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[DESCRIPTION]AMENDMENT #3 TO FORM 10SB
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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Form 10-SB/A
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AMENDMENT 3
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(g) of
The Securities Exchange Act of 1934
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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 to be registered pursuant to Section 12(b) of the Act:
NONE
Securities to be registered pursuant to Section 12(g) of the Act:
$.001 Common Stock
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(Title of Class)
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TABLE OF CONTENTS
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Page
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PART I
Item 1. Description of Business ................................................. 3
Item 2. Management's Discussion and Analysis on Plan of Operation ............... 10
Item 3. Description of Property ................................................. 15
Item 4. Security Ownership of Certain
Beneficial Owners and Management ..................................... 15
Item 5. Directors and Executive Officers, Promoters
and Control Persons .................................................. 17
Item 6. Executive Compensation .................................................. 19
Item 7. Certain Relationships and
Related Transactions ................................................. 19
Item 8. Description of Securities ............................................... 20
PART II
Item 1. Market Price for Registrant's for Common Equity and
Related Shareholder Matters .................................. 20
Item 2. Legal Proceedings ....................................................... 21
Item 3. Changes in and Disagreements with Accountants ........................... 21
Item 4. Recent Sales of Unregistered Securities ................................. 21
Item 5. Indemnification of Directors and Officers ............................... 24
PART F/S
Report of Independent Auditors ........................................... F-1
Balance sheets as of December 31, 1998 and September 30, 1999 (unaudited). F-2
Statements of Operations for the years ended December 31, 1997 and 1998
nine month period ending September 30, 1999 (unaudited) .................. F-3
Statements of Shareholder's Equity for the years ended
December 31, 1997 and 1998 and nine month period ended September 30,
1999 (unaudited) ......................................................... F-4
Statements of Cash Flow for the years ended December 31, 1997 and 1998
and nine month period ended September 30, 1999 (unaudited) ............... F-5
Notes to Financial Statements ............................................ F-6
PART III
Item 1. Index to Exhibits ....................................................... 27
Item 2. 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 3rd
generation of 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 while it
has discontinued its independent planting regime in 1998 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 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 Agreement 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
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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
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 chocolate. All Estate
Coffees are grown in Hawaii while its Flavored Coffees are from selected beans
outside Hawaii. In September of 1999 the Company opened its first retail store
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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 November 1999
Bulk (Food Service) 90% 70% 23%
Retail 10% 29% 58%
Ingredient 0% 0% 12%
Internet 0% 1% 6%
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
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 7 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 seven 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.
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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. The Company presently has no plans for the franchising
of retail stores in 2000.
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
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. Sales for that month contributed 1% of the Company's sales revenues
for the calendar year 1998. For the first eleven months of calendar 1999
Internet sales have accounted for 6% of the Company's sales revenues. 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
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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
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 2 - 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. In its two acre production area its has 4136 cocoa tree plantings. 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
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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* 1/1/99 -11/30/99*
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
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.
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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 it 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 November 30, 1999, 25% of the Company's net sales were derived from
sales to two customers. An ingredient chocolate customer accounted for 12.4%
and a Retail customer for 12.6%.
Patents, trademarks, licenses, franchises, concessions, royality agreements or
labor contracts.
The Company has a license agreement 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 agreement 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
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
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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 November 30, 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. 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
registration statement.
Results of Operations --- 1997
Fiscal 1997 compared to Fiscal 1996
"Net Sales." Net sales increased 12% to $136,000 in 1997 from $122,000 in 1996.
The increase was the result of additional test marketing efforts.
"Other Income." During 1996 and 1997, the Company received grant income from the
Federal Government through its Rural Economic Development Assistance program.
This income increased to $69,000 from $52,000 in 1996. This program was designed
to attract agricultural companies to find alternative uses for demised Hawaiian
sugar cane land. The company used this money to offset expenses incurred in the
development of its plantings in Hawaii.
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"Cost of sales" Cost of sales in 1997 decreased to $45,000 from $51,000 in 1996
because of a decrease in packaging costs. These costs include raw materials,
processing and packaging costs.
"Gross Profit." As a result of the increase in net sales, the gross profit for
1997 increased to $90,000 from $70,000 in 1996. The Company's gross profit
margin increased by 16% from 1996 primarily due to test market sales increase
and cost reduction.
"Selling and Marketing Expenses." Selling and marketing expenses for 1997
increased 38% to $ 122,000 from $88,000 in 1996 and as a percentage of net sales
it increased to 89% from 72%. The increase in selling and marketing expenses
primarily was due to an increase in sales payroll and brochure cost.
"General and Administrative expenses." General and administrative expenses for
1997 increased by 25% to $217,000 from $174,000 in 1996 and increased as a
percentage of sales to 159% from 142%. The primary reason for the increase of
the general and administrative expenses was the increase in professional fees as
part of the Company's merger with AGI and subsequent public listing on the OTC
Bulletin Board.
"Operating Income." Operating loss for 1997 increased to $264,000 from $196,000
in 1996 and the loss increased as a percentage of sales to 193% from 160% in
1996. The increase in the operating loss was due to the Company's increase in
marketing and sales expenses and the increase in accounting/audit and
professional fees as a result of the Company's preparation for its public
listing on the OTC Bulletin Board and its merger with AGI.
"Income Taxes." The Company has a net loss for the year therefore incurring no
income tax liability.
"Interest Expense." Interest expense for 1997 decreased to $88,000 from $108,000
in 1996 primarily due to the Company's redemption of two of its convertible
debentures.
"Net Income (loss)." Net loss for 1997 increased to $271,000 from $244,000 in
1996 however the loss as a percentage of sales remained unchanged at 199%. This
increase of the net loss by the Company was due primarily to increased
expenditures in marketing and sales and the increase in accounting/audit and
professional fees paid as a result of the Company's preparation for its public
listing on the OTC Bulletin Board and its merger with AGI.
Results of Operations --- 1998
Fiscal 1998 compared to Fiscal 1997
"Net Sales." Net sales increased 45% to $197,000 from $136,000 in 1997. The
increase was primarily attributable to the increase in the Company's retail test
marketing sales including Internet sales. This increase in sales volume reflects
the Company's 1998 opening of its Internet site and a test market for its
chocolate products at retail in Hawaii and on the West Coast.
"Other Income." During 1997 and 1998, the Company received grant income from the
Federal Government through its Rural Economic Development Assistance program.
This income decreased to $6,000 from $69,000 in 1997. This program was designed
to attract agricultural companies to find alternative uses for demised Hawaiian
sugar cane land. The Company used this money to offset expenses incurred in the
development of its cocoa tree plantings in Hawaii. The Company believes this
grant income to be a one-time occurrence.
"Cost of sales" Cost of sales in 1998 increased to $47,429 from $45,986 in 1997
because an increase in net sales. These costs include raw materials, processing
and packaging costs.
"Gross Profit." As a result of the Company's increase in net sales, gross profit
for 1998 increased 65% to $149,000 from $90,000 in 1997. The Company's gross
profit margin was up 10% from 1997 primarily due to the higher per unit price of
the Company's product at retail vs. food service.
