within the 30 day period, this provision shall be
complied with and Tenant shall not be in default if Tenant commences
correction or cure of the default within the 30 day period and thereafter
proceeds with reasonable diligence and in good faith to effect the remedy as
soon as practicable.
C. Bankruptcy. The filing of a petition by or against
Tenant for adjudication under the Bankruptcy Act, as now or hereafter amended
or supplemented, or for reorganization or for arrangement within the meaning
of Chapter XI of the Bankruptcy Act, or the commencement of any action or
proceeding for the dissolution or liquidation of Tenant, whether instituted
by or against Tenant, provided that no such filing or proceeding instituted
by a third party shall be regarded as a default hereunder if Tenant shall
cause the same to be dismissed within thirty (30) days after filing.
D. Assignment for Benefit of Creditors. The making by
Tenant of an assignment for the benefit of creditors.
E. Taking on Execution. The taking of the leasehold created by
thisLease on execution or by other process of law.
14. Remedies of Landlord upon Default of Tenant. In the event of a
default by Tenant as specified in the preceding paragraph, Landlord may
enter upon the premises and again have, repossess and enjoy the premises as
if the Lease had never been executed in accordance with State and local law.
If Landlord so enters the premises, the Lease and all covenants therein
contained shall cease, without prejudice to the right of the Landlord to
recover from the Tenant for all damages the Landlord is entitled to receive
for breach of this Lease. Landlord will do everything possible to re-rent
the building and cut the costs of the tenant.
15. Default by Landlord. If Landlord defaults in the
performance of any term, covenant or condition required to be performed by it
under this Lease, Tenant, after not less than thirty (30) days written notice
to Landlord to remedy said default and if Landlord has failed to do so, then
and in that event Tenant may terminate this Lease or remedy such default by
any necessary action and in connection with such remedy may pay expenses and
employ counsel. All sums expended or obligations incurred by Tenant in
connection with the remedy or such default of Landlord shall be paid by
Landlord to Tenant on demand and on failure of such reimbursement.
16. Subordination and Attornment. Tenant agrees at the request
of Landlord to subordinate this Lease to any mortgage placed upon the
premises by Landlord provided that the holder of such mortgage enters into an
agreement with Tenant by the terms of which such holder agrees not to disturb
the Tenant in its possession of the premises, so long as Tenant continues to
perform its obligations hereunder, and, in the event of acquisition of
title by said holder through foreclosure proceedings or otherwise, to accept
Tenant as Tenant of the premises under the terms and conditions of this Lease
and to perform Landlord's obligations hereunder (but only while owner of the
premises). Tenant agrees to recognize such holder or any other person
acquiring title to the premises as Landlord. Landlord and Tenant agree to
execute and deliver any appropriate instruments necessary to carry out the
foregoing provision.
17. Assignment and Subletting. Tenant may not, without the
prior written consent of Landlord, assign this Lease or any interest
thereunder, or sublet the premises or any part thereof, or permit the use of
<PAGE> 5
the premises by any party other than Tenant. Landlord shall not unreasonably
withhold said consent. Consent by Landlord to one assignment or sublease
shall not destroy or waive this provision, and all later assignments and
sublease shall likewise be made only upon prior written consent of Landlord.
Subleasees or assignees shall become liable directly to Landlord for all
obligations of Tenant hereunder without relieving Tenant's liability to
Landlord therefor. In the event Tenant notifies Landlord of Tenant's intent
to sublease or assign this Lease, Landlord shall within thirty (30) days from
receiving such notice in writing (1) consent to such proposed subletting or
assignment, or (2) refuse such consent.
18. Remedies Cumulative. The rights given to Landlord or
Tenant herein are in addition to any rights that may be given to Landlord or
Tenant by any statute or under law.
19. Holding Over. If Tenant remains in possession after
expiration of the term, with Landlord's acquiescence and without any written
agreement between the parties, Tenant shall be a tenant at will and such
tenancy shall be subject to all the provisions hereof, except that the
monthly rental shall be as negotiated for the entire holdover period and
there shall be no renewal of this Lease by operation of law. Nothing in
this paragraph shall be construed as a consent by Landlord to the possession
of the premises by Tenant after the expiration of the term.
20. Entire Agreement - No Waiver. This Lease and the exhibits
attached to and made a part of this Lease contain the entire agreement of the
parties and no representations, inducements, promises or agreement, oral or
otherwise, between the parties not embodied herein, shall be of any force or
effect. The failure of either party to insist in any instance on strict
performance of any covenant or condition hereof, or to exercise any option
herein contained, shall not be construed as a waiver of such covenant,
condition or option in any other instance. This Lease cannot be changed or
terminated orally.
21. Headings. The headings in this Lease are included for
convenience only and shall not be taken into consideration in any
construction or interpretation of this Lease or any of its provisions.
