U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2000
[X] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from January 1, 2000 to March 31, 2000 Commission
File No. 0-27137
Clements Golden Phoenix Enterprises, Inc.
--------------------------------------------
(Name of small business registrant in its charter)
Nevada 65-0509296
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3135 S.W. Mapp Road
P.O. Box 268, Palm City, FL 34991
----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (561) 287-5958 Securities registered under Section
12(b) of the Exchange Act:
Title of each class Name of each exchange
on which registered
None
---------------------- -------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.0001 par value
(Title of class)
-------------------
Copies of Communications Sent to:
Mintmire & Associates
265 Sunrise Avenue, Suite 204
Palm Beach, FL 33480
Tel: (561) 832-5696 Fax: (561) 659-5371
<PAGE>
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State registrant's revenues for its most recent fiscal year. $0
Of the 5,500,858 shares of voting stock of the registrant issued and
outstanding as of April 27, 2000, 3,279,000 shares are held by non-affiliates.
Because of the absence of an established trading market for the voting stock,
the registrant is unable to calculate the aggregate market value of the voting
stock held by non-affiliates as of a specified date within the past 60 days.
<PAGE>
PART I
Item 1. Description of Business
(a) Business Development
Clements Golden Phoenix Enterprises, Inc. (the "Company" or "CGPE")
is incorporated in the State of Florida. The Company was originally incorporated
as Lucid Concepts, Inc. on July 15, 1994. It changed its name to the current
name in connection with a share exchange between the Company and Clements Citrus
Sales of Florida, Inc., a Florida corporation ("CCSF") on December 31, 1999 (the
"Agreement"). The Company is not presently trading on an exchange, but has
applied to have its Common Stock quoted on the Over the Counter Bulletin Board
by submitting its 15c2-11 application to the National Association of Securities
Dealers. Its executive offices are presently located at 3135 S.W. Mapp Road,
P.O. Box 268, Palm City, FL 34991. Its telephone number is (561) 287-5958 and
its facsimile number is (561) 287-9776.
The Company is filing this Form 10-KSB in compliance with the
effectiveness of its filing on Form 10-SB. The Company will file periodic
reports in the event its obligation to file such reports is suspended under the
Securities and Exchange Act of 1934 (the "Exchange Act".)
The Company was formed with the contemplated purpose to manufacture
and market imported products from China in the United States and elsewhere. The
business concept and plan was based upon information obtained by the
incorporator several years before while working in China. The incorporator was
unable to obtain the cooperation and assistance of the Chinese and investors to
implement the proposed plan. After development of a business plan and efforts to
2
<PAGE>
develop the business failed, all such efforts were abandoned. In December 1999,
at the time it acquired CCSF as a wholly-owned subsidiary, its purpose changed
to CCSF's initial purpose of citrus exportation.
On June 1, 1999, all of the issued and outstanding shares of the
Common Stock of the Company were acquired from Xaio-Fei Davis, (5,000,000 shares
of Common Stock) and Stacy Wolfgang (500,000 shares of Common Stock) its two (2)
shareholders. At that time neither was an officer or director of the Company.
The shares were purchased from Mrs. Davis by Mr. Kevin L. Bell, the principal of
the Company. The shares were purchased from Ms. Stacy Wolfgang on that same date
by a group of investors which did not include Mr. Bell. The original
shareholders agreed to exchange the 5,500,000 issued and outstanding shares held
by such shareholders to the new group of investors in exchange for a commitment
by the new group to arrange to pay the costs of the continued operations of the
corporation, and bringing its books and records up to date.
The Company received a total of $19,200.00 ($0.04 per share) from the
sale of a total of 480,000 shares of Common Stock, $.001 par value per share
(the "Common Stock"), in a self- underwritten offering conducted pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the "Act"), and Rules
505 and 506 of Regulation D promulgated thereunder. This offering was made in
the State of Georgia and the State of Florida to a total of 24 individuals
investors. The Company undertook the offering of shares of Common Stock on June
1, 1999, and did not pay any underwriting discounts or commissions. The Company
claimed the exemption from registration in connection with each of the offerings
under Sections 3(b) and 4(2) of the Act and Rules 505 and 506 promulgated
thereunder, Section 10-5-9(13) of the Georgia Code and Section 517.061(11) of
the Florida Code. See Part III, Item 12. "Certain Relationships and Related
Transactions".
The facts relied upon the by the Company to make the federal
exemption available include the following: (i) the aggregate offering price for
the offering of the shares of Common Stock did not exceed $5,000,000, less the
aggregate offering price for all securities sold within the twelve months before
the start of and during the offering of the shares in reliance on any exemption
under Section 3(b) of, or in violation of Section 5(a) of the Act; (ii) no
general solicitation or advertising was conducted by the Company in connection
with the offering of any of the shares; (iii) there were no more than 35
purchasers from the Issuer in the offering; (iv) the purchasers were all
accredited investors and the books and records of the Company were available and
reviewed by each investor; and, (v) the required number of manually executed
originals and true copies of Form D were duly and timely filed with the U.S.
Securities and Exchange Commission.
The facts relied upon to make the Florida exemption available include
the following: (i) sales of the shares of Common Stock were not made to more
than 35 persons; (ii) neither the offer nor the sale of any of the shares was
accomplished by the publication of any advertisement; (iii) all purchasers
either had a preexisting personal or business relationship with one or more of
the executive officers of the Company or, by reason of their business or
financial experience, could be reasonably assumed to have the capacity to
protect their own interests in connection with the transaction; (iv) each
purchaser represented that he was purchasing for his own account and not with a
view to or for sale in connection with any distribution of the shares; and (v)
prior to sale, each
3
<PAGE>
purchaser had reasonable access to or was furnished all material books and
records of the Company, all material contracts and documents relating to the
proposed transaction, and had an opportunity to question the executive officers
of the Company. Pursuant to Rule 3E-500.005, in offerings made under Section
517.061(11) of the Florida Statutes, an offering memorandum is not required;
however each purchaser (or his representative) must be provided with or given
reasonable access to full and fair disclosure of material information. An issuer
is deemed to be satisfied if such purchaser or his representative has been given
access to all material books and records of the issuer; all material contracts
and documents relating to the proposed transaction; and an opportunity to
question the appropriate executive officer. In the regard, Mr. Bell supplied
such information and was available for such questioning.
The facts relied upon to make the Georgia Exemption available include
the following: (i) the aggregate number of persons purchasing the Company's
stock during the 12 month period ending on the date of issuance did not exceed
fifteen (15) persons; (ii) neither the offer nor the sale of any of the shares
was accomplished by a public solicitation or advertisement; (iii) each
certificate contains a legend stating "These securities have been issued or sold
in reliance of paragraph (13) of Code Section 10-5-9 of the Georgia Securities
Act of 1973 and may not be sold or transferred except in a transaction which is
exempt under such act or pursuant to an effective registration under such act";
and (iv) each purchaser executed a statement to the effect that the securities
purchased have been purchased for investment purposes. Offerings made pursuant
to this section of the Georgia Securities Act have no requirement for an
offering memorandum or disclosure document.
In September 1999, prior to its acquisition by the Company, CCSF
extended its then current lease of the premises located at 32C East Osceola
Street, Stuart, FL 34996 with Edward M. Sellian. This property consists of
approximately one thousand nine hundred fifty (1,950) square feet of office
space, which serves as the Company's executive offices. The lease has been
extended through and including May 31, 2002. The Company pays monthly rent in
the amount of $2,354 ($2,200 + 7% county sales tax). See Part I, Item 2.
"Description of Property".
In September 1999, CCSF entered into a distribution contract with
Hongrun Trade Co., Ltd., one (1) of the largest distributors in Northern China
with distribution throughout Beijing, Tianjin and other major cities
("Hongrun"). Hongrun was appointed CCSF's exclusive distributor in the northern
district of China, which includes all areas north of the Changjiang (Yangtze)
River. Hongrun agreed to exclusively distribute CCSF's concentrated products.
CCSF agreed to provide Hongrun with $20,000, $15,000, $10,000 and $5,000 with
the first, second, third and fourth orders for promotional expenses. The term of
the agreement is for a period of one (1) year. See Part I, Item 1. "Description
of Business - (b) Business of Registrant - General - Present"; and Part I, Item
1. "Description of Business - Marketing and Distribution - Distribution".
On December 31, 1999, the Company, CCSF and the individual holders
of all of the outstanding capital stock of CCSF (the "Holders") consummated a
reverse acquisition (the "Agreement") pursuant to the agreement of such date.
Pursuant to the Agreement, the Holders tendered to the Company all issued and
outstanding shares of common stock of Clements Citrus Sales of Florida, Inc. in
exchange for 3,750,000 Shares of Common Stock of the Company. The reorganization
is being accounted for as a reverse acquisition.
4
<PAGE>
In connection with the Agreement, John Samartine, a Director, was
issued 175,000 shares, Bonnie Ludlum, the Company's current Secretary and a
Director, was issued 175,000 shares, Joseph Rizzuti, the Company's current
Vice-President, Chief Operating Officer, Treasurer and a Director, was issued
700,000 shares and Henry T. Clements, the Company's current Chairman, President
and Chief Executive Officer was issued 1,575,000 shares. See Part I, Item 1.
"Description of Business - (b) Business of Registrant - Employees and
Consultants"; Part I, Item 6. "Management's Discussion and Analysis or Plan of
Operation - Stockholders' Equity"; Part III, Item 10. "Executive Compensation -
Employee Contracts and Agreements"; Part III, Item 11. "Security Ownership of
Certain Beneficial Owners and Management"; and Part III, Item 12. "Certain
Relationships and Related Transactions".
Simultaneously with the closing of the Reorganization, the then
officer and director of the Company tendered his resignation in accordance with
the terms of the Agreement. John Samartine, Bonnie Ludlum, Joseph Rizzuti and
Henry T. Clements were elected to serve on the Board of Directors of the Company
(the "Board"). The Board subsequently appointed Henry T. Clements as Chairman of
the Board, President and Chief Executive Officer of the Company; Joseph Rizzuti
as Vice President, Chief Operating Officer and Treasurer of the Company; and,
Bonnie Ludlum as the Secretary of the Company.
The Company also announced approval of the amendment of its Articles
of Incorporation in order to change the name of the Company from Lucid Concepts,
Inc. to Clements Golden Phoenix Enterprises, Inc. Prior to the reorganization
the Company effected a forward split of its Common Stock at the rate of 3 to 1,
for holders of record on December 30, 1999, with distribution effective January
18, 1999. Total issued and outstanding stock following the forward split and
after effecting the Agreement was 5,000,000. See Part II, Item 5. "Market for
Common Equity and Related Stockholder Matters, Market Information"; and Part
III, Item 12. "Certain Relationships and Related Transactions".
In January 2000, the Company issued convertible notes to two (2)
investors for a total of $125,000. The term of the notes is for a period of
three (3) years, and are convertible at any time, in the sole discretion of the
noteholders to shares of the Company's restricted Common Stock at a price of $3
per share. Both notes bear interest at a rate of twelve percent (12%) per annum.
Interest is payable quarterly in either cash or shares of the Company's
restricted Common Stock in the sole discretion of the payee. For such offering,
the Company relied upon Section 4(2), Rule 506, and Section 551.29(2) of the
Wisconsin Code. See Part I, Item 6. "Management's Discussion and Analysis or
Plan of Operation - Financial Condition, Liquidity and Capital Resources"; and
Part III, Item 12. "Certain Relationships and Related Transactions".
The facts relied upon the by the Company to make the federal
exemption available include the following: (i) the aggregate offering price for
the offering of the shares of Common Stock did not exceed $5,000,000, less the
aggregate offering price for all securities sold within the twelve months before
the start of and during the offering of the shares in reliance on any exemption
under
5
<PAGE>
Section 3(b) of, or in violation of Section 5(a) of the Act; (ii) no general
solicitation or advertising was conducted by the Company in connection with the
offering of any of the shares; (iii) there were no more than 35 purchasers from
the Issuer in the offering; (iv) the purchasers were all accredited investors
and the books and records of the Company were available and reviewed by each
investor; and, (v) the required number of manually executed originals and true
copies of Form D were duly and timely filed with the U.S. Securities and
Exchange Commission.