"Selling and Marketing Expenses." Selling and marketing expenses for 1998
increased 48% to $181,000 from $122,000 in 1997 and as a percentage of net sales
it increased to 92% from 90%. The increase in selling and marketing expenses
primarily was due to an increase in advertising expenses, distributor support
programs, and retail test market introductions. This increase was partially
offset by a decrease in promotional expenses.
"General and Administrative expenses." General and administrative expenses for
1998 increased by 102% to $439,000 from $217,000 in 1997 and increased as a
percentage of sales to 223% from 160%. 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.
11
<PAGE> 12
"Operating Income." Operating losses for 1998 increased 98% to $523,000 from
$264,000 in 1997 and the loss increased as a percentage of sales to 265% from
194% in 1997. 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.
"Income Taxes." The Company has a net loss for the year therefore incurring no
tax liability.
"Interest Expense." Interest expense for 1998 decreased 83% to $15,000 from
$88,000 in 1997 primarily due to the conversion of debentures to equity at the
time of the Company's public listing in December of 1997 of its common stock on
the OTC Bulletin Board.
"Net Income." Net losses for 1998 increased 88% to $510,000 from $271,000 in
1997 and the loss increased as percentage of sales to 259% from 177%. This
increase in the dollar losses is due to the factors discussed above under
"operating income".
"Cash and cash equivalent" The ending cash balance as of 1998 was a negative
$7000 compared to $10,000 in 1997. This decrease was due to the rapid growth of
the Company.
"Accounts Receivable" Accounts receivable decreased from $137,000 at the end of
1997 to $42,000 as of December 31, 1998. This decrease was due to grant income
booked in 1997, which was received in 1998, plus additional allowances for bad
debt.
"Inventory" As a result of a growth in sales, the Company increased its
inventory level from $3,000 in 1997 to $21,475 as of December 31, 1998.
"Capitalized Planting Costs" To build up its long-term production capacity, the
Company invested $200,105 more in field planting in 1998. Accordingly,
capitalized planting costs increased from $43,256 to $243,361.
Results of Operations - Nine Months Ending September 30, 1999
"Net Sales." Net sales for the nine months ending September 30, 1999 increased
71% to $280,000 from $164,000 during the same period of 1998. These increases
were attributable to increases in the Company's retail sales, Internet sales and
ingredient sales. This increase in sales volume reflects the fact that 1999 was
the Company's first partial year of functioning as an operating company. The
opening of retail accounts in the Northeast, the hiring of brokers and
distributors to represent the products in grocery and health food accounts, the
increase of Internet sales, as well as the direct ingredient sales have all
contributed to the increased revenues.
"Cost of sales" Cost of sales for the first nine months of 1999 increased to
$115,554 from $32,820 in the same period of 1998. This was due to increased net
sales and the corresponding increase in cost of sales. These costs include raw
materials, processing and packaging costs.
"Gross Profit." As a result of the Company's increase in net sales, gross profit
for the nine months of 1999 increased 25% to $164,000 from $131,000 during the
same period in 1998. The Company's gross profit margin of 59% was down 21% from
1998 primarily due to the increase in packaging and inventory costs for the
retail sales of the Company's chocolate products.
"Selling and Marketing Expenses." Selling and marketing expenses for the nine
months of 1999 increased 65% to $235,000 from $142,000 during the same period in
1998 with the percentage of net sales down 2.8% from 86% in 1998. The increase
in selling and marketing expenses primarily was due to an increase in
advertising expenses, distributor support programs, the cost of sales personnel
hired to expand the retail market, the cost of retail test market introductions,
and the cost of promotions to encourage the use of the product as a co-branded
ingredient.
"General and Administrative Expenses." General and administrative expenses for
the first nine months of 1999 increased by 43% to $447,000 from $312,000 during
the same period in 1998 and decreased as a percentage of sales to 160% from
190%. The primary reason for the increase of the general and administrative
12
<PAGE> 13
expenses is the increased staffing by the Company to support the Company's
national sales effort.
"Operating Income." Operating losses for the first nine months of 1999 increased
53% to $549,000 from $358,000 during the same period in 1998 and decreased as a
percentage of sales to 196% from 218% during the similar period in 1998. The
percentage decrease was due primarily to the increased revenues of the Company
from its retail efforts while the dollar increase was due to increased selling,
marketing and administrative costs.
"Income Taxes." The Company anticipates a net loss for fiscal 1999 therefore
incurring no tax liability. The company expects its net operating loss carry
forwards to offset any tax liabilities in the year 2000.
"Interest Expense." Interest expense for the first nine months of 1999 remained
constant at $10,000 compared to the similar period in 1998.
"Net Income." Net losses for the first nine months of 1999 increased by 60% to
$535,000 from $334,000 in 1998 and decreased as percentage of sales to 191% from
204%. This improvement in the net income of the Company as a percentage of sales
was due primarily to its expanding sales revenue and the increase in the dollar
amount of the net loss was due to the increase staffing both at the sales level
and the administrative level to support the national sales effort and the trade
promotions necessary to build sales.
"Cash and cash equivalent" The Company increased its cash flow position to
$72,000 by September 30, 1999 compared to a negative $7,000 for the same period
of 1998. This was a result of equity financing as well as increased sales in the
first nine months of 1999.
"Accounts Receivable" Accounts receivable increased to $133,000 by September 30,
1999 compared to $42,000 for the same period of 1998. This was caused by the
growth in national sales.
"Inventory" As a result of the growth in sales, inventory increased to $194,000
at September 30, 1999 compared to $21,000 for the same period in 1998.
"Capitalized Planting Costs" To strengthen its production capacity the Company
continued to invest in field planting. Capitalized Planting Costs increased to
$317,132 as of September 30, 1999 from $243,361 for the same period in 1998.
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 September 30, 1999, working capital was $293,000 compared with
($245,000) as of September 30, 1998. This increase is primarily due to the
13
<PAGE> 14
private sale of the Company's common stock in 1999. Cash and cash equivalent
balances increased from ($21,000) on September 30, 1998 to $72,000 on September
30, 1999 as a result of cash flows in excess of operating and financing costs.
The Company's current ratio was 2.50 on September 30, 1999 as compared to 0.40
on September 30, 1998. The Company has no long-term debt.
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 September 30, 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
registration statement. The Company cautions, however, that there is no
assurance that these assumptions will prove to be accurate.
2000 Outlook
The Company anticipates as its products move through the distribution
channels planned for 2000 that its gross margins will drop due to pricing
pressures. The Company's forecasts call for gross profit margins of
approximately 75% in 2000.