22. Notices. Any notice by either party to the other shall be
valid only if in writing and shall be deemed to be duly given only if
delivered personally or sent by registered or certified mail, return receipt
requested, addressed (1) if to Tenant at 4614 Kilaueu Avenue Suite 435,
Honolulu, HI, 96816, and (2) if to Landlord at 405 N. Hershey Road,
Bloomington, IL, 61704, or at such other address that either party may
designate by notice. Notice shall be deemed given, if delivered personally,
upon delivery; and if mailed, upon the mailing.
23. Heirs and Assigns. The provisions of this Lease shall bind
and inure to the benefit of the Landlord and Tenant, and their respective
successors, heirs, legal representatives and assigns.
24. Time of Essence. Time is of the essence in this Agreement.
25. Severability. If any provision of this Lease or its
application to any person or circumstances shall to any extent be invalid or
unenforceable, the remainder of this Lease or the application of such
provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby and each provision of
this Lease shall be valid and enforceable to the fullest extent permitted by
law.
<PAGE> 6
26. Quiet Enjoyment. Landlord covenants that, upon the payment
of the rent herein provided and the performance by Tenant of all covenants
herein, Tenant shall have and hold the premises, free from any interference
from Landlord except as otherwise provided.
27. Hazardous Substances. Tenant shall not cause or permit any
Hazardous Substance to be used, stored, generated, or disposed of on, under,
in, or about the Premises by Tenant, Tenant's agents, employees, contractors,
or invitees without first obtaining Landlord's written consent (which consent
may be given or withheld in landlord's sole discretion). If Hazardous
Substances are used, stored, generated, or disposed of on, under, in, or
about the Premises, or if the Premises becomes contaminated in any manner,
Tenant shall reimburse, defend, indemnify and hold harmless the Landlord (and
its agents and employees) from and against any and all claims, damages,
fines, judgments, penalties, costs, liabilities, expenses, or losses
(including, without limitation, a decrease in value of the premises or the
land or building of which they are a part, damages caused by loss or
restriction of rentable or usable space, or any damages caused by adverse
impact on marketing of the space, and any and all sums paid for settlement of
claims, attorneys' fees, consultant, and expert fees) arising during or after
the Lease Term and arising as a result of any use, storage, generation or
disposal of any Hazardous Substance or any such contamination by Tenant.
This indemnification includes, without limitation, any and all costs incurred
because of any required or necessary investigation of the site, or any
cleanup, detoxification, removal, or restoration whether voluntary or
mandated by a federal, state, or local agency or political subdivision. If
the Tenant causes or permits the presence of any Hazardous Substance on the
Premises that results in contamination, Tenant shall promptly, at its sole
expense, take any and all necessary actions to return the Premises to the
condition existing prior to the presence of any such Hazardous Substance on
the Premises. Tenant shall first obtain Landlord's approval for any such
remedial action.
As used herein, "Hazardous Substance" means any substance
that is toxic, radioactive, explosive, ignitable, reactive, or corrosive
regardless whether same is regulated by any local government, the State of
Illinois, or the United States Government. "Hazardous Substance" includes,
but is not limited to any toxic or hazardous substance and any and all
material or substances that are defined as "hazardous waste," "extremely
hazardous waste," or a "hazardous substance" pursuant to state, federal, or
local governmental law. "Hazardous Substance" includes but is not restricted
to asbestos, polychlorobiphenyls ("PCBs"), petroleum and petroleum products.
28. Attorney's Fees. In the event of employment by an attorney
by either party because of the violation of any term or provision of the
Lease by the other, the party determined to be in default hereunder shall pay
the reasonable attorney's fees and costs of the other.
29. Tenant Finish. Landlord shall provide a white box finish
consisting of finished ceiling, flooring, exterior walls painted, two
restrooms, a mechanical room, a janitorial closet, standard heat, air
conditioning and lights. Additionally, Landlord shall contribute $20.00 per
square foot ($40,000) to Hawaiian Vintage Chocolate for finishing the space.
Construction shall be completed on or before February 3, 2000.
30. Parking. Tenant shall be allocated eight unassigned spaces
on the premises. Any spaces used by Tenant that exceed eight shall be towed.
<PAGE> 7
IN WITNESS WHEREOF, Landlord and Tenant have executed this
Agreement as a sealed instrument as of the date set out below and represent
that their respective signatory whose signature appears below was taken and
is on the date of the Agreement duly authorized by all necessary and
appropriate corporate action to execute this Agreement.
Date: 1/24/2000
-----------
LANDLORD: TENANT:
/s/ LARRY HUNDMAN /s/ JAMES WALSH
______________________________ ___________________________________
H.O.S. Partnership Hawaiian Vintage Chocolate Company
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