The facts relied upon to make the Wisconsin Exemption include the
following: The Company filed a notice consisting of a completed Form D as
prescribed by Rule 503 of Regulation D under the Securities Act of 1933. This
form was signed by the Company, was filed not later than fifteen (15) days after
the first sale, and was accompanied by an appropriate fee.
Since January 2000, the Company has sold 455,858 shares of its Common
Stock to one hundred eleven (111) investors. For such offering the Company
relied upon Section 4(2) of the Act, Rule 506, Section 11-51-308(1)(p) of the
Colorado Code, Section 517.061(11) of the Florida Code, Section 10-5-9(13) of
the Geogia Code, Section 402(b)(9) of the Massachusetts Code, Rule 803.7 and
Section 402(b)(21) of the Michigan Code, Section 359(f)(2)(d) of the New York
Code, Section 49:3-50(b)(9) of the New Jersey Code, Rule .1211. of the North
Carolina Code, Section 109.13 of the Texas Code, Rule 21 VAC 5-40-120 of the
Virginia Code and Section 551.29(2) of the Wisconsin Code. See Part III, Item
12. "Certain Relationships and Related Transactions".
The facts relied upon the by the Company to make the federal
exemption available include the following: (i) the aggregate offering price for
the offering of the shares of Common Stock did not exceed $5,000,000, less the
aggregate offering price for all securities sold within the twelve months before
the start of and during the offering of the shares in reliance on any exemption
under Section 3(b) of, or in violation of Section 5(a) of the Act; (ii) no
general solicitation or advertising was conducted by the Company in connection
with the offering of any of the shares; (iii) there were no more than 35
purchasers from the Issuer in the offering; (iv) the purchasers were all
accredited investors and the books and records of the Company were available and
reviewed by each investor; and, (v) the required number of manually executed
originals and true copies of Form D were duly and timely filed with the U.S.
Securities and Exchange Commission.
The facts relied upon to make the Colorado exemption available are:
(1) the sale was in compliance with an exemption from registration under section
4(2) of the Securities Act of 1933; and (ii) the Company filed with the State of
Colorado securities commissioner a notification of exemption, and paid an
exemption fee.
The facts relied upon to make the Florida exemption available
include the following: (i) sales of the shares of Common Stock were not made to
more than 35 persons; (ii) neither the offer nor the sale of any of the shares
was accomplished by the publication of any advertisement; (iii) all purchasers
either had a preexisting personal or business relationship with one or more of
the executive officers of the Company or, by reason of their business or
financial experience, could be reasonably assumed to have the capacity to
protect their own interests in connection with the transaction; (iv) each
purchaser represented that he was purchasing for his own account and not with
6
<PAGE>
a view to or for sale in connection with any distribution of the shares; and (v)
prior to sale, each purchaser had reasonable access to or was furnished all
material books and records of the Company, all material contracts and documents
relating to the proposed transaction, and had an opportunity to question the
executive officers of the Company. Pursuant to Rule 3E-500.005, in offerings
made under Section 517.061(11) of the Florida Statutes, an offering memorandum
is not required; however each purchaser (or his representative) must be provided
with or given reasonable access to full and fair disclosure of material
information. An issuer is deemed to be satisfied if such purchaser or his
representative has been given access to all material books and records of the
issuer; all material contracts and documents relating to the proposed
transaction; and an opportunity to question the appropriate executive officer.
In the regard, the Company supplied such information and was available for such
questioning.
The facts relied upon to make the Georgia Exemption available include
the following: (i) the aggregate number of persons purchasing the Company's
stock during the 12 month period ending on the date of issuance did not exceed
fifteen (15) persons; (ii) neither the offer nor the sale of any of the shares
was accomplished by a public solicitation or advertisement; (iii) each
certificate contains a legend stating "These securities have been issued or sold
in reliance of paragraph (13) of Code Section 10-5-9 of the Georgia Securities
Act of 1973 and may not be sold or transferred except in a transaction which is
exempt under such act or pursuant to an effective registration under such act";
and (iv) each purchaser executed a statement to the effect that the securities
purchased have been purchased for investment purposes. Offerings made pursuant
to this section of the Georgia Securities Act have no requirement for an
offering memorandum or disclosure document.
The facts relied upon to make the Massachusetts Exemption available
include the following: (i) the Company did not offer to more than twenty-five
(25) persons in Massachusetts during any period of twelve (12) months; (ii) the
Company reasonably believed that all the buyers in Massachusetts were purchasing
for investment; and (iii) the offer did not involve the payment of any
commission or other remuneration for soliciting any buyer in Massachusetts,
therefore no notice to the secretary of state was required to be filed.
The facts relied upon to make the Michigan Exemption include the
following: (i) the Company filed a completed SEC Form D with the Michigan
Securities Division; (ii) the Company executed a Form U-2 consent to service of
process in the state of Michigan; (iii) the forms were filed not later than
fifteen (15) days after the first sale of the securities in Michigan; (iv) the
Company provided the Michigan State Securities Administrator a copy of the
information furnished by the Company to the offerees, which constitutes
disclosure adequate to satisfy the anti-fraud provisions of the act; and (v) the
Company paid an appropriate filing fee of $100.
For purposes of Section 359(f)(2)(d) of the New York Code, the facts
upon which the Company relied are: (i) (i) the securities were sold in a limited
offering to not more than forty (40) persons. The Company filed a Form M-11 in
New York.
The facts relied upon to make the New Jersey Exemption include the
following: (i) the sale was to not more than ten (10) persons during any period
of twelve (12) consecutive months; (ii) the
7
<PAGE>
Company reasonably believed that all buyers purchased for investment; (iii) no
commission or other remuneration was paid for soliciting any prospective buyer;
and (iv) the sale was not offered or sold by general solicitation or any general
advertisement.
The facts relied upon to make the North Carolina Exemption include
the following: (i) the Company filed a completed SEC Form D with the North
Carolina Department of the Secretary of State Securities Division; (ii) the Form
was filed not later than fifteen (15) days after the first sale; (iii) the
Company executed a Form U-2 consent to service of process; and (iv) the Company
paid an appropriate filing fee of $75.
The facts relied upon to make the Texas Exemption include the
following: (i) the Company filed a completed SEC Form D with the Texas State
Securities Board; (ii) the form was filed not later than fifteen (15) days after
the first sale; (iii) the Company provided the State Securities Board a copy of
the information furnished by the Company to the offerees, (iv) the Company
executed a Form U-2 consent to service of process; and (v) the Company paid an
appropriate filing fee.
The facts relied upon to make the Virginia Exemption include the
following: (i) the Company filed a completed SEC Form D with the Virginia State
of Corporation Commission; (ii) the form was filed not later than fifteen (15)
days after the first sale; (iii) the Company executed a Form U-2 consent to
service of process, appointing the Clerk of the State Corporation Commission as
its agent for service of process; and (iv) the Company paid an appropriate
filing fee of $250.
The facts relied upon to make the Wisconsin Exemption include the
following: The Company filed a notice consisting of a completed Form D as
prescribed by Rule 503 of Regulation D under the Securities Act of 1933. This
form was signed by the Company, was filed not later than fifteen (15) days after
the first sale, and was accompanied by an appropriate fee.
In March 2000, the Company issued a convertible note to one (1)
investor for $100,000. The term of the note is for a period of one (1) year, and
is convertible at any time, in the sole discretion of the noteholders to shares
of the Company's restricted Common Stock at a price of $5 per share. The note
bears interest at a rate of twelve percent (12%) per annum. Interest is payable
quarterly in either cash or shares of the Company's restricted Common Stock in
the sole discretion of the payee. For such offering, the Company relied upon
Section 4(2), Rule 506, and Section 359(f)(2)(d) of the New York Code. See Part
I, Item 6. "Management's Discussion and Analysis or Plan of Operation -
Financial Condition, Liquidity and Capital Resources"; and Part III, Item 12.
"Certain Relationships and Related Transactions".
The facts relied upon the by the Company to make the federal
exemption available include the following: (i) the aggregate offering price for
the offering of the shares of Common Stock did not exceed $5,000,000, less the
aggregate offering price for all securities sold within the twelve months before
the start of and during the offering of the shares in reliance on any exemption
under Section 3(b) of, or in violation of Section 5(a) of the Act; (ii) no
general solicitation or advertising was conducted by the Company in connection
with the offering of any of the shares; (iii) there were no more than 35
purchasers from the Issuer in the offering; (iv) the purchasers were all
accredited
8
<PAGE>
investors and the books and records of the Company were available and reviewed
by each investor; and, (v) the required number of manually executed originals
and true copies of Form D were duly and timely filed with the U.S. Securities
and Exchange Commission.
For purposes of Section 359(f)(2)(d) of the New York Code, the facts
upon which the Company relied are: (i) (i) the securities were sold in a limited
offering to not more than forty (40) persons. The Company filed a Form M-11 in
New York.
In May 2000, CCSF entered into a distribution agreement with
Qinhuangdao RutherSoft ("RutherSoft") to distribute the Company's fresh citrus
products in the provinces of Shanxi, Henan, Heilongjiang, Jilin, Liaoning,
Shaanxi, Hubei, Anhui, Sichuan, Hunan and Hebei as well as the municipalities of
Beijing and Shanghai on an exclusive basis. RutherSoft must meet certain minimum
purchase requirements. The term of the contract is for a period of one (1) year
and can be renewed at that time for an additional three (3) years subject to new
minimum purchase requirements. During the extended period, either party may
unilaterally terminate the contract by paying $50,000 as liquidated damages to
the other party. See Part I, Item 1. "Description of Business - (b) Business of
Registrant - General - Present"; and Part I, Item 1. "Description of Business -
Marketing and Distribution - Distribution".
See (b) "Business of Registrant" immediately below for a description
of the Company's business.
(b) Business of Registrant
General
The Company was formed in July 1994 and had little or no operations
until December, 1999, when it acquired CCSF. CCSF is headquartered in Stuart,
Florida, the heart of the famed Indian River citrus growing region. The
Company's initial market development has been in the citrus industry. From its
earlier days of successfully shipping Florida Grapefruit to Italy in the 1980's,
a market with similarly difficult trade barriers at the time, the Company has
effectively broken down the agricultural trade barriers with China and is
actively developing this new market.
CCSF has spent the past three (3) years gainfully penetrating and
developing a foothold in opening the China Market. CCSF has played an integral
part in breaking down the agricultural trade barriers that have kept the
enormous Chinese market closed to both U.S. and world agricultural exports. This
was achieved by developing personal relationships not only with senior Chinese
embassy officials in Washington D.C and government officials in Beijing, China,
but also by strengthening the Company management's relationships with Republican
and Democratic government officials in the United States.
9
<PAGE>
History
The Chinese Market has been one which has been traditionally closed
to the Western world due to substantial trade barriers put in place by the
Chinese Government. Possessing one quarter (1/4) of the World's population, the
growth potential for this market is greater than any other. Ninety-six percent
(96%) of Chinese consumers have not been exposed to orange juice or any other
citrus juice.
Following the successful transfer of Hong Kong back to the Peoples
Republic of China in 1998, the decision was made by senior government officials
in Beijing to allow more Western goods into the country. Beijing also relaxed
its hold on state run television and allowed western programming, with its
commercials. The Chinese consumers are now exposed to the cultures of the
western world, including the fitness craze and healthy eating. Although orange
juice is still a rare commodity in China, the current trend is moving away from
the traditional soft drinks and is now taking aim on the 100% natural juices.
This trend is countrywide and is expected to last well into the future.
Present
Founder and CEO, Henry "Skip" Clements was first introduced to Sam
Mok, President of Condor Consulting, LLC, one of the top Chinese Business and
Political Consultants in Washington, D.C in September of 1997. This introduction
was made possible through a mutual friend and business contact Carol Halett, the
Former U.S. Customs Commissioner and Ambassador under the Bush Administration.