The Company opened a prototype retail store in late September of 1999
that will serve as the model for corporate expansion of Company owned stores in
2000. The Company's retail expansion plans project five new corporate stores for
2000. Based on the results of the new operations further expansion plans will be
considered in 2001. The Company plans to continue its retail rollout of product
by expanding its sales representation to the Midwest, South and Northwest in the
year 2000 and by expanding its food service distribution. The Company believes
that this trend of increased sales will continue through fiscal 2000. The
Company has announced its intentions of entering into a build-to-suit two
million dollar visitor center/chocolate factory in Hawaii and anticipates
completing the negotiations with land owners/developers by the end of the third
quarter of 2000. Based on preliminary discussions with an unrelated third party
financing for this project is expected to be provided by the developer. The
Company will lease the site from the developer once completed. Operations
are projected to commence within nine months from the dateof the contract.
However, due to the preliminary nature of the discussions there are no assurance
that this project will move forward or be completed.
The Company believes that in 2000 the revenue increases will offset the
increased cost of personnel, promotions and advertising bringing the percentage
down in relation to total sales. The Company believes the trend of decreasing
administrative cost, as a percentage of sales will continue as a result of
increasing sales in the year 2000. However, administrative cost will continue to
increase to support the Company's expanded sales activities. In 2000, the
Company will be investing in preventive measure for the protection of its trees
such as irrigation, additional wind protection, and increased monitoring of soil
conditions.
The Company believes that the impact of its expansion into the retail
market including the possibility of retail stores, corporate owned, and its
increased distribution in food service will cause the Company to have a positive
improvement in its operating income for the year 2000
The Year 2000 Matters
The Company recognizes that the arrival of the year 2000 poses a unique
worldwide challenge to the ability of systems to recognize the date change from
14
<PAGE> 15
December 31, 1999 to January 1, 2000. The year 2000 issue could result, at the
Company and elsewhere, in system failures or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to process
transactions or to engage in other normal business activities. The Company has
assessed its computer and business processes and has upgraded its computer
applications to provide for their continued functionality. To date the Company
has not incurred any material year 2000 problems.
The Company's operations are dependent on the year 2000 readiness of
third parties who do business with the Company. In particular, the Company's
information technology systems interact with commercial electronic transaction
processing systems to handle customer credit card purchases and other point of
sale transactions, and the Company is also dependent on third-party suppliers of
such infra structure elements as telephone services, electric power, water, and
banking facilities. The Company has contacted it relevant third parties.
Although the Company has not been put on notice that any known third party
problem will not be resolved, the Company has limited information and no
assurance of additional information concerning the year 2000 readiness of third
parties. The resulting risks to the Company's business are very difficult to
assess.
The Company believes that, with the modifications it has made to its
operating systems the year 2000 issue is not reasonably likely to pose
significant operational problems for the Company's information technology
systems.
ITEM 3. 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
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 agreement
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 4. 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) 53.17%(3)
615 Elepaio Street
Honolulu, HI 96816
DLS Financial Services Common 1,143,318 (4) 12.60%(4)
519 Interstate 30
Suite 243
Rockwall, TX 75087
</TABLE>
15
<PAGE> 16
(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 8,568,471 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. 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>
<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) 3.99%
925 De La Vina Street
Suite 102
Santa Barbara, CA 93101
Tyrie Jenkins Common 80,066 0.93%
1060 Young Street
Suite 216
Honolulu, HI 96814
Shep Gordon Common 48,500 0.56%
3274 S. Kihei Road
Kihei, HI 96753
James Walsh Common 4,689,500(4) 53.17%
615 Elepaio Street
Honolulu, HI 96816
Charles Cheng Common 0 0
330 Saratoga Drive
Honolulu, HI 96830
Kristine Simonds Common 10000 0.11%
3212 Loulu
Honolulu, HI 96822
Executive Officers and Common 5,170,567(5) 58.63%
</TABLE>
16
<PAGE> 17
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
8,568,471 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,
4,434,500 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
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 5. 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
17
<PAGE> 18
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
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
Anthony Roth, 34 has been retained by the Company THROUGH ROTH FINANCIAL
SERVICES since May of 1999 to develop and implement the Company's stated
sales and marketing plan. For three years prior to that period he was
employed by Naturade, Inc. ("Naturade"), a manufacturer of health and
nutrition products, as their Vice President of Sales and Marketing.
Naturade's common stock is registered under section 12(g) of the
Exchange Act and is traded on the OTC Bulletin Board. Mr. Roth was
President of Performance Nutrition, Inc., a nutracuetical company for
two years prior to his employment at Naturade. Mr. Roth has a Bachelor's
Degree in Agricultural Economics from the University of Illinois.
Stuart Hersch, 54 has acted in the capacity of advisor to the Chairman.
His responsibilities include assisting in strategic development,
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<PAGE> 19
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 6. 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
agreement 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 and 1998, 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.
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 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has a contractual agreement 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 agreement.
Shares Issued to Corporate Directors
The Company has raised money through the sale of its securities to
persons who had a pre-existing business relationship with the Company and who
were or subsequently became directors of the Company. Mr. Zwick has participated
in these offerings through his purchase of 233,334, 66,667, and 25,000
restricted shares of common stock at $.75, $.75, and $.50 per share
respectively. Dr. Jenkins purchased three debentures issued by the Company in
19
<PAGE> 20
1996 and 1997 respectively for $25,000 each which were converted into 55,066
restricted shares of common stock at the time of the Company's initial public
listing of its common stock on the OTC Bulletin Board. In 1998, Dr. Jenkins also
subscribed and purchased 20,000 restricted shares of the Company's common stock
at $1.00 per share. Mr. Gordon purchased one debenture issued by the Company in
1993 for $25,000 which he converted into 30,107 restricted shares of common
stock at the time of the Company's initial public listing of it common stock on
the OTC Bulletin Board. All of these securities were sold and issued for
investment purposes in a "private transaction" exempt under section 4(2) of the
Securities Act of 1933 as amended (the "Act"). These securities have been
treated by the Company as "restricted securities" as defined in Rule 144 under
the Securities Act of 1933, as amended. These securities may not be offered for
public sale except under Rule 144, or otherwise pursuant to said Act.
ITEM 8. DESCRIPTION OF SECURITIES
The Company's Amended Articles of Incorporation currently provide that the
Company is authorized to issue 20,000,000 shares of common stock, par value
.001. As of December 31, 1999, 8,568,471 shares of common stock were issued and
outstanding.
COMMON STOCK
All shares of common stock have equal voting rights and, when validly issued and
outstanding; are entitled to one vote per share in all matters to be voted upon
by shareholders. Cumulative voting is permitted with respect to the election of
the Directors. The shares of common stock have no preemptive, subscription,
conversion or redemption rights and may be issued only as fully-paid and
non-assessable shares. In the event of liquidation of the Company, each
shareholder is entitled to receive a proportionate share of the Company's assets
available for distribution to shareholders after payment of liabilities and
after distribution in full of preferential amounts, if any. All shares of the
Company's common stock issued and outstanding are fully paid and non-assessable.
Holders of the common stock are entitled to share pro rata in the dividends and
distributions with respect to the common stock, as may be declared by the Board
of Directors out of funds legally available therefor.
PART II
ITEM 1. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's common stock trades on the OTC Bulletin Board 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:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
First Quarter 3 3/8 1 3 3/8 1 1/4 -- --
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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 2. LEGAL PROCEEDINGS
The Company has no material pending legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS 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, 1997
through December 31, 1998 did not contain any adverse opinion or disclaimer, nor
were there any disagreements between management and the Company's accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The Company has issued and sold the following unregistered shares of its
common stock during the last three years. No underwriters were used in the sale
of any of the Company's securities.
(a) Convertible Debentures
The Company has three convertible debentures due September 15, 2000, one
of which was issued in 1996 and two were issued in 1994. These debentures were
issued to persons with a pre-existing business relationship with the Company who
acquired the debentures for investment purposes only. The Company designated
these debentures in an aggregate principal amount of $25,000 at an interest rate
of 13%. The Holder of the debenture is entitled, at his option, any time until
maturity to convert the debenture including interest due into shares of common
stock of the Company at a conversion rate of two dollars worth of stock for
every one dollar of value of the debenture at the time of conversion. The
conversion price will be the average of the bid and the ask price of the
Company's stock for the last 30 days prior to the date of the notice of
conversion. If the holder does not convert his debenture by the maturity date,
the Company can choose to reissue a new debenture for one year including accrued
interest or pay the note in its entirety. These debentures were issued pursuant
to Section 4(2) of the Securities Act of 1933.
(b) Stock Issuance
1. In connection with its merger with AGI in September of 1997 the
Bankruptcy Court approved the plan of reorganization which called for the
Company to issue shares of its common stock and warrants to parties in interest
in the Bankruptcy proceeding, including creditors of AGI, and original
shareholders of the Company. As a result securities of the Company were issued
pursuant to Section 1145 of the Bankruptcy Code with the approval of the
Bankruptcy Court, as follows: 549,993 shares of common stock to parties in
interest issued in consideration for the merger and in settlement of claims
against AGI with the shares valued at $.50 per share; three classes of warrants
to parties of interest in settlement of claims as follows: 200,000 Class A
Warrants at an exercise price of $2.50 per share which expire November 14, 2000
unless extended by action of the Board of Directors; 400,000 Class B Warrants
21
<PAGE> 22
at an exercise price of $4.00 per share which expire on March 14, 2000 unless
extended by action of the Board of Directors; and 400,000 Class C Warrants at an
exercise price of $6.00 which expire on March 14, 2000 unless extended by action
of the Board of Directors, and 5,000,000 shares of common stock to the original
shareholders of the Company in exchange for the original securities of the
Company issued prior to the merger.
2. The Company issued in October of 1997, 60,300 restricted shares of
common stock to a class of loyal customers and suppliers in appreciation for
their past services and support of the Company. These persons were familiar with
the Company's operations and acquired the shares for investment purposes only in
private transactions exempt pursuant to section 4(2) of the Act. These shares
were issued with restrictive legends for consideration valued at $.50 per share.
3. In September of 1997 AND IN MAY 1998, the Company's entire class of
convertible debenture holders, other than noted in subparagraph (a) above,
consisting of twelve investors who were sophisticated investors with a
pre-existing business relationships with the Company, exercised their options to
convert their debentures into common stock of the Company. THE TOTAL VALUE OF
THESE TRANSACTIONS WAS $690,372. These convertible debentures had been issued
for investment purposes only in private transactions exempt pursuant to section
4(2) of the Act. AS A RESULT, THE COMPANY ISSUED 692,967 SHARES IN SEPTEMBER
1997 AND 134,828 SHARES IN MAY 1998 to redeem these debentures. These shares
were issued pursuant to the exemption from registration afforded by Section 4(2)
of the Act. As of the date of this registration statement, all of these shares
of the Company's common stock are eligible for sale under Rule 144 promulgated
under the Securities Act of 1933, subject to certain limitations included in
said Rule.
4. The following shares of common stock were purchased and issued for
investment purposes in "private transaction" exempt pursuant to section 4(2) of
the Act and are restricted securities as defined in Rule 144. In each instance
these shares were issued with restrictive legends to sophisticated investors who
had a pre-existing business relationship with the Company and who were
knowledgeable as to the Company's business operations. These shares may not be
offered for public sale except under Rule 144, or otherwise, pursuant to said
Act. All shares were sold for cash. The following are the names of the issuees,
the number of shares purchased, date purchased and purchase price.
<TABLE>
<CAPTION>
Price Per Total
Name Share Shares Date
- - ---- ----- ------ ----
<S> <C> <C> <C>
DLS Financial Services, Inc. $0.75 213,334 10/20/97
Barry Zwick $0.75 233,334 10/20/97
Jeffery Ross $0.75 10,000 10/23/97
Jeniffer Ross $0.75 10,000 10/23/97
David R. McCoy $0.75 5,000 6/8/98
William H.Oyster $0.75 10,000 6/8/98
John Benson $0.75 5,000 6/8/98
Jeffery R. Boyd $0.75 5,000 6/8/98
Margaret Lindsley $0.75 5,000 6/8/98
Jeffery Ross $0.75 3,000 6/8/98
Jeniffer Ross $0.75 3,000 6/8/98
Zwick Financial Corp. $0.75 66,667 6/8/98
DLS Financial Services, Inc. $0.75 75,000 6/8/98
S.E.Smith $0.75 40,000 6/8/98
John Benson $0.75 5,000 6/23/98
DLS Financial Services, Inc. $0.75 50,000 9/3/98
</TABLE>
22
<PAGE> 23
<TABLE>
<S> <C> <C> <C>
DLS Financial Services, Inc. $ 0.50 25,000 10/21/98
S.E. Smith $ 0.50 25,000 10/21/98
DLS Financial Services, Inc. $ 0.50 35,000 11/19/98
L.S. Smith $ 0.50 60,000 11/19/98
K.E. Zwick $ 0.50 12,500 11/19/98
J.B. Zwick $ 0.50 12,500 11/19/98
Tyrie Jenkins $ 1.00 20,000 1/21/99
Anthony Roth $ 1.00 10,000 2/5/99
Scott Dmtrenko $ 1.00 10,000 2/12/99
James Desomento $1.125 100,000 7/28/99
Alan Johnson $1.125 100,000 7/28/99
Michael & Sharon Woodrow $1.125 10,000 9/8/99
Gary and Joyce Shaw $1.125 25,000 9/22/99
</TABLE>
5. Pursuant to an offering Memorandum dated February 10, 1999, the
Company accepted subscriptions and issued 693,000 shares of its common stock at
prices of $1.125 and $1.25 per share. These shares were issued under Rule 504 of
Regulation D and a Form D was filed with the United Sates Securities and
Exchange Commission with respect to this offering. The following are the names
of the issuees, the number of shares purchased, date purchased and purchase
price.