After much discussion, he determined that Mr. Clements was in an excellent
position to take advantage of a market niche that is currently not being
serviced within China. Mr. Mok was instrumental in developing and implementing
the plan to achieve "Friend of China" status for Clements Citrus, an important
step in doing business successfully in China.
The original business plan of shipping fresh Florida grapefruit to
China and then introducing additional citrus products once a market presence had
been established, was changed as a result of an extensive trip to China in April
1998. It was during that trip, that CCSF management began to realize that the
lucrative market for frozen concentrate 100% orange juice in China had yet to be
developed.
Although test marketing and sampling had been ongoing for a couple
years, CCSF frozen concentrate products made their official introduction into
the Chinese marketplace at HOFEX '99, the Hong Kong Trade Show, in May of 1999.
Over 45 vendors were invited as the Company's guests to the presentation and
open forum. All invitees had tasted the Company's product line of Florida
Valencia Oranges, Ruby Red Grapefruit and Frozen Concentrate Orange Juice prior
to the show and had expressed a strong interest in carrying the Company's
products. This forum allowed the Company's management to personally demonstrate
the Company's products and poll the participants' reactions. The results were
overwhelmingly positive. The Company also determined that there was no other
100% pure frozen concentrate orange juice in a ready to mix can on the Chinese
market.
In September 1999, CCSF entered into a distribution contract with
Hongrun, one (1) of the largest distributors in Northern China with distribution
throughout Beijing, Tianjin and other major
10
<PAGE>
cities. Hongrun was appointed CCSF's exclusive distributor in the northern
district of China, which includes all areas north of the Changjiang (Yangtze)
River. Hongrun agreed to exclusively distribute CCSF's concentrated products.
CCSF agreed to provide Hongrun with $20,000, $15,000, $10,000 and $5,000 with
the first, second, third and fourth orders for promotional expenses. The term of
the agreement is for a period of one (1) year. See Part I, Item 1. "Description
of Business - Marketing and Distribution - Distribution".
In May 2000, CCSF entered into a distribution agreement with
RutherSoft to distribute the Company's fresh citrus products in the provinces of
Shanxi, Henan, Heilongjiang, Jilin, Liaoning, Shaanxi, Hubei, Anhui, Sichuan,
Hunan and Hebei as well as the municipalities of Beijing and Shanghai on an
exclusive basis. RutherSoft must meet certain minimum purchase requirements. The
term of the contract is for a period of one (1) year and can be renewed at that
time for an additional three (3) years subject to new minimum purchase
requirements. During the extended period, either party may unilaterally
terminate the contract by paying $50,000 as liquidated damages to the other
party. See Part I, Item 1. "Description of Business - Marketing and Distribution
- Distribution".
Business Strategy
The Company's business strategy, which is dependent upon its
continuing to have sufficient cash flow from operations and/or obtaining
sufficient additional financing with which to enhance the commercialization of
existing and future products, is to be the "First to Market" in providing a high
quality, 100% pure, frozen concentrate orange juice. Although the Chinese market
is potentially large enough to accept total world production of orange juice and
fresh citrus, the corporate strategy has been and still remains simply to be the
first into the Chinese market with the best branded frozen concentrate orange
juice. By entering the fruit juice market during its infancy, the Company is
presented with an opportunity to set frozen concentrate as the benchmark for
taste in the citrus market. The Company's orange juice has been developed
particular to Chinese taste preferences.
The second part of the Company's business strategy is to take
advantage of growing health consciousness of the Chinese consumer. In China,
there is an increasing awareness of health and nutritional issues. Publications,
web-sites and organizations promoting good health are becoming increasingly
common. Many earlier generations of the single child policy are overweight due
to "spoiling" and over consumption of food. This trend is changing as Chinese
families are becoming more aware of the health benefits of a proper diet.
Government ministries are getting involved with sports, health and education and
have begun publicly promoting healthy living and good nutrition. The Company's
juices are being promoted as a nutritious health beverage. The Company's
advertising and marketing will stress the health benefits of the citrus products
including Vitamin C and Folic Acid and the benefits they provide against
colds/flu, viruses and cancer. Presently there are no products being marketed
this way in China.
The Company will take advantage of the Chinese consumer's affinity
for American products. Distributors are looking for quality American products to
carry. The current fruit juice market is
11
<PAGE>
fragmented and underdeveloped, and the opportunity is ripe for an American, high
quality juice product to exploit.
A final advantage of the Company's frozen concentrate orange juice is
the packaging. Packaging in the twelve (12) ounce can is a considerable benefit
to average Chinese consumers that typically carry their groceries long
distances, either on their backs or via bicycle. They are lightweight and their
small size makes them convenient to carry in backpacks or bicycle baskets.
In the event that the Company achieves a strong foothold in the
Chinese marketplace, the Company intends to introduce other quality products
into the market through its already established distribution channels. These
other products are expected to include cranberry sauce, frozen concentrate
cranberry juice, frozen concentrate red grapefruit juice, frozen concentrate
grape and frozen concentrate apple juice. These varieties are expected to be
labeled with and promoted as the Company's brands to capitalize on the favorable
reputation..
The Company's revenues to date are zero and it is therefore entirely
based upon its capital raising activities. Future revenues are expected to be
based upon the distribution arrangements it has entered into with Hongrun and
Ruthersoft, as well as additional monies received as a result of sales of the
Company's Common Stock. The Company's revenues are dependent on the volume of
sales from its products it provides.
Revenues from sales are recognized in the period in which sales are
made. The Company's gross profit margin will be determined in part by its
ability to estimate and control direct costs of production and shipping and its
ability to incorporate such costs in the price charged to its distributors.
Marketing and Distribution
Marketing
The following discussion of the Chinese citrus industry, as it
relates to the Company's objectives, is of course pertinent only if the Company
is successful in maintaining sufficient cash flow from operations and/or
obtaining sufficient debt and/or equity financing to commercialize its existing
products, to add additional key personnel where needed, and to supplement new
product development. In addition, the Company must be able to generate
significant profits from operations and/or additional financing to continue
expanding the business and/or to fund the anticipated growth, assuming the
Company's proposed expanded business is successful. There can be no assurance
such financing can be obtained or that the Company's proposed expanded business
will be successful.
There are more than 1.24 billion consumers in China and that number
is growing. Approximately ninety-six percent (96%) of these consumers have never
been exposed to real orange juice, either in fresh or frozen concentrate form.
In fact, what is being portrayed as orange juice in the market place is
typically less than ten percent (10%) juice. Refrigerators are becoming common
household appliances along major eastern coastal cities. Many households now
have distilled water
12
<PAGE>
dispensers, an indication that the Chinese people are becoming increasingly more
health conscious. Chilled, drinkable, filtered water has also become widely
available to the average Chinese consumer. These two (2) trends provide the
Company the opportunity to provide and supply orange juice in frozen concentrate
form. Although in most major cities today, the majority of families now have
refrigeration, this was not the case even five (5) to ten (10) years ago. The
Chinese consumer now has the capability to mix the frozen concentrate to their
liking. The Company's test marketing has proven the strong demand for a quality
juice product. By marketing the Company's orange juice not only as a one hundred
percent (100%) juice product, but also as a health food, the Company expects to
hit multiple areas of increasing demand by the Chinese consumer.
The Chinese culture continues to change, as trade between China and
the rest of the world continues to thrive. Chinese consumer tastes are evolving,
due to increased exposure to Western Media. Utilizing a higher disposable
income, the Chinese consumer has shown a willingness to spend more on costly, or
luxury goods, especially those that add to their quality of life. One (1) piece
of evidence of this has been the incredibly early success of the Tang product.
Tang opened the market to Coca Cola and various other successes. Now juice is
becoming increasingly popular, as it becomes more available to the Chinese
consumer. The health benefits of orange juice alone, as well as its great taste,
make it desirable to two (2) sections of Chinese society. The first is the
Chinese burgeoning middle class, which stress an importance on the "yuppie"
healthy lifestyle. The second is the average Chinese family consumer, which is
due in large part to the policy of "one (1) child" for families in metropolitan
cities. That one (1) child typically has six (6) people caring for their health
[two (2) parents, four (4) grandparents]. In Chinese culture, it is the mother
who typically does the food shopping and the grandparents who determine the
discretionary purchases. Simply put, the health of the one (1) child is
extremely important.
To gauge the size of the potential market, the Company focused only
on families living in major cities, particularly along the coast, due to the
fact that most have refrigerators. This number however does not take into
consideration the vast institutional market in China, i.e., schools, businesses,
hospitals, airlines and train lines, commuters and tourists. The size of the
market for fresh fruit is considerably larger, because there is no need for
refrigeration. According to the Vice President of Corporate Communications for
Sunkist Growers, the Chinese market should reach $500 million in sales of
oranges alone, within the first five (5) years.
Oranges are native to China. The majority of the oranges produced in
China are Valencia Oranges and are located primarily in the Chengdu Region in
Central China. In the 1997-98 season, China produced only 17% of what the U.S.
produces annually, while having five (5) times the population size. The U.S. now
produces 12.5 million metric tons (27.56 billion lbs) of oranges annually.
Orange production in China is widely fragmented and primarily
services local populations. Orange groves in China have never been fully
developed and cultivated as they have in other parts of the world. It would take
many years, and huge amounts of capital, for the Chinese domestic production to
get out of the developmental stage. Due to the poor condition of the road system
in the countryside where these groves are located, the orange crop is only
cultivated in small quantities
13
<PAGE>
for local consumption in the surrounding small villages. Very limited amounts
actually leave the region. The infrastructure necessary for the development and
support of large production capabilities for crops such as oranges, is still in
its infancy. Everything from paved roadways, water support systems and soil
enrichment processes would be needed. The Company's management has toured and
inspected many of the sites in China where oranges are grown.
Oranges are very popular with Chinese consumers, as is witnessed by
the fact that in 1996 there were approximately U.S. $159.7 MM in orange sales in
Hong Kong alone. In fact, U.S. oranges accounted for 66.7% of Hong Kong's orange
market in 1996, and 85.6% in 1997. U.S. oranges hold 97% and 95% of the Taiwan
market as well. The majority of Valencia Oranges that have entered the Chinese
market are from California and have been shipped into Hong Kong and re- exported
through Quangzhou. At this time, no U.S. company "legally" exports any citrus
fruit into the Peoples Republic of China. However, starting in 1999 the Chinese
Federal Government began cracking down on these illegal imports and several
local government officials have been arrested and placed in jail. As the PRC
continues to take steps to open its markets to fall in line with world trade
practices, it continues to close the avenues for these illegal imports. The
companies that have been involved with the illegal activities are likely to find
it difficult to transition into the new economy and new rules.
There is no Chinese domestic production of grapefruit of any type.
The United States produces more grapefruit than all the other grapefruit
producing nations combined. Indian River grapefruit is world renowned.
Currently, ready to mix Florida citrus orange juice ("FCOJ") is not
readily available in many foreign countries and China is no exception. There is
a very limited amount of frozen concentrate juice product of any type servicing
the Chinese marketplace currently. For orange juice products that are currently
being offered, the product is shipped in bulk to allow the receivers to mix and
package themselves in China. While this method is cheaper for the foreign
production facilities, it often presents potential problems for the consumer.
Instead of mixing the product to a three (3) to one (1) ratio for the best taste
and color, some facilities mix the product five (5) to one (1) or more, thinking
that they will gain more product for sale. The production facilities were
thinning out the bulk product with additional water and then adding
beta-carotene for color and sugar for taste. The bottled product looked horrible
and had little taste. The end result is that the taste and appearance of the
product turn off the consumer and they will not come back to it. This is the
case in the China market.
Fresh orange juice is provided in the high end hotels and some
shopping markets in many of the major cities in China. The high cost of a glass
of fresh orange juice, typically U.S. $8-12, is prohibitive to the vast majority
of the populace. The target market for fresh orange juice has been the very high
end market, mostly foreigners and tourists or the very wealthy China Elite.
Presently, the average Chinese consumer has access to affordable tea products,
sodas, beer and alcohol. Fruit juice is not available in most small stores and
is thus not a common beverage. Much the same way Coca Cola influenced the
soft-drink market by being the pioneers in the juice market, the Company intends
to shape the way the Chinese consumer feels about orange juice. Prior to Coca
14
<PAGE>
Cola's appearance in the market, the Chinese did not drink cold beverages during
the winter. Today, Coke is consumed year round.