<TABLE>
<CAPTION>
Price Per Total
Name Share Shares Date
- - ---- ----- ------ ----
<S> <C> <C> <C>
Mac Allen Culver III $1.125 20,000 3/26/99
CFO Associates, Inc. $1.125 10,000 3/26/99
Hobson Global Marketing $1.125 40,000 3/26/99
George A. Surovik, II $1.125 40,000 3/26/99
Vincent De Bono, Jr. $1.125 7,000 3/26/99
Jeffrey M. Everson $1.125 40,000 3/26/99
Lafferty Trust $1.125 288,000 3/26/99
Joseph M. LaMotta $ 1.25 12,000 4/5/99
George Herbert Walker $ 1.25 40,000 4/5/99
Foundation
Kelley Bergstrom $ 1.25 25,000 4/5/99
Citizens Auto Corp $ 1.25 35,000 4/5/99
Richard Hurwitz $ 1.25 15,000 4/5/99
Gregory Mark $ 1.25 5,000 4/5/99
Thomas Rassieur $ 1.25 15,000 4/5/99
James Savage $ 1.25 35,000 4/5/99
Hagemeister Irvin $ 1.25 6,500 4/5/99
Ms.Hagemeister Irvin $ 1.25 6,500 4/5/99
Melissa Ann Irvin $ 1.25 6,500 4/5/99
Thomas Irvin $ 1.25 6,500 4/5/99
Hobson Global Marketing $ 1.25 20,000 4/5/99
Scott Dmtrenko $1.250 13,500 4/5/99
</TABLE>
6. In 1997, 1998 and 1999 the Company issued restricted shares of its
common stock for services as noted in the following table in private
transactions pursuant to section 4(2) of the Act to investors who had
pre-existing business relations with the Company and who were familiar with its
business operations. In each instance the shareholder acquired the shares for
investment purposes and not with a view to distribute them to the public. The
23
<PAGE> 24
following are the names of the shareholders, the number of shares purchased,
date purchased, and consideration received by the Company.
<TABLE>
<CAPTION>
Number Dollar
Name Of Shares Date Consideration Value$
- - ---- --------- ---- ------------- ------
<S> <C> <C> <C> <C>
Jim Johnson 1,000 12/22/97 Promotion 500
Mary Ann Grant 5,000 12/22/97 Employee award 2500
Sheldon Zane 5,000 12/22/97 Promotion 2500
Robb Walsh 250 12/22/97 Promotion 125
Adam Robinson 2,000 12/22/97 Promotion 1000
Kristine Simonds 5,000 5/6/98 Employee Award 2500
Pat Lafferty 19,344 5/6/98 Nursery work 9672
Steve Goss 2,000 6/8/98 Promotion 1000
Elizabeth Robertson 10,000 6/8/98 Promotion 5000
DLS Financial Services, Inc. 11,134 6/8/98 Consulting fee 8351
DLS Financial Services, Inc. 2500 9/3/98 Consulting fee 1875
DLS Financial Services, Inc. 2500 10/21/98 Consulting fee 1250
DLS Financial Services, Inc. 6000 11/19/98 Consulting fee 3000
5-Star Nursery 62500 12/9/98 500,000 seedlings 125000
Barry Zwick 5,000 3/3/99 Director fee 2500
Shep Gordon 5,000 3/3/99 Director fee 2500
Jim Walsh 5,000 3/3/99 Director fee 2500
Tyrie Jenkins 5,000 3/3/99 Director fee 2500
Marcus Bender 5,000 3/3/99 Finder's Fee 2500
L.S. Smith 4,000 3/3/99 Consulting Fee 2000
Starr Tech 4,000 4/8/99 Promotion 6129
Steve Goss 2,400 4/8/99 Promotion 3417
John Harmon 1,300 4/8/99 Promotion 1894
Jack Harmon 9,334 4/8/99 Promotion 14000
Rusty Robertson 2,100 4/8/99 Promotion 4043
Jeremy Railton 6,500 4/8/99 Promotion 8544
Philip Engle 8,000 4/8/99 Promotion 7478
Anthony Roth 7,882 5/19/99 Consulting Fee 3941
Kristine Simonds 5,000 5/19/99 Employee Award 2500
Emeril Lagasse 7,500 5/19/99 Promotion 3750
Robert Del Grande 4,300 5/19/99 Promotion 2150
Stephan Pyles 3,500 5/19/99 Promotion 1750
Shep Gordon 5,500 5/19/99 Consulting Fee 2750
Anthony Roth 2,812 7/28/99 Consulting Fee 1406
Eddie & Pattie Sherman 10,000 9/22/99 Promotion 5000
L.S. Smith 12,000 9/22/99 Consulting Fee 6000
</TABLE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Bylaws of the Company indemnify and hold harmless any director or
officer who was or is threatened to be made party to any threatened, pending, or
completed action, suit, or proceeding, by reason of the fact that he or she is
or was a director or officer of the Company, to the fullest extent of the
24
<PAGE> 25
law as it now exists or may subsequently be amended (but, in case of any such
amendment, only to the extent that such amendment permits the Company to provide
broader indemnification rights).
Section 415-5 of the Hawaii Business Corporation Act authorizes the
indemnification of an officer or director against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred if the person
acted in good faith and in a manner the person reasonable believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe the conduct of the
person was unlawful. Notwithstanding the preceding, no indemnification is
permitted in respect to any claim, issue or matter as to which the person has
been adjudged to be liable for negligence or misconduct in the performance of
the person's duty to the corporation unless and only to the extent that the
court in which the action or suit was brought shall determine upon application
that, despite the adjudication of liability, but in review of all circumstances
of the case, the person is fairly and reasonable entitled to indemnity for such
expense as the court deems proper.
In so far as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to officers or directors of the Company
pursuant to the foregoing, the Company has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933, as amended, and is therefore
unenforceable.
25
<PAGE> 26
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 September 30, 1999 (unaudited) F-2
Statements of Operations for the years ended December 31, 1997 and 1998
nine months period ended September 30, 1998 and 1999 (unaudited) F-3
Statements of Shareholders' Equity for the years ended December 31, 1997 and 1998
and nine month period ended September 30, 1999 (unaudited) F-4
Statements of Cash Flows for the years ended December 31, 1997 and 1998
and nine months period ended September 30, 1998 and 1999 (unaudited) F-5
Notes to Financial Statements F-6
</TABLE>
<PAGE> 27
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Hawaiian Vintage Chocolate Company, Inc.
We have audited the accompanying balance sheet of Hawaiian Vintage Chocolate
Company, Inc. as of December 31, 1998 and the related statements of operations,
shareholders' equity, and cash flows for years ended December 31, 1997 and 1998.
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 the results of its operations and its
cash flows for the years ended December 31, 1997 and 1998 in conformity with
generally accepted accounting principles.