The Chinese market is very receptive to American products and
consumer goods that are perceived by the Chinese consumer as American. Coca
Cola, McDonald's, Kentucky Fried Chicken, Jeep and IBM are just a few examples.
However, these products do not sell solely by virtue of being American. They are
also considered by the Chinese consumer to be of relatively high quality.
Market Demand
The Chinese people like oranges. In developing an estimate for the
demand by population of the Peoples Republic of China, the Company has taken
into consideration the demand for both fresh citrus products, as well as orange
juice, in both Hong Kong and Taiwan. In Hong Kong, oranges are the single
largest imported fruit by value and were valued at greater than U.S. $159.7
million in 1996. Hong Kong has the highest rate of orange consumption in the
world. This is no doubt due in large part to the fact that it is the major port
for illegally re-exporting oranges to the rest of China. In 1996, U.S. oranges
accounted for 66.7% of Hong Kong's orange market and in 1997 accounted for 85.6%
of the orange market. In Taiwan in 1996 and 1997, U.S. oranges accounted for 97%
and 95% of the total orange market respectively. From these figures, the Company
has been able to determine that there has been a considerable demand that
continues to increase for U.S oranges in the regions where Chinese consumers are
able to purchase the product.
Market Penetration
The Company currently has distribution agreements to distribute both
fresh fruit and frozen concentrate orange juice in the northern district of
China and in the provinces of Shanxi, Henan, Heilongjiang, Jilin, Liaoning,
Shaanxi, Hubei, Anhui, Sichuan, Hunan and Hebei as well as the municipalities of
Beijing and Shanghai. After market presence has been firmly established, the
Company's products are expected to branch out to develop the market in:
Shenzhen, Dalian, Qingdao, Xi'an, Nanjing, Suzhou, Hangzhou, Guilin, Wuxi,
Xiamen Municipality, Fuzhou, Chengdu, and Wuhan. These cities have all been
selected based upon several factors:
1. There is a high level of disposable income in these cities.
2. Refrigeration is commonplace.
3. Filtered, chilled, drinking water is readily available.
4. Strong distribution companies.
Advertising & Marketing
Management in conjunction with Chinese distributors has developed a
very aggressive and creative advertising and marketing campaign that is
discussed in more detail below.
15
<PAGE>
Sweepstakes
The idea of a sweepstakes is relatively new to the Chinese market.
Having the opportunity to win a prize is a new concept to the vast majority of
Chinese consumers. The very few sweepstakes that have occurred recently in China
have had enormous success with several hundred thousand contestants showing up
on the day of the drawing. The mere opportunity provided by a sweepstakes is
something that the Chinese populace enjoys.
A sweepstakes sponsored by Company brands and supported by the
established distribution network, would be held in a different city each month
and continue for four (4) consecutive months. Each sweepstakes will be for one
(1) full month. To qualify, contestants would purchase a can of the Company's
FCOJ and retain the label. A consumer would fill out entry forms at the time of
purchase. The more cans a person purchases, the more times he would be eligible
to enter. The drawing would be held publicly on the last day of each six (6)
week sweepstakes. Management would be present to personally select the winners
in each sweepstakes. Sweepstakes prizes may include: fifteen (15) Chinese made
scooters [three (3) per city], and twenty-five (25) Chinese made bicycles [five
(5) per city], in addition to inexpensive refrigerators and backpacks. The store
where the winning can was purchased from would receive a prize as well, thereby
providing an incentive for the store management to sell the Company's products.
The sweepstakes would be held in the following order: Tianjin; Guanzhou;
Beijing, Shanghai and Hong Kong. The grand prize drawing would take entries from
all sweepstakes to select a winner after the completion of all sweepstakes. The
grand prize is expected to be a Chinese manufactured automobile.
The sweepstakes are designed to not only drive initial demand for the
Company's products, but to also aid in the process of educating the Chinese
consumer about what the product is and how to drink it. The Company name and
logo will be highly visible through the POS materials provided and through
advertising.
20-50-500 Promotion
Twenty (20) years ago, former president Richard Nixon re-opened
United States relations with China that had been closed for thirty (30) years.
At a picture taken at this historic meeting, General Mao is holding a glass of
orange juice. Fifty (50) years ago in 1949, General Mao declared communist rule
in China in Tian'anmen Square. Oranges are native to China and were first
transported out of China by explorers approximately 500 years ago. Coming full
circle, oranges are coming back to China after 500 years through the efforts of
the Company. This promotion is expected to include: billboards, T-shirts,
buttons, pedicabs and sampling. It anticipated to begin in winter 2000 and
culminate in late spring 2001.
Other Promotional Campaigns
One of the best mediums for advertising and promoting a company in
China is through the use of Chinese journalists. This process to date has been
underutilized by other entrants into the market. The Company's management has
developed and nurtured ongoing relationships with Chinese journalists over the
past three (3) years. In the process, the Company's products and management have
been written about in Chinese newspapers on multiple occasions. The opening of
markets leading to an increase in trade is as big news in China as it is in the
U.S.
16
<PAGE>
In addition to these and other types of marketing techniques, the
Company will utilize broader mediums such as magazines, newspapers, billboards
(including bus stops, benches, kiosks) and radio to develop the Company name in
the Chinese marketplace.
Most of the initial advertising and promotions throughout the first
year will be focused on the strategies discussed above. The Company's
combination of aggressive guerilla and more traditional advertising is
enthusiastically supported by its distributors. The Company's advertising budget
is projected to be $400,000 for 2000 plus $80,000 in production costs. The
budget is expected to increase to $180,000 per quarter plus $36,000 per quarter
production costs in 2001. By the year 2002, the budget is projected to be
$216,000 per quarter and quarterly production fees of an estimated $43,200. The
increase forecasted is due to increase market presence, continued development of
new markets and increased competition.
The Company hopes to develop a relationship within the various
Chinese communities via participation in and sponsoring various festivals, food
exhibitions and community events. There are several major trade shows and
exhibitions that the Company participates in each year.
Distribution
Suppliers / Production
The Company contracts with various Indian River region packing
facilities to pack under strict specifications for the registered the Company's
"Clements Citrus" label. There are over 123 packing companies located throughout
the state of Florida. The Company will utilize back-up suppliers as needed.
Production Facility
In late Spring 2001, the Company is planning to begin construction of
a citrus packing and processing center to be located in Stuart, FL, the heart of
Indian River Region. This facility will act as a showpiece for Clements Citrus
products to the Company's Chinese and domestic customers. The center should
consist of a state of the art, completely computer controlled, fresh citrus
packing facility, a facility for the manufacture and production of frozen
concentrate orange juice, as well as other frozen juices, a freezer facility, a
research center and an office facility. By having these facilities located on
one site, the entire program can be closely managed and controlled. It would
also insure against supply interruption and a total dependence on outside
suppliers.
Distribution
The Company has identified six to eight (6-8) potential companies who
could serve as the Company's distributors. Besides financial strength, the
Company requires companies with cold storage capabilities, a solid and extensive
distribution network, as well as experience in the beverage distribution market.
17
<PAGE>
The Company has strategically divided China into market regions for
purposes of introduction of the Company's products. Each market region will have
a local distributor who will be responsible for market penetration. Although
many companies want to handle the Clements Citrus product line, most do not meet
the Company's strict specifications necessary to orchestrate and service a
successful penetration into these markets. Smaller distributors may be added as
needed.
The Company is working only with distributors which hold a special
permit granted by the Chinese Government to trade in foreign currency specific
to U.S. Currency. These companies utilize Irrevocable Letters of Credit in U.S.
Dollars. The Company continues to strengthen its relationship with the Chinese
officials who grant these permits to Chinese companies, by working in part with
those companies whom they recommend.
The Company currently has two (2) executed distribution contracts.
In September 1999, CCSF entered into a distribution contract with
Hongrun, one (1) of the largest distributors in Northern China with distribution
throughout Beijing, Tianjin and other major cities. Hongrun was appointed CCSF's
exclusive distributor in the northern district of China, which includes all
areas north of the Changjiang (Yangtze) River. Hongrun agreed to exclusively
distribute CCSF's concentrated products. CCSF agreed to provide Hongrun with
$20,000, $15,000, $10,000 and $5,000 with the first, second, third and fourth
orders for promotional expenses. The term of the agreement is for a period of
one (1) year.
In May 2000, CCSF entered into a distribution agreement with
RutherSoft to distribute the Company's fresh citrus products in the provinces of
Shanxi, Henan, Heilongjiang, Jilin, Liaoning, Shaanxi, Hubei, Anhui, Sichuan,
Hunan and Hebei as well as the municipalities of Beijing and Shanghai on an
exclusive basis. RutherSoft must meet certain minimum purchase requirements. The
term of the contract is for a period of one (1) year and can be renewed at that
time for an additional three (3) years subject to new minimum purchase
requirements. During the extended period, either party may unilaterally
terminate the contract by paying $50,000 as liquidated damages to the other
party.
Status of Publicly Announced Products and Services
The Company has recently received and currently holds the only two
(2) permits necessary to ship fresh produce to the Peoples Republic of China
(Mainland China). The first shipments were sent May 17, 2000.
The passage or rejection of Permanent Normal Trade Relations (PNTR)
with China should not affect the permits held by the Company. However, the
election of PNTR with China would be beneficial to the Company's products.
Currently, a forty percent (40%) is imposed on imported juice products.
18
<PAGE>
Competition
The Company faces competition from large, well-established companies
with considerably greater financial, marketing, sales and technical resources
than those available to the Company. Additionally, many of the Company's present
and potential competitors have capabilities that may allow such competitors to
offer its products at prices which may compete with the Company's products. The
Company's products could be made uneconomical by the introduction of new
products, changes affecting the cost of packaging and shipping, or marketing or
pricing actions by one or more of the Company's competitors. The Company's
business, financial condition or results of operations could be materially
adversely affected by one or more of such developments. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors or that competition will not have an material adverse
effect on the Company's business, financial condition or results of operations.
The industry for orange juice and orange drinks currently available
in the Chinese market is very fragmented with no company controlling a large
market share or market lead outside of their home region or district. The vast
majority of these orange products in the market contain very limited amounts of
juice. However, it is not uncommon to see small stands in the large superstores
with people squeezing juice from oranges.
Domestic
Great Lakes ("Da Hu")
Great Lakes is a small family owned Chinese company based out of
Tianjin. Great Lakes provides pre-mixed orange, grapefruit, apple and apple
cherry juices. Although typically no additives are added, their orange and
grapefruit juices tend to be watered down. Great Lakes has been active in the
Chinese Marketplace since 1993. Its products are sold in both one (1) liter and
two (2) liter size containers. This product has been very expensive for the
distributors, resulting in several distributors looking for other suppliers.
Strengths
Local company
Established in the Chinese market for 7 years. Distribution chain well
established.
Weaknesses
Small company
Local distribution
Less expensive than Dole
Beijing Fresh Juice Company
19
<PAGE>
Beijing Fresh Juice Company is a Chinese Company which provides juice
products to the local Beijing market. Its current product line consists of
grapefruit and tomato juices. Beijing Fresh Juice Company has been active in the
Beijing market for a limited time.
Strengths
Active in the Beijing market.
Weaknesses
Products are not very popular.
Limited distribution
TianJin Chengbao Orange Juice Company
TianJin Chengbao Orange Juice Company is a Chinese Company which
provides juice to the local market of TianJin. TianJin Chengbao has only been
active in the Chinese Marketplace for the past few years. The product is
expensive for distributors, resulting in dissatisfaction and the search for
replacement suppliers. TianJin Chengbao Orange Juice Company sells Orange Juice,
Pineapple Juice and Apple Juice to the Holiday Inn Crown Plaza Zheng Zhou.
Strengths
Products are produced locally.
Weaknesses
Products are not very popular.
Very limited distribution.
Brand name is not well known.
Foreign
Tropicana
Tropicana has been active in the Chinese Marketplace for several
years. Tropicana products are sold primarily in upscale hotels and restaurants
which cater to the wealthy elite, tourists and business travelers. Current
products include fresh orange juice, apple juice and papaya juice not from
concentrate. Tropicana is not active in the frozen concentrate market. Tropicana
maintains two offices in China: one in Hong Kong and one in Beihai, Guangxi.
Tropicana's Asia-Pacific division has a major production facility in China,
where it is developing 8,000 acres of orange groves for its fresh product.
Tropicana's products are expensive to both the wholesale distributor and to the
consumer and are not readily available to even the new "Middle Class".
20
<PAGE>
Strengths
Financial strength of company, as well as strength of parent company, Pepsi Co.
Fresh orange juice, apple juice and papaya juice only. Served in most four and
five star hotels. Very strong representation and proliferation throughout the
Chinese high-end marketplace.
Established presence in China.
Developing orange groves and a production facility in China.
Weaknesses
Provides juice only, thereby limiting its exposure.
Expensive.
Has been viewed as "dumping" inferior quality on the market and has had
difficulty with distributors as a result.
Dole
Dole has been in the Chinese market since 1994, but has only a
limited presence currently. Dole sells only pre-mixed juice beverages.
Fifty-five (55) gallon containers of frozen concentrate citrus juice are sent to
the joint venture co-packing facility in Huizhou, Guangdong Province. Once it
arrives, it is "pre-mixed" adding coloring, flavoring and pasteurized a second
time. Dole products currently sold in China are orange juice, apple juice,
pineapple juice, pineapple banana and orchard peach. Dole produces its pineapple
juice in China.
Strengths
Financial strength of company.
Distribution Channels in China are established through Tropicana.
Weaknesses
Provides juice only, thereby limiting brand name exposure. Expensive to the
consumer.
Large size of pre-mixed bottle difficult to carry for the average Chinese
consumer. Watered down during pre-mixing and inconsistent quality. 2nd
Pasteurization destroys much of the flavor.
Minute Maid
Minute Maid has been active in the Chinese marketplace since the mid
1990's. Coca-Cola, the parent company of Minute Maid, has had enormous success
at developing consumer demand for its product among the Chinese consumers.
Minute Maid products are only being served in pre- mixed, "ready to drink"
bottles.
21
<PAGE>
Strengths
Financial strength of parent company, Coca Cola.
Ability to draw upon Coca-Cola's experience in successfully penetrating and
developing the Chinese marketplace. Access to Coca-Cola's distributors and other
business relationships.
Successful past history of frozen concentrate products in the U.S. market.
Weaknesses
Expensive.
Due to co-packing in China, the quality level of the "pre-mixed" orange juice is
often inconsistent. 2nd Pasteurization during "pre-mixing" stage destroys much
of the flavor. Large size of pre-mixed bottle difficult to carry for the average
Chinese consumer. Provides juice only, thereby limiting brand name exposure.
Sunkist
Uses the brand name of "Xin Qishi" in China. Sunkist has been
exporting fresh oranges to the Chinese marketplace for a few years. They have
sold oranges to buyers in Hong Kong, which has retained its favorable trade
position, even through the transition to Chinese ownership. The buyers in Hong
Kong illegally re-export the oranges to other parts of China. Sunkist grossed in
excess of U.S. $150 MM in sales of oranges in 1999. Sunkist also provides its
orange soda to the Chinese marketplace.
Strengths
Brand name recognition.
Financial strength of company.
Developed distribution channels for its soda.
Weaknesses
Due to the ban on agricultural imports, Sunkist did not export
directly into the Peoples Republic of China, only to Hong Kong. The buyers in
Hong Kong then exported them into China. Several Chinese government officials
were jailed at the end of 1999 for allowing cross-border traffic of agricultural
products.
Sunkist oranges' juice content and flavor is less than the Florida Valencia.
Provide fresh oranges only, thereby limiting brand exposure.
Sources and Availability of Raw Materials
22
<PAGE>
The materials and equipment needed to produce Florida citrus are
widely available from numerous third parties for rent or for sale. The citrus is
then packaged by a third party independent contractor and shipped to mainland
China to be distributed by one (1) of the Company's distributors. No shortage of
materials is expected in the foreseeable future.
Dependence on one or few customers
The Company will rely heavily on its customers' preferences to best
determine the products which will be produced. The commercial success of the
Company's products will depend on its ability to predict the type of product
that will appeal to a broad spectrum of the Chinese populous and will be
affordable. Although the Company plans to test market their products prior to
their release, there can be no assurance that the Company will be able to
predict the appeal of its products before their production. Considerable expense
is expended on production costs before a product can be test marketed.
Therefore, although a product which tests poor can be scrapped before additional
expense is incurred associated with release including marketing and
distribution, the Company may have to bear the expense of production of some
products, which may never be released. This may have a material adverse effect
on the Company.
Additionally, the Company will rely heavily upon the efforts of its
two (2) current distributors (RotherSoft and Hongren) to market and distribute
the Company's products in China. Any failure by either distributor to
effectively distribute and/or make a market for the Company's products, could
have a material adverse effect on the Company.
Research and Development
The Company believes that research and development is an important
factor in its future growth. Although, the citrus growing and exportation
industry is not closely linked to technological advances, it occasionally
produces new ways to raise and harvest crops, resulting in disease and pest
resistant product, which stays fresh for a longer period of time. Therefore, the
Company must continually invest in the technology to provide the best quality
product to the public and to effectively compete with other companies in the
industry. No assurance can be made that the Company will have sufficient funds
to purchase technological advances as they become available. Additionally, due
to the rapid advance rate at which technology advances, the Company's equipment
may be outdated quickly, preventing or impeding the Company from realizing its
full potential profits.
Patents, Copyrights and Trademarks
The Company intends to protect its original intellectual property
with patents, copyrights and/or trademarks as appropriate.
In May 2000, the Company filed an application with the United States
Patent & Trademark Office ("USPTO") and China to trademark the name "Clements"
in International classes thirty-one (31) (fresh fruit) and thirty-two (32)
(fruit juices).
23
<PAGE>
Governmental Regulation
The Chinese Market has been one which has been traditionally closed
to the Western world, due to substantial trade barriers put in place by the
Chinese Government. Following the successful transfer of Hong Kong back to the
Peoples Republic of China in 1998, a decision was made by senior government
officials in Beijing to allow more Western goods into the country. Beijing also
relaxed its hold on state run television and allowed western programming, with
its commercials. The Chinese consumers are now exposed to the cultures of the
western world, including the fitness craze and healthy eating trends.
The Company is one of the first United States businesses to legally
export fresh citrus to the Chinese market. Until March 22, 2000, there has been
a ban in China on agricultural imports from the United States. Some companies
had been illegally exporting their products to Hong Kong, where they were
re-exported to the rest of China. However, the Chinese government has been
recently focused on cracking down on individuals involved in these illicit
activities. At the end of 1999, several local Chinese politicians were arrested
for permitting illegal imports of produce into China. This provides a
significant advantage for fruit that is legally imported into China.
State and Local Licensing Requirements
To the best of management's knowledge, the Company has been granted
the only two (2) permits necessary to ship fresh produce directly to the Peoples
Republic of China (Mainland China). Others continue to resort to indirect
shipping through Hong Kong and run the risk of seizure by Chinese agents.
Effect of Probable Governmental Regulation on the Business
New laws are emerging which regulate commerce between the United
States and China. Although passage of Permanent Normal Trade Relations (PNTR)
with China will not affect the permits previously granted the Company by the
Chinese government, election of PNTR could reduce the forty percent (40%) tariff
currently imposed on juice products.
Citrus products and food products in general may be subject to
extensive regulation by the Chinese government, in some case by state and local
laws and by foreign laws and international treaties. The Company's products must
conform to a variety of domestic and international requirements. In order for
the Company to sell its products in a jurisdiction, it must obtain regulatory
approval and comply with different regulations in each jurisdiction. The delays
inherent in this governmental approval process may cause the cancellation,
postponement or rescheduling of the purchase by the Company's customers, which
in turn may have a material adverse effect on the sale of such products by the
Company to such customers. The failure to comply with current or future
regulations or changes in the interpretation of existing regulations could
result in the suspension or cessation of product sales. Such regulations or such
changes in interpretation could require the Company to modify its products and
incur substantial costs to comply with such time-consuming regulations and
changes.
24
<PAGE>
The regulatory environment in which the Company operates is subject
to change. Regulatory changes, which are affected by political, economic and
technical factors, could significantly impact the Company's operations by
restricting development efforts by the Company and its customers, making current
products unacceptable or increasing the opportunity for additional competition.
Any such regulatory changes could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
might deem it necessary or advisable to alter or modify its products to operate
in compliance with such regulations. Such modifications could be extremely
expensive and, especially if subject to regulatory review and approval,
time-consuming.
Cost of Research and Development
For fiscal year 2000, the Company expended $531,220 on research and
development efforts. At the current time, none of the costs associates with
research and development are bourne directly by the customer; however there is
no guarantee that such costs will not be bourne by customers in the future and,
at the current time, the Company does not know the extent to which such costs
will be bourne by the customer, if at all.
Cost and Effects of Compliance with Environmental Laws
The Company's business is not subject to regulation under the state
and Federal laws regarding environmental protection and hazardous substances
control. The Company is unaware of any bills currently pending in Congress which
could change the application of such laws so that they would affect the Company.
Employees and Consultants
At March 31, 2000, the Company employed four (4) persons. None of
these employees are represented by a labor union for purposes of collective
bargaining. The Company considers its relations with its employees to be
excellent. The Company plans to employ additional personnel as needed upon
product rollout to accommodate fulfillment needs.
On December 31, 1999, the Company, CCSF and the Holders consummated
the Agreement. Pursuant to the Agreement, the Holders tendered to the Company
all issued and outstanding shares of common stock of Clements Citrus Sales of
Florida, Inc. in exchange for 3,750,000 Shares of Common Stock of the Company.
The reorganization is being accounted for as a reverse acquisition.
In connection with the Agreement, John Samartine, a Director, was
issued 175,000 shares, Bonnie Ludlum, the Company's current Secretary and a
Director, was issued 175,000 shares, Joseph Rizzuti, the Company's current
Vice-President, Chief Operating Officer, Treasurer and a Director, was issued
700,000 shares and Henry T. Clements, the Company's current Chairman, President
and Chief Executive Officer was issued 1,575,000 shares. See Part I, Item 6.
"Management's Discussion and Analysis or Plan of Operation - Stockholders'
Equity"; Part III, Item 10. "Executive Compensation - Employee Contracts and
Agreements"; Part III, Item 11. "Security Ownership of Certain Beneficial Owners
and Management"; and Part III, Item 12. "Certain Relationships and
25
<PAGE>
Related Transactions".
Item 2. Description of Property
The Company maintains its executive offices at 3135 Southwest Mapp
Road, P.O. Box 268, Palm City, FL 34991. Its telephone number is (561) 219-0132
and its facsimile number is (561) 219-3712.
In September 1999, prior to its acquisition by the Company, CCSF
extended its then current lease of the premises located at 32C East Osceola
Street, Stuart, FL 34996 with Edward M. Sellian. This property consists of
approximately one thousand nine hundred fifty (1,950) square feet of office
space, which serves as the Company's executive offices. The lease has been
extended through and including May 31, 2002. The Company pays monthly rent in
the amount of $2,354 ($2,200 + 7% county sales tax).
The Company owns no real property and its personal property consists
of an automobile, computer equipment, furniture and fixtures, with an original
cost of $70,969.
Item 3. Legal Proceedings
No legal proceedings have been initiated either by or against the
Company to date.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the Company's shareholders,
through the solicitation of proxies or otherwise from the Company's inception to
the close of the 2000 fiscal year ended March 31, 2000, covered by this report.
Item 5. Market for Common Equity and Related Stockholder Matters.
Shares of the Company's Common Stock have previously been registered
with the Securities and Exchange Commission (the "Commission"). The Company
intends to and has made application to the NASD for the Company's shares to be
quoted on the OTC Bulletin Board. The Company's application to the NASD consists
of current corporate information, financial statements and other documents as
required by Rule 15c2-11 of the Exchange Act. Inclusion on the OTC Bulletin
Board, when approved, permits price quotation for the Company's shares to be
published by such service.