HOLLANDER, LUMER & CO. LLP
Los Angeles, California
October 28, 1999
F-1
<PAGE> 28
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ -- $ 72,282
Accounts receivable - net of allowance for
doubtful accounts $30,273 in 1998
and $39,273 in 1999 42,282 133,118
Common stock subscription receivable -- 39,375
Advances -- 22,500
Inventory 21,475 194,039
Other current assets 10,099 27,638
----------- -----------
TOTAL CURRENT ASSETS 73,856 488,952
----------- -----------
PROPERTY AND EQUIPMENT 36,776 121,053
----------- -----------
OTHER ASSETS
Capitalized planting cost 243,361 317,132
----------- -----------
TOTAL OTHER ASSETS 243,361 317,132
----------- -----------
TOTAL $ 353,993 $ 927,137
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank overdraft $ 7,731 $ --
Accounts payable - trade 105,452 65,015
Accrued expenses 89,077 125,983
Notes Payable -- 75,000
Other payable 4,502 4,502
----------- -----------
TOTAL CURRENT LIABILITIES 206,762 270,500
----------- -----------
LONG TERM LIABILITIES 75,000 --
----------- -----------
TOTAL LIABILITIES 281,762 270,500
----------- -----------
SHAREHOLDERS' EQUITY
Common stock, $.001 par value; authorized 20,000,000
Authorized - 20,000,000 shares
Issued and outstanding - 7,479,843 in 1998 and
8,568,471 in 1999 7,482 8,571
Additional paid-in capital 1,850,052 3,052,965
Due from officer (355,604) (439,597)
Accumulated deficit (1,429,699) (1,965,302)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 72,231 656,637
----------- -----------
TOTAL $ 353,993 $ 927,137
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements
F-2
<PAGE> 29
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended Nine Months Ended
----------------------------- ------------------------------
December 31, December 31, September 30, September 30,
1997 1998 1998 1999
------------ ------------ ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales - net $ 136,519 $ 196,993 $ 164,266 $ 280,013
Cost of sales 45,986 47,429 32,820 115,554
----------- ----------- ----------- -----------
Gross Profit 90,533 149,564 131,446 164,459
----------- ----------- ----------- -----------
Operating expenses
Sales and marketing 121,982 180,953 142,002 235,256
Product development -- 21,209 21,139 13,408
General and administrative 217,007 439,683 312,092 447,454
Depreciation 5,377 16,456 12,342 9,021
Bad debt 10,326 14,674 2,000 9,000
----------- ----------- ----------- -----------
Total operating expenses 354,692 672,975 489,575 714,139
----------- ----------- ----------- -----------
Loss from operations (264,159) (523,411) (358,129) (549,680)
Other income (expense)
Other income 69,734 6,010 17,019 250
Interest income 11,301 21,945 17,107 24,697
Interest expense (87,981) (14,949) (10,165) (10,870)
----------- ----------- ----------- -----------
Total other income (expense) (6,946) 13,006 23,961 14,077
----------- ----------- ----------- -----------
Net loss $ (271,105) $ (510,405) $ (334,168) $ (535,603)
=========== =========== =========== ===========
Weighted average shares outstanding 5,667,477 7,051,472 6,960,153 8,050,749
=========== =========== =========== ===========
Basic and diluted net loss per share $ (0.05) $ (0.07) $ (0.05) $ (0.07)
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Financial Statements
F-3
<PAGE> 30
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC
STATEMENT OF SHAREHOLDERS' EQUITY
For years ended December 31, 1997, 1998 and nine
months ended September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------ ADDITIONAL DUE ACCUMULATED SHAREHOLDERS
SHARES AMOUNT PAID-IN CAPITAL FROM OFFICER DEFICIT EQUITY
--------- ------------ --------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 1,000 $ 1,000 $ 86,304 $ (226,014) $ (648,189) $ (786,899)
Issuance of shares in connection with
Reorganization Plan
Cancellation of old HVCC shares (1,000) (1,000) 1,000 0
Shares issued to old HVCC
shareholders 5,000,000 5,000 (5,000) 0
Shares issued to old AGI
creditors 299,993 300 (300) 0
Shares issued for merger
advisory services 250,000 250 (250) 0
Issuance of shares for debenture
conversion 692,967 693 865,515 866,208
Issuance of shares for cash
at $.75 per share 466,668 467 349,533 350,000
Issuance of shares for
promotional at $.50 71,550 71 35,704 35,775
Additional due from officer (116,131) (116,131)
Net loss in 1997 (271,105) (271,105)
--------- ----------- ----------- ----------- ----------- -----------
Balance as of December 31, 1997 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
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 in 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 968,000 968 1,114,032 1,115,000
Shares surrendered at $.50 per share (500) (1) (249) (250)
Issuance of shares for debt
settlement at $1.35 per share 33,634 34 45,471 45,505
Issuance of shares for
promotional at $.50 87,494 88 43,659 43,747
Additional due from officer (83,993) (83,993)
Net loss for 9 months period ended
September 30, 1999 (535,603) (535,603)
--------- ----------- ----------- ----------- ----------- -----------
Balance as of September 30, 1999 8,568,471 $ 8,571 $ 3,052,965 $ (439,597) $(1,965,302) $ 656,637
========= =========== =========== =========== =========== ===========
</TABLE>
See accompanying Notes to Financial Statements
F-4
<PAGE> 31
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
----------------------------- -------------------------------
December 31, December 31, September 30, September 30,
1997 1998 1998 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (271,105) $ (510,405) $ (334,168) $ (535,603)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 5,377 16,456 12,342 9,021
Shares issued to convert debenture
interest to equity 175,836 1,903 -- --
Shares issued for services -- 14,476 10,226 --
Shares issued for promotional 35,775 13,506 12,497 43,497
Changes in Assets and Liabilities:
Accounts receivable (84,321) 95,424 68,599 (90,836)
Advances -- -- -- (22,500)
Inventory 2,544 (18,475) -- (172,564)
Other current assets (3,334) (1,223) 3,725 (17,539)
Bank overdraft -- 7,731 21,410 (7,731)
Accounts payable -trade (3,783) 74,374 50,182 5,068
Accrued expenses (105,250) 52,384 30,424 36,906
Other payables 5,162 (431) (599)
----------- ------- ------- ----------
NET CASH FROM OPERATING ACTIVITIES (243,099) (254,280) (125,362) (752,281)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (40,973) (14,075) (25,564) (93,298)
Capitalized planting cost (60,588) (42,018) (42,690) (73,771)
Advances to officer (116,130) (13,459) (45,216) (83,993)
----------- ------- ------- ----------
NET CASH USED BY INVESTING ACTIVITIES (217,691) (69,552) (113,470) (251,062)
CASH FLOWS FROM FINANCING ACTIVITIES
Private sales of common stocks 350,000 313,365 228,365 1,075,625
Proceeds from issuance of debentures,
net of debt repayment 116,250 -- -- --
----------- ------- ------- ----------
NET CASH PROVIDED FINANCING ACTIVITIES 466,250 313,365 228,365 1,075,625
NET DECREASE IN CASH AND CASH EQUIVALENT 5,460 (10,467) (10,467) 72,282
CASH AND CASH EQUIVALENT AT BEGINNING OF THE YEAR 5,007 10,467 10,467 --
CASH AND CASH EQUIVALENT AT END OF THE YEAR $ 10,467 $ -- $ -- $ 72,282
=========== =========== =========== ===========
OTHER CASH INFORMATION
Interest paid $ 23,806 $ 10,318 $ 14,600 $ 10,870
=========== =========== =========== ===========
NON CASH TRANSACTION
Shares issued for other than cash $ 901,983 $ 210,557 $ 78,398 $ 89,252
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Financial Statements
F-5
<PAGE> 32
HAWAIIAN VINTAGE CHOCOLATE COMPANY, INC.