The Company is not aware of any existing trading market for its
Common Stock. The Company's Common Stock has never traded in a public market.
There are no plans, proposals, arrangements or understandings with any person(s)
with regard to the development of a trading market in any of the Company's
securities.
If and when the Company's Common Stock is traded in the
over-the-counter market, most likely the shares will be subject to the
provisions of Section 15(g) and Rule 15g-9 of the Securities
26
<PAGE>
Exchange Act of 1934, as amended (the Exchange Act"), commonly referred to as
the "penny stock" rule. Section 15(g) sets forth certain requirements for
transactions in penny stocks and Rule 15g9(d)(1) incorporates the definition of
penny stock as that used in Rule 3a51-1 of the Exchange Act.
The Commission generally defines penny stock to be any equity
security that has a market price less than $5.00 per share, subject to certain
exceptions. Rule 3a51-1 provides that any equity security is considered to be a
penny stock unless that security is: registered and traded on a national
securities exchange meeting specified criteria set by the Commission; authorized
for quotation on The NASDAQ Stock Market; issued by a registered investment
company; excluded from the definition on the basis of price (at least $5.00 per
share) or the registrant's net tangible assets; or exempted from the definition
by the Commission. If the Company's shares are deemed to be a penny stock,
trading in the shares will be subject to additional sales practice requirements
on broker- dealers who sell penny stocks to persons other than established
customers and accredited investors, generally persons with assets in excess of
$1,000,000 or annual income exceeding $200,000, or $300,000 together with their
spouse.
For transactions covered by these rules, broker-dealers must make a
special suitability determination for the purchase of such securities and must
have received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the rules require the delivery, prior to the first transaction, of a
risk disclosure document relating to the penny stock market. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
the monthly statements must be sent disclosing recent price information for the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker dealers to
trade and/or maintain a market in the Company's Common Stock and may affect the
ability of shareholders to sell their shares.
Prior to the reorganization the Company effected a forward split of
its Common Stock at the rate of three (3) to one (1), for holders of record on
December 30, 1999, with distribution effective January 18, 1999. Total issued
and outstanding stock following the forward split and after effecting the
Agreement was 5,000,000. See Part III, Item 12. "Certain Relationships and
Related Transactions".
As of April 27, 2000, there were 144 holders of record of the
Company's Common Stock.
As of April 27, 2000, the Company had 5,500,858 shares of its Common
Stock issued and outstanding, 4,000,858 of which are restricted Rule 144 shares
and 1,500,000 of which are free- trading. Of the Rule 144 shares, none have been
held by affiliates of the Company for more than one (1) year.
Dividend Policy
The Company has never paid or declared any dividends on its Common
Stock and does not anticipate paying cash dividends in the foreseeable future.
27
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
The Company was formed with the contemplated purpose to manufacture
and market imported products from China in the United States and elsewhere. The
business concept and plan was based upon information obtained by the
incorporator several years before while working in China. The incorporator was
unable to obtain the cooperation and assistance of the Chinese and investors to
implement the proposed plan. After development of a business plan and efforts to
develop the business failed, all such efforts were abandoned. In December 1999,
at the time it acquired CCSF as a wholly-owned subsidiary, its purpose changed
to CCSF's initial purpose of citrus exportation.
The Company was still in the development stage until December 1999
when the Share Exchange took place between CCSF and the Company and is still
emerging from that stage. The Company has only recently begun shipping its
citrus products to China. From the date of the Share Exchange in December 1999
through March 31, 2000, the Company generated no revenues. Since inception (July
15, 1994 through March 31, 2000, the Company has generated cumulative losses of
approximately $880,085. Due to the Company's limited operating history and
limited resources, among other factors, there can be no assurance that
profitability or significant revenues on a quarterly or annual basis will occur
in the future.
In May 2000, the Company shipped its first citrus products directly
to mainland China. The Company plans to make several additional shipments to its
two (2) distributors (Hongrun and Ruthersoft) by the end of 2000.
Since contracting with its first two (2) distributors and upon being
granted permits to ship citrus directly to mainland China, the Company has begun
to make preparations for a period of growth, which may require it to
significantly increase the scale of its operations. This increase will include
the hiring of additional personnel in all functional areas and will result in
significantly higher operating expenses. The increase in operating expenses is
expected to be matched by a concurrent increase in revenues. However, the
Company's net loss may continue even if revenues increase and operating expenses
may still continue to increase. Expansion of the Company's operations may cause
a significant strain on the Company's management, financial and other resources.
The Company's ability to manage recent and any possible future growth, should it
occur, will depend upon a significant expansion of its accounting and other
internal management systems and the implementation and subsequent improvement of
a variety of systems, procedures and controls. There can be no assurance that
significant problems in these areas will not occur. Any failure to expand these
areas and implement and improve such systems, procedures and controls in an
efficient manner at a pace consistent with the Company's business could have a
material adverse effect on the Company's business, financial condition and
results of operations. As a result of such expected expansion and the
anticipated increase in its operating expenses, as well as the difficulty in
forecasting revenue levels, the Company expects to continue to experience
significant fluctuations in its revenues, costs and gross margins, and therefore
its results of operations.
28
<PAGE>
Results of Operations - For the Three Months Ended March 31, 2000 and For the
Year Ended December 31, 1999
In April 2000, the Company elected to change its fiscal year end to
March 31 and filed a report on Form 8-K on April 18, 2000. The results of
operations reported herein are therefore for the three (3) months ended March
31, 2000 and for the year ended December 31, 1999.
Revenues
Revenues for the three (3) month period ended March 31, 2000 was $0
and for the twelve (12) month period ended December 31, 1999 was $66,530.
Administrative Expenses
Administrative Expenses for the three (3) months ended March 31, 2000
were $783,467 versus $1,210,143 for the year ended December 31, 1999. Net loss
was $880,085 and $1,141,277 respectively.
Assets and Liabilities
Assets were $456,706 as of March 31, 2000, and $111,072 as of
December 31, 1999. As of March 31, 2000, assets consisted primarily of cash and
equivalents and retainers - consulting and marketing with a combined net book
value of $343,451. As of December 31, 1999, assets consisted primarily of a loan
receivable from a shareholder in the amount of $52,295 and inventory of frozen
concentrate in the amount of $30,718. Liabilities were $1,689,013 and $1,667,285
as of March 31, 2000 and December 31, 1999 respectively. Both as of March 31,
2000 and as of December 31, 1999, liabilities consisted primarily of loans
payable to shareholders, investors and/or employees of the Company.
Stockholders' Equity
Stockholders' equity was 1,173,920 as of March 31, 2000 and 1,527,537
as of December 31, 1999.
On December 31, 1999, the Company, CCSF and the Holders consummated
the Agreement. Pursuant to the Agreement, the Holders tendered to the Company
all issued and outstanding shares of common stock of Clements Citrus Sales of
Florida, Inc. in exchange for 3,750,000 Shares of Common Stock of the Company.
The reorganization is being accounted for as a reverse acquisition.
In connection with the Agreement, John Samartine, a Director, was
issued 175,000 shares, Bonnie Ludlum, the Company's current Secretary and a
Director, was issued 175,000 shares, Joseph Rizzuti, the Company's current
Vice-President, Chief Operating Officer, Treasurer and a Director, was issued
700,000 shares and Henry T. Clements, the Company's current Chairman, President
and Chief Executive Officer was issued 1,575,000 shares. See Part III, Item 10.
"Executive Compensation - Employee Contracts and Agreements"; Part III, Item 11.
"Security Ownership of Certain Beneficial Owners and Management"; and Part III,
Item 12. "Certain Relationships and Related Transactions".
29
<PAGE>
Financial Condition, Liquidity and Capital Resources
At March 31, 2000 the Company had cash and cash equivalents of
$240,451 as compared to $10,495 at December 31, 1999.
In January 2000, the Company issued convertible notes to two (2)
investors for a total of $125,000. The term of the notes is for a period of
three (3) years, and are convertible at any time, in the sole discretion of the
noteholders to shares of the Company's restricted Common Stock at a price of $3
per share. Both notes bear interest at a rate of twelve percent (12%) per annum.
Interest is payable quarterly in either cash or shares of the Company's
restricted Common Stock in the sole discretion of the payee. For such offering,
the Company relied upon Section 4(2), Rule 506, and Section 551.29(2) of the
Wisconsin Code. See Part III, Item 12. "Certain Relationships and Related
Transactions".
In March 2000, the Company issued a convertible note to one (1)
investor for $100,000. The term of the note is for a period of one (1) year, and
is convertible at any time, in the sole discretion of the noteholders to shares
of the Company's restricted Common Stock at a price of $5 per share. The note
bears interest at a rate of twelve percent (12%) per annum. Interest is payable
quarterly in either cash or shares of the Company's restricted Common Stock in
the sole discretion of the payee. For such offering, the Company relied upon
Section 4(2), Rule 506, and Section 359(f)(2)(d) of the New York Code. See Part
III, Item 12. "Certain Relationships and Related Transactions".
The Company may raise additional capital through private and/or
public sales of securities in the future but has no definite commitments at this
time.
Year 2000 Compliance
The Year 2000 Issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates where the date has
been stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any clock
or date recording mechanism including date sensitive software which uses only
two digits to represent the year, may recognize the date using 00 as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar activities.
The Company determined that the Year 2000 impact is not material to
its systems and that it will not impact its business, operations or financial
condition since all of the internal software utilized by the Company has the
capability of being upgraded to support Year 2000 versions.
The Company believes that it has disclosed all required information
relative to Year 2000 issues relating to its business and operations. However,
there can be no assurance that the systems
30
<PAGE>
of other companies on which the Company's systems rely also will be timely
converted or that any such failure to convert by another company would not have
an adverse affect on the Company's systems.
Forward-Looking Statements
This Form 10-KSB includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements, other
than statements of historical facts, included or incorporated by reference in
this Form 10-KSB which address activities, events or developments which the
Company expects or anticipates will or may occur in the future, including such
things as future capital expenditures (including the amount and nature thereof),
demand for the Company's products and services, expansion and growth of the
Company's business and operations, and other such matters are forward-looking
statements. These statements are based on certain assumptions and analyses made
by the Company in light of its experience and its perception of historical
trends, current conditions and expected future developments as well as other
factors it believes are appropriate in the circumstances. However, whether
actual results or developments will conform with the Company's expectations and
predictions is subject to a number of risks and uncertainties, general economic
market and business conditions; the business opportunities (or lack thereof)
that may be presented to and pursued by the Company; changes in laws or
regulation; and other factors, most of which are beyond the control of the
Company. Consequently, all of the forward-looking statements made in this Form
10-KSB are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequence to or effects on the Company or its business or operations.
Item 7. Financial Statements
The Company's financial statements have been examined to the extent
indicated in their reports by Joan Staley, C.P.A, P.A. and have been prepared in
accordance with generally accepted accounting principles and pursuant to
Regulation S-B as promulgated by the Securities and Exchange Commission and are
included herein, on Page F-1 hereof in response to Part F/S of this Form 10-KSB.
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
The Company has used the accounting firm of Joan Staley, C.P.A., P.A.
since December 1999, following the Share Exchange Agreement. Their address is
2920 Southwest Mapp Road, Palm City, FL 34990. There has been no change in the
Company's independent accountant during the period commencing with the Company's
retention of Joan Staley C.P.A., P.A. through the date hereof.
31
<PAGE>
TABLE OF CONTENTS
---------------------------------
Independent Auditor's Report
Financial Statements Page
------------------------- ------
Balance Sheet-Consolidated F-1
Statement of Operations-Consolidated F-3
Statement of Changes in Stockholders'Equity-Consolidated F-4
Statement of Cash Flows-Consolidated F-5
Notes to Financial Statements F-6
<PAGE>
Joan R. Staley, CPA, P.A.
2920 S.W. Mapp Road
Palm City, Florida 34990
(561) 221-1273
Independent Auditor's Report
-------------------------------------
To the Board of Directors
Clements Golden Phoenix Enterprises, Inc.
Stuart, Florida
We have audited the accompanying consolidated balance sheet of Clements Golden
Phoenix Enterprises, Inc., and its subsidiary as of March 31, 2000 and December
31, 1999, and related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the three months and the year then
ended. 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 conduct our audit in accordance with generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Clements Golden
Phoenix Enterprises, Inc. And its subsidiary as of March 31, 2000, and December
31, 1999, and the results of its operations and its cash flows for three months
and the year then ended in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1. to
the financial statements, the company has experienced a loss for the three
months ended March 31, 2000, and the year ended December 31, 1999. The Company's
financial position and operating results raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Joan R. Staley, CPA, P.A.
June 27, 2000
<PAGE>
<TABLE>
<CAPTION>
Clements Golden Phoenix Enterprises, Inc.
BALANCE SHEET-CONSOLIDATED
MARCH 31, 2000 and December 31, 1999
ASSETS
March 31, 2000 December 31,1999
<S> <C> <C>
Current Assets
Cash and Equivalents $ 240,451 $ 10 ,495
Due From Golden Phoenix --0-- 36
Loan Receivable-Shareholder 66,735 52,295
Interest Receivable-Shareholder 9,868 8,629
Retainers - Consulting & Marketing 103,000 --0--
Inventory Frozen Concentrate 27,75 30,718
Display Items 8,899 8,899
-------------- ------------
Total Current Assets 456,06 111,072
Fixed Assets
Vehicle 45,353 --0--
Computer Equipment 16,032 6,989
Furniture & Fixtures 9,584 5,668
Less accumulated depreciation (5,959) (3,822)
------------- ------------
Total Fixed Assets 65,010 8,835
Other Assets
Marketing Materials 19,080 19,080
Deposits Utilities 760 760
------------- ------------
Total Other Assets 19,840 19,840
------------- ------------
TOTAL ASSETS $ 541,556 $ 139,747
============= ============
</TABLE>
See accompanying notes to financial statements.
F-1
<PAGE>
<TABLE>
<CAPTION>
Clements Golden Phoenix Enterprises, Inc.
BALANCE SHEET-CONSOLIDATED
MARCH 31, 2000 and DECEMBER 31, 1999
LIABILITIES AND STOCKHOLDER'S EQUITY
March 31, 2000 December 31, 1999
<S> <C> <C>
Current Liabilities
Account Payable $ 129,086 $ 174,496
Payroll Taxes Payable 20,772 2,997
Health Insurance Payable 1,237 --0--
Accrued Interest Payable 103,779 138,395
Convertible Note Ranger-Bassuener 125,000 --0--
Subscription Payable 3,100 --0--
Loan Payable-Rizzuti 491,014 468,138
Loan Payable-Loeffelbein 118,667 143,667
Loan Payable-Sellian 585,000 585,000
Loan Payable-Samartine 49,592 79,592
Loan Payable-Ludlum 50,000 75,000
Current Portion Long Term Debt 11,766 --0--
-------------- --------------
Total Current Liabilities 1,689,013 1,667,285
Long Term Liabilities
Note Payable Lincoln Navigator 26,463 --0--
Stockholders' Equity
Common Stock , $.001 par value,
50,000,000 shares authorized and
5,410,000 issued 5,410 5,000
Paid in capital in excess of par value 2,089,923 856,629
Retained Earnings (3,269,253) (2,389,167)
-------------- --------------
Total Stockholder's Equity (1,173,920) (1,527,537)
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 541,556 $ 139,747
============== ==============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
Clements Golden Phoenix Enterprises, Inc.
STATEMENT OF OPERATIONS-CONSOLIDATED
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND FOR YEAR ENDED DECEMBER 31, 1999
March 31,2000 December 31,1999
----------------- ------------------
<S> <C> <C>
REVENUE
Consulting Fee $ 55,000
State Reimbursement 10,000
Miscellaneous -0- 1,530
----------------- ------------------
Total Revenue 66,530
PURCHASES
Purchases Fruit 172 538
Shipping, Packaging, Storage 97,702 1,532
Contract Labor 500 39
-------------------- ------------------
Total Purchases 98,374 2,109
-------------------- ------------------
Gross Profit Margin (98,374) 64,421
GENERAL AND ADMINISTRATIVE EXPENSES
Bank Charge 1,619 6,929
Auto-Truck 8,073 -0-
Consulting Fees -0- 19,200
Commission 5,000 -0-
Depreciation 2,137 2,029
Dues and Subscriptions 330 10,676
Donation 10,235 150
Interest Expense 41,236 115,215
Insurance 8,015 755
Legal & Accounting Fees 34,178 21,066
License, Permits & Fees 2,468 175
Management Fees -0- 250,740
Market Research & Development 531,220 710,826
Office 5,014 3,666
Organizational Cost -0- 1,350
Postage & Express Mail 1,715 10,642
Printing & Copies -0- 10,274
Salaries 97,785 17,243
Rent 7,062 7,208
Repair & Maintenance 509 -0-
Tax-Payroll 8,570 1,564
Tax-Other 73 -0-
Telephone 10,856 7,269
Travel and Entertainment 4,744 11,812
Meals 2,224 387
Utilities 404 967
-------------------- ------------------
Total Administrative Expenses 783,467 1,210,143
-------------------- ------------------
Net Loss Before Other Income (881,841) (1,145,722)
-------------------- ------------------
OTHER INCOME
Interest Income 1,756 4,445
-------------------- ------------------
Net Loss $ (880,085) $ (1,141,277)
==================== ==================
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
Clements Golden Phoenix Enterprises, Inc.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY-CONSOLIDATED
MARCH 31, 2000 and DECEMBER 31, 1999
COMMON ADDITIONAL RETAINED
STOCK PAID IN CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C>
Balance January 1, 1999 $ 100 $ 804,159 $ (1,254,240) $ ( 449,981)
Net Loss (1,134,927) (1,134,927)
Clements Citrus Sales Stock (100) (100)
Sale of Stock 5,000 5,000
Additional Paid in Capital 52,470 52,470
----------- -------------- --------------- ------------
Balance December 31, 1999 $ 5,000 $ 856,629 $ (2,389,167) $(1,527,538)
Net Loss ( 880,086) ( 880,086)
Sale of Stock 410 410
Additional Paid in Capital 1,233,294 1,233,294
----------- -------------- --------------- ------------
Balance March 31, 2000 $ 5,410 $ 2,089,923 $ (3,269,253) $(1,173,920)
=========== ============== =============== ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
Clements Golden Phoenix Enterprises, Inc.
STATEMENT OF CASH FLOWS-CONSOLIDATED
FOR THE MONTH ENDED MARCH 31, 2000 AND YEAR ENDED DECEMBER 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIES March 31, 2000 December 31, 1999
<S> <C> <C>
Net Loss $ (880,085) $ (1,141,277)
Adjustments to reconcile net income to net
Cash provided by operating activities
(Increase) decrease in:
Depreciation 2,137 2,029
Receivable Interest (1,239) (4,445)
Due from Golden Phoenix 36 (36)
Inventory-Frozen Concentrate 2,965 (30,718)
Display Items -0- (301)
Note Receivable (14,440) 7,500
Prepaid Membership Dues -0- 10,417
Marketing Materials -0- (19,080)
Retainers Consulting - Marketing (103,000) -0-
Deposit Utilities -0- (480)
Increase (Decrease ) in:
Account Payable (45,410) 174,496
Payroll Taxes Payable 17,775 2,997
Health Insurance Payable 1,237 -0-
Accrued Interest payable (34,616) 92,527
----------------- -----------------
NET CASH USED BY OPERATING ACTIVITIES (1,054,640) (906,371)
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment (58,312) (5,490)
----------------- -----------------
NET CASH USED BY INVESTING ACTIVITIES (58,312) (5,490)
CASH FLOWS FROM FINANCING ACTIVITIES
Convertiable Note 125,000 -0-
Subscription Payable 3,100 -0-
Loan Payable Navigator 38,229 -0-
Loan Payable-Shareholders (57,125) 857,235
Common Stock 410 5,000
Additional Paid in Capital 1,233,294 58,720
----------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,342,908 920,955
----------------- -----------------
NET INCREASE IN CASH 229,956 9,094
CASH AT BEGINNING OF YEAR 10,495 1,401
----------------- -----------------
CASH AT END OF YEAR $ 240,451 $ 10,495
----------------- -----------------
</TABLE>
Supplemental information
Interest expense 1999 $ 115,215
Interest expense 2000 $ 41,236
See accompanying notes to financial statements.
F-5
<PAGE>
Clements Golden Phoenix Enterprises, Inc.
March 31, 2000
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary Of Significant Accounting Policies:
Nature of Operations
The company operates as a Florida corporation with a goal to developing
the China market which has just been open to the United States citrus
industry. It has been working toward this end by committing to pursue
the proven protocols of Chinese relations and negotiating successfully
to send Florida citrus into China. The company is pursuing these goals
by acquiring the help of leading consultants in this field. The company
is following the consultants lead in this endeavor.
The company has shipped fresh citrus from the current citrus season and
in the next citrus season will continue to ship fresh fruit. In
addition, the company will continue to develop there Brand name of
citrus concentrate juice to China and Southeast Asia. The market has
the potential to be one of the largest in the world.
Clements Golden Phoenix Enterprises, Inc. acquired Clements Citrus
Sales of Florida, Inc. on December 31, 1999. The company became a
wholly owned subsidiary of Clements Golden Phoenix Enterprises, Inc.
Clements Citrus Sales of Florida, Inc. was incorporated in the State of
Florida on August 5, 1997.
Fixed Assets
Fixed assets are carried at cost. Depreciation of equipment is provided
using the straight-line method. The rate is based on a useful life
ranging from 3 to 10 years. Depreciation taken for the three months
ended March 31, 2000, is $2,137 and for the year ended December 31,
1999, is $ 2,029.
Income Taxes
The Clements Citrus Sales of Florida, Inc., with the consent of its
shareholders, had elected under the Internal Revenue Code to be an S
corporation. In lieu of corporation income taxes, the shareholders of
an S corporation are taxed on their proportionate share of the
Company's taxable income. Clements Golden Phoenix Enterprises, Inc.,
is a C corporation and Clements Citrus Sales of Florida, Inc. has
applied to the Internal Revenue Service to rescind the S election. No
provision for taxes have been made in these financial statements due
to the losses incurred in opening China markets.
F-6
<PAGE>
Clements Golden Phoenix Enterprises, Inc.
March 31, 2000
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies (continued)
Going Concern
The Company's financial statements are prepared using generally
accepted accounting principles applied to a going concern which
contemplates the realization of assets and liquidation of liabilities
in the normal course of business. The Company has incurred losses for
the three months ended March 31, 2000 and the year ended December 31,
1999. It has not established revenues sufficient to cover operating
costs and to allow it to continue as a going concern. Management has
secured a private placement of its stock so that it will be able to
continue as a going concern. Management also plans for a follow-up
offering in a secondary market in the near term. In the event such
efforts are unsuccessful, contingent plans have been arranged to
provide that the current shareholders of the Company have expressed an
interest in additional funding if necessary to continue the Company as
a going concern.
Cash
Cash is being held in a checking and savings account, except for a
petty cash fund. The bank savings account pays interest at
approximately 2.5 % per annum.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Basis of Consolidation
The consolidated financial statements include the accounts of Clements
Citrus Sales of Florida, Inc. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Inventory-Frozen Concentrate
The inventory consist of frozen orange juice concentrate that can be
shipped to China in refrigerated containers.
Note 2 - Loan Receivable Shareholder
Loan receivable shareholder is made up of funds disbursed to Harry T.
Clements for various personal expenditures. The corporation is to be
reimbursed for this expenditure.
Note 3 - Marketing Material
Marketing Materials is made up of items and designs that will be used
in marketing the citrus in China.
F-7
<PAGE>
Clements Golden Phoenix Enterprises, Inc.