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 Hawaii corporation to develop unique genetics and
grow 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 distributions and its own retail stores.
The Company's Articles of Incorporation have been amended several times; the
last amendment was regarding the Company's merger with American Graphics
Industries, Inc. On September 30, 1997, Hawaiian Vintage Chocolate Company (Old
HVCC) entered into an Agreement of Merger with American Graphics Industries,
Inc. (AGI) pursuant to an Amended Plan of Reorganization filed with and approved
by the Bankruptcy Court (the Plan). The Plan provided a merger of AGI into the
Company. The management and board of Old HVCC replaced the management and board
of AGI. The merged companies continue under the name of Hawaiian Vintage
Chocolate Company, Inc. (New HVCC). (See Note 7).
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 collectibilty of the accounts at the end of the
year.
Inventories: Inventories, consisting of cocoa beans and chocolate wafers, 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 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.
F-6
<PAGE> 33
The cost of maintenance and repairs is charged to income as incurred;
significant renewals and betterment are capitalized. When assets are retired or
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.
By the year the trees become producing, usually two to three years later, they
will then be reclassified as an amortizable asset 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.
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.
Basic and Diluted Net Loss per Common Share: The Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share" which established
simplified standards for computing and presenting earnings per share
information. 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 shall 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
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.
New Accounting Pronouncement: In April 1998, the Accounting Standards Executive
Committee of the AICPA issued Statement of Position ("SOP") No. 98-5 "Reporting
on the Costs of Start-Up Activities." Costs of start-up activities, including
organization costs, should be expensed as incurred. This SOP is effective for
financial statements for the fiscal year beginning after December 15, 1998.
2. DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
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 agreement 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).
F-7
<PAGE> 34
Major Customers: The Company sold its product to several major customers. In
1997, 30% of the total net sales were derived from two customers (17% and 13%).
In 1998, 34% of the total net sales was derived from one customer. For the nine
months ended September 30, 1999, 39% of net sales were derived from three
customers (17%, 12% and 10%). As of December 31, 1997 and 1998, 59% of accounts
receivable were from three customers (25%, 22% and 12%) and 82% were from one
customer, respectively. As of September 30, 1999, 77% of accounts receivable
were from three customers (35%, 27%, and 15%).
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 the next two years.
The Year 2000 Matters: The Company's operations are dependent on the year 2000
readiness of third parties who do business with the Company. In particular, the
Company's information technology systems interact with commercial electronic
transaction processing systems to handle customer credit card purchases and
other point of sale transactions, and the Company is also dependent on
third-party suppliers of such infrastructure elements as telephone services,
electric power, water, and banking facilities. The Company has contacted it
relevant third parties. Although the Company has not been put on notice that any
known third parties problem will not be resolved, the Company has limited
information and no assurance of additional information concerning the year 2000
readiness of third parties. The resulting risks to the Company's business are
very difficult to assess. The Company has assessed its computer and business
processes and has upgraded its computer applications to provide for their
continued functionality. The Company believes that, with the modifications it
has made to its operating systems, the year 2000 issues is not reasonably likely
to pose significant operational problems for the Company's information
technology systems.
3. INVENTORY
As of December 31, 1998 and September 30, 1999 inventories consisted of the
following:
<TABLE>
<CAPTION>
September 30,
December 31, 1999
1998 (unaudited)
------------ ----------
<S> <C> <C>
Bulk primary products
Chocolate wafers $19,715 $ 59,032
Cocoa beans 1,760 2,416
Coffee beans -- 3,418
Packaging materials 44,104
Pack and ship materials 30,472
Retail packed primary products
Retail packed chocolate wafers 37,753
Retail packed coffee beans 19,844
------- --------
$21,475 $194,039
======= ========
</TABLE>
F-8
<PAGE> 35
At the end of 1998, the Company's bulk primary products, mainly chocolate wafers
and cocoa beans, were located at a vendor in California. In 1999, the Company
significantly increased its inventory, mainly in bulk primary products and
packaging materials due to the Company's substantial growth in sales and
anticipated demand in the moths ahead.
4. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1998 and September 30, 1999 consisted
of the following:
<TABLE>
<CAPTION>
September 30,
December 31, 1999
1998 (unaudited)
---------- ----------
<S> <C> <C>
Automobiles $ 17,024 $ 31,790
Office equipment 11,315 19,712
Office furniture 21,234 24,487
Computer equipment 10,849 16,533
Warehouse equipment -- 25,177
Store furniture -- 36,020
-------- ---------
60,422 153,719
Less: accumulated
depreciation (23,646) (32,666)
-------- ---------
$ 36,776 $ 121,053
</TABLE>
Depreciation expenses charged to operation for the years ended December 31,
1997, 1998 and nine months ended September 30, 1999 (unaudited) were $5,377,
$16,456 and $9,021 respectively.
5. 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
agreement entered into as of September 24, 1997 his minimum base salary is
$175,000 per annum. As of September 30, 1999 Mr. Walsh has forgiven all prior
incurred 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 exercise 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 Agreement: On September 28, 1998 the Board of Directors of the
Company adopted a stock option agreement. This agreement 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. The option term is
determined 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 anniversary
of 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 September 1999, none of these options have yet
been exercised.
F-9
<PAGE> 36
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 agreement 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
Compensation", the Company's net loss and loss per share would have been
increased by approximately $136,250 or $.02 per share in 1998. The fair value of
the options granted during 1998 is estimated to be $1.09 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 4.25, 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
- - ------------------ ----------- -------- -------
<S> <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
September 30, 1999 83,993 439,597
</TABLE>
6. SHAREHOLDERS' EQUITY
Merger: On September 30, 1997, Hawaiian Vintage Chocolate Company (Old HVCC)
entered into an Agreement of Merger with American Graphics Industries, Inc.
(AGI) pursuant to an Amended Plan of Reorganization filed with the Bankruptcy
Court (the Plan). Old HVCC became the continuing accounting entity and all of
the Old HVCC's historical accounting was carried forward to the New HVCC.
Weighted average number of common shares outstanding and basic and diluted net
loss per share have been computed as if shares issued pursuant to the Amended
Plan of Reorganization had been outstanding at the beginning of the year, except
for the shares issued for merger advisory services were computed from the date
of merger.
After consummation of the merger, all shares owned by Old HVCC and AGI
shareholders were canceled and New HVCC had the following capital structure:
- 20,000,000 shares of common stock authorized, with $0.001 par value.
- 5,000,000 shares of common stock issued to the shareholders of Old
HVCC.
- 299,993 shares of common stock, 100,000 Class A Warrants, 200,000
Class B Warrants and 200,000 Class C Warrants were issued to the
creditors of AGI.
F-10
<PAGE> 37
- 250,000 shares of common stock, 100,000 Class A Warrants, 200,000
Class B Warrants and 200,000 Class C Warrants were issued to DLS
Financial Services, a professional advisor used in connection with the
merger.
Debt to equity conversion: The Company had issued unsecured convertible
debentures beginning May 1993. At September 1997, 692,967 shares of common
stocks were issued to convert $866,208 worth of these debentures into equity,
including accrued interest. Additional 134,828 shares were issued for the
debenture conversion in 1998. 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, 1998 and September 30, 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
--------
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 up to
September 2000.
Private placements: During 1998, the Company, in private placements, raised
$289,510 through the issuance of 442,667 shares for $.50 to $.75 per share. In
relation to these private placements, the Company also granted the consultant
22,134 shares for financing services. These shares were valued at $14,476.
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, 1998, the Company's stock warrants' balance was as follows:
<TABLE>
<CAPTION>
WARRANTS
------------------------------------------------------------------------------------
Class A Class B Class C Total
------------------ ----------------- ----------------- ------------
<S> <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
</TABLE>
F-11
<PAGE> 38
Common stock subscription receivable: On September 1998 the Company received
subscription for 35,000 shares of common stock among which 25,000 shares were
already issued. In October 1999, all funds for stock receivables were collected.
7. GRANT
In 1996 the Company entered into two-year consultant services agreement with the
Research Corporation of the University of Hawaii. The Company provides technical
assistance to small farmers to accelerate cocoa production in Hawaii. For this
service, the Company was compensated for services rendered and costs incurred up
to $192,720. All expenses related to this project were offset against the income
received.
8. COMMITMENTS AND CONTINGENCIES
License Agreements: In August and November 1998, The Company entered into
three-year license agreements (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, 1998 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 agreement.
Marketing Agreement: In June 1999 the Company entered into a marketing agreement
with Hobson Marketing Co. Inc. for the establishment and operation of Hawaiian
Vintage Chocolate retail outlets including carts/kiosks. Hobson Marketing Co.,
Inc. will be licensed to operate retail locations subject to the Company's
written approval within the states of Illinois, Missouri and Indiana.
F-12
<PAGE> 39
Part III
ITEM 1. INDEX TO EXHIBITS
Exhibits are listed according to the Exhibit #s as Follows:
"Charter and Bylaws"
2.1 Articles of Incorporation - the Articles of Incorporation of Hawaiian
Vintage Chocolate Company, Inc.*
2.2 Articles of Amendment - The July 1994 Amended Article of Incorporation
for Hawaiian Vintage Chocolate Company, Inc.*
2.3 Bylaws of the Company - The Bylaws of Hawaiian Vintage Chocolate
Company, Inc.
2.4 Order of the Court re:AGI Merger - The Bankruptcy Court ruling approving
the merger of American Graphics Industries,Inc. with Hawaiian Vintage
Chocolate.*
2.5 Agreement of Merger with AGI - The merger agreement between American
Graphics Industries, Inc. and Hawaiian Vintage Chocolate Company, Inc.
dated September 30, 1997.*
2.6 Certificate of Merger with AGI - The merger certificate dated September
30, 1997.*
"Instruments defining the Rights of Security Holders"
3.1 Specimen Stock Certificate*
3.2 Specimen Class A Warrant*
3.3 Specimen Class B Warrant*
3.4 Specimen Class C Warrant*
"Material Contracts"
6.1 License Agreement - Bishop Estate - License Agreement for use of land
for cocoa planting on Hamakua Coast between the Company and the trustees
of the Bishop Estate dated August 1, 1998*
6.2 License Agreement - Bishop Estate - License Agreement for use of land
for cocoa planting on Hamakua Coast between the Company and the trustees
of the Bishop Estate dated November 1, 1998*
6.3 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.*
6.4 Employment agreement - the employment agreement as amended between James
Walsh and the Company dated September 24, 1997*
6.5 Stock Option Agreement - the stock option agreement between James Walsh
and the Company dated September 24, 1997*
6.6 License Agreement with Hobson Marketing - the licensing agreement with
Hobson Global Marketing and the Company to establish retail kiosks in
five Midwest states dated June 2, 1999.*
"Additional Exhibits"
12.1 Consent of Hollander, Lumer & Co., LLP, Independent Certified Public
Accountants.*
12.2 Updated consent of Hollander, Lumer & Co. LLP, Independent Certified
Public Accountants.**
27 Financial Data Schedule.**
- - ----------
* Previously filed with the Company's Form 10SB, filed on November 12,
1999
** Previously filed with the Company's Amended Form 10 SB, filed on
February 1, 2000
27
<PAGE> 40
ITEM 2. DESCRIPTION OF EXHIBITS
2.1 Articles of Incorporation - the Articles of Incorporation of Hawaiian
Vintage Chocolate Company, Inc.*
2.2 Articles of Amendment - The July 1994 Amended Article of Incorporation
for Hawaiian Vintage Chocolate Company, Inc.*
2.3 Bylaws of the Company - The Bylaws of Hawaiian Vintage Chocolate
Company, Inc.*
2.4 Order of the Court re:AGI Merger - The Bankruptcy Court ruling approving
the merger of American Graphics Industries with Hawaiian Vintage
Chocolate.*
2.5 Agreement of Merger with AGI - The merger agreement between American
Graphics Industries, Inc. and Hawaiian Vintage Chocolate Company, Inc.
dated September 30, 1997.*
2.6 Certificate of Merger with AGI - The merger dated September 30, 1997.*
3.1 Specimen Stock Certificate*
3.2 Specimen Class A Warrant*
3.3 Specimen Class B Warrant*
3.4 Specimen Class C Warrant*
6.1 License Agreement - Bishop Estate - License Agreement for use of land
for cocoa planting on Hamakua Coast between the Company and the trustees
of the Bishop Estate dated August 1, 1998.*
6.2 License Agreement - Bishop Estate - License Agreement for use of land
for cocoa planting on Hamakua Coast between the Company and the trustees
of the Bishop Estate date November 1, 1998.*
6.3 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.*
6.4 Employment agreement - the employment agreement as amended between James
Walsh and the Company dated September 24, 1997.*
6.5 Stock Option Agreement - the stock option agreement between James Walsh
and the Company dated September 24, 1997.*
6.6 License Agreement with Hobson Marketing - the licensing agreement with
Hobson Global Marketing and the Company to establish retail kiosks in
five Midwest states June 2, 1999.*
12.1 Consent of Hollander, Lumer & Co., LLP, Independent Certified Public
Accountants.*
12.2 Updated Consent of Hollander, Lumer & Co., LLP, Independent Certified
Public Accountants **
27 Financial Data Schedule **
- - ---------------
* Previously filed with the Company's Form 10SB, filed on November 12,
1999
** Previously filed with the Company's Amended Form 10 SB, filed on
February 1, 2000
28
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this amendment to its registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: April 12, 2000 Hawaiian Vintage Chocolate Company, Inc.
By: /s/ JAMES WALSH
---------------------------------
James Walsh, Chairman and CEO
29