March 31, 2000
NOTES TO FINANCIAL STATEMENTS
Note 4 - Accrued Interest Payable
Interest was accrued on the Loans Payable - Rizzuti, Loeffelbein,
Sellian, Samartine, and Ludlum for the three months of 2000, and the
year of 1999. The interest was calculated at 12% percent per annum and
is payable on a semi-annual basis. Payment of interest is to be made
when funds are available. The interest may be paid from stock
subscription funds.
Note 5 - Loan Payable Navigator
The company purchased a 2000 Lincoln Navigator with a note for $38,229,
payable in installment payments of $1,200 per month. The loan is for
three years with an interest rate of 7.99% per annum the payments will
be $ 11,996 for 2000, $14,395 for 2001, $14,395 for 2002, and $2,325
for 2003.
Note 6 - Loan Payable-Rizzuti, Loeffelbein, Sellian, Samartine, Ludlum
The shareholders have loaned the company money for advancement of the
development of the Chinese citrus market. The promissory notes are with
a stated interest rate of 12% per annum. The principal are due and
payable on demand. The interest will be paid when the corporation has
income.
Note 7 - Convertible Note
Clements Golden Phoenix Enterprises, Inc., has entered into two
convertible notes, one for $31,250 with Bassuener Cranberry
Corporation, and one for $93,750 with Ranger Cranberry Company, LLC,
with a stated interest rate of 12% per annum. Interest is due quarterly
on the unpaid principal balance. The unpaid principal may be converted
into shares of the restricted common stock of the company at the sold
option of the payee on or before January 13, 2003. If not converted it
shall be due in the form of a " balloon payment" on the maturity date.
Note 8 - Leasing Arrangements
The company leased 1,950 square feet of office space June 1, 1999, for
one year with a renewal for an additional term of two years. The
minimum annual rent is $22,800 plus sales tax. The company is
responsible for repair and upkeep of the office. The utilities are
additional cost. The company did not pay rent per the agreement for the
first months the office was open. Monthly rental from January 1, 2000,
to May 31, 2000, will be $2,200 per month plus sales tax. The renewal
in May was in like terms for an additional two years.
F-8
<PAGE>
Clements Golden Phoenix Enterprises, Inc.
March 31, 2000
NOTES TO FINANCIAL STATEMENTS
Note 9 - Subsequent Events
The corporation has entered into a distribution agreement with
Qinhuangdao RutherSoft a Chinese distributor for the exclusive right to
sell Clements Brands Fresh Citrus Fruits and to develop markets within
the designated sales district limited to the provinces of Shanxi,
Henan, Heilongjiang, Jilin, Liaoning, Shaanxi, Hubei, Anhui, Sichuan,
Hunan and Hebei as well as the municipalities of Beijing and Shanghai.
The agreement was entered into on May 16, 2000.
The corporation in April of 2000, purchased a Lincoln Navigator with an
installment loan of $43,111, payable in three years with an interest
rate of 7.99%per annum. The payments are $1,200. per month. The
payments due in 2000 are $ 9,599, 2001 payments are $14,398, 2002 are
$14,398, and 2003 are $4,715.
F-9
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
(a) Set forth below are the names, ages, positions, with the Company
and business experiences of the executive officers and directors of the Company.
Name Age Position(s) with Company
----------------------- --- ----------------------------
Henry T. "Skip" Clements 48 Chairman, President and CEO
Joseph Rizzuti 39 V.P., Treasurer, COO and Director
Bonnie Ludlum 57 Secretary, Director
John Samartine 52 Director
All directors hold office until the next annual meeting of the
Company's shareholders and until their successors have been elected and qualify.
Officers serve at the pleasure of the Board of Directors. The officers and
directors will devote such time and effort to the business and affairs of the
Company as may be necessary to perform their responsibilities as executive
officers and/or directors of the Company.
Family Relationships
There are no family relationships between or among the executive
officers and directors of the Company.
Business Experience
Henry T. "Skip" Clements, age 48, graduated from Florida Atlantic
University in 1974. In 1974 he worked in a concentrate orange juice facility in
Fort Pierce, Florida as a Production Supervisor. After two (2) years, he was
promoted to Production Manager, whose responsibilities included the development
of production schedules, harvesting schedules and managing the day to day
operations of the production facility. In 1976, Mr. Clements and four (4)
partners, purchased a fresh citrus packing facility in Fort Pierce. Within six
(6) years, he built the business to become the ninth (9th) largest volume
packing facility in the state of Florida. As an owner/manager, his
responsibilities included securing and meeting export sales, the purchasing of
on-tree fruit, scheduling and overseeing production runs and overall management
of seventy- five (75) employees. In 1984, after several months of intense
negotiations with the government of Italy, Mr. Clements was given permission to
ship fresh grapefruit into Italy. The only American permitted to do so, his firm
controlled eighty percent (80%) of the Italian grapefruit market for three (3)
years. He marketed and promoted Indian River Citrus in Italy by developing
relations with retailers, wholesalers and distributors and by educating them on
the proper care and handling of the citrus products. Mr. Clements successfully
grew the business to over 500,000 cartons annually.
<PAGE>
In 1986 Mr. Clements designed and built the largest commercial citrus
packing facility in the state of Florida for Cincinnati based United Brands
(Chiquita). This facility was computer controlled and capable of producing three
million (3,000,000) cartons of product per season. Mr. Clements was Vice
President and General Manager of the plant and was responsible for successfully
running the operations profitably in its first year of operations.
Mr. Clements' primary responsibilities include the ongoing
relationship development with Chinese distributors and local and federal
government officials. Having first broken through the trade barriers imposed by
China by receiving a permit to export Clements Citrus products to China in
September 1999, Mr. Clements is also responsible for the development and
expansion of the Citrus market within China. He is currently working with
Chinese officials in helping them to develop the necessary guidelines for
agricultural products to be imported and exported in and out of China.
Joseph Rizzuti, age 39, received a degree in Business Administration
with a major in Accounting from The State University of New York College at
Brockport in 1983. Mr. Rizzuti is a public accountant and the Principal of
Beacon Accounting Services, Inc. in Palm City, Florida. He has worked in
accounting and as a financial consultant for fifteen (15) years. Additionally,
Mr. Rizzuti is the former owner of an air freight company which specializes in
overnight express delivery both domestically and internationally. His company
was based out of Raleigh, North Carolina and within two (2) years increased
shipment count by four hundred percent (400%). In 1996, Mr. Rizzuti joined
Plastics Auxiliaries Magazine ("PAM") located in Tequesta, FL. PAM has become
the largest plastics industry publication. After joining at its inception, he
worked in various management positions at PAM where he eventually became CFO,
and was responsible for positioning the company for a successful sale.
Mr. Rizzuti's responsibilities include the ongoing development of
internal controls and organizational structure to facilitate and execute the day
to day operations of the company. Mr. Rizzuti oversees the different operating
divisions including the coordination of joint venture partners and the
implementation of their products and services into the Company's distribution
network throughout China.
Bonnie Ludlum, age 57, is a former Vice President of the First
National Bank and Trust Company of Stuart, located in Stuart, FL in the
Comptrollers Division. Her responsibilities included all accounting and
budgeting functions, management information systems, corporate leasing and
branch placement and building activities. She was also an active member of the
Banks Budgeting and Pricing Committees. In 1994, Mrs. Ludlum joined her
husband's construction company, Ludlum Construction Co., Inc. as Controller for
three (3) years, whereafter the company was sold. Ms. Ludlum is the
granddaughter of Mr. William Irwin Fee, who was the founder, secretary and
treasurer of the Indian River Citrus League. In 1930, Mr. Fee, after nineteen
(19) months of correspondence with the Federal Trade Commission, obtained an
order which gave the citrus growers of the Indian River District the exclusive
rights to use the term "Indian River" in their marketing of citrus fruit.
<PAGE>
John Samartine, age 52, Northeast Louisiana State University between
1966 and 1968. Between 1968 and 1972, he served as an E-5 Jet Mechanic in the
United States Navy. Between 1972 and 1996, he worked for United Parcel Service,
first as a driver, then as a supervisor and finally as a Division Manager
between the years of 1991 and 1996. He retired from United Parcel Service in
1996.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
No Director, Officer, Beneficial Owner of more than ten percent (10%)
of any class of equity securities of the Company failed to file on a timely
basis reports required by Section 16(a) of the Exchange Act during the most
recent fiscal year or prior fiscal years.
Item 10. Executive Compensation
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Name and Year Annual Annual Annual LT LT LTIP All Other (1)
Post Comp Comp Comp Comp Comp Payouts
Salary Bonus Other Rest Options
(1) ($) Stock
Henry T. 1999 $0 (2)
"Skip"
Clements, 2000 $125,000
Chairman,
President
and CEO
Joseph 1999 $0 (2)
Rizzuti, V.P.
Treasurer, 2000 $125,000
COO and
Director
Bonnie 1999 $0 (2)
Ludlum,
Secretary, 2000 $0
Director
John 1999 $0 (2)
Samartine,
Director 2000 $0
</TABLE>
(1) All other compensation includes certain health and life insurance benefits
paid by the Company on behalf of its employees.
<PAGE>
(2) On December 31, 1999, the Company, CCSF and the Holders consummated the
Agreement. Pursuant to the Agreement, the Holders tendered to the Company
all issued and outstanding shares of common stock of Clements Citrus Sales
of Florida, Inc. in exchange for 3,750,000 Shares of Common Stock of the
Company. The reorganization is being accounted for as a reverse
acquisition.
In connection with the Agreement, John Samartine, a Director, was issued
175,000 shares, Bonnie Ludlum, the Company's current Secretary and a
Director, was issued 175,000 shares, Joseph Rizzuti, the Company's current
Vice-President, Chief Operating Officer, Treasurer and a Director, was
issued 700,000 shares and Henry T. Clements, the Company's current
Chairman, President and Chief Executive Officer was issued 1,575,000
shares. See Part III, Item 11. "Security Ownership of Certain Beneficial
Owners and Management"; and Part III, Item 12. "Certain Relationships and
Related Transactions".
Compensation of Directors
The Company has no standard arrangements for compensating the
directors of the Company for their attendance at meetings of the Board of
Directors.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of April 27, 2000,
regarding the ownership of the Company's Common Stock by each shareholder known
by the Company to be the beneficial owner of more than five percent (5%) of its
outstanding shares of Common Stock, each director and all executive officers and
directors as a group. Except as otherwise indicated, each of the shareholders
has sole voting and investment power with respect to the share of Common Stock
beneficially owned.
Name and Address of Title of Amount and Nature of Percent of
Beneficial Owner Class Beneficial Owner Class
--------------------------------------------------------------------------------
Henry T. "Skip" Clements(1)(2) Common 1,529,000 27.8%
Joseph Rizzuti(1)(2) Common 700,000 12.7%
Bonnie Ludlum(1)(2) Common 175,000 3.2%
John Samartine(1)(2) Common 175,000 3.2%
Edward Sellian(1) Common 700,000 12.7%
All Executive Officers and Common 2,579,000 46.9%
Directors as a Group
(Four (4) persons)
-------------------
<PAGE>
(1) The address for each of the above is c/o Clements Golden Phoenix
Enterprises, Inc., 3135 Southwest Mapp Road, P.O. Box 269, Palm City, FL
34991.
(2) On December 31, 1999, the Company, CCSF and the Holders consummated the
Agreement. Pursuant to the Agreement, the Holders tendered to the Company
all issued and outstanding shares of common stock of Clements Citrus Sales
of Florida, Inc. in exchange for 3,750,000 Shares of Common Stock of the
Company. The reorganization is being accounted for as a reverse
acquisition.
In connection with the Agreement, John Samartine, a Director, was issued
175,000 shares, Bonnie Ludlum, the Company's current Secretary and a
Director, was issued 175,000 shares, Joseph Rizzuti, the Company's current
Vice-President, Chief Operating Officer, Treasurer and a Director, was
issued 700,000 shares and Henry T. Clements, the Company's current
Chairman, President and Chief Executive Officer was issued 1,575,000
shares. See Part III, Item 12. "Certain Relationships and Related
Transactions".
There are no arrangements which may result in the change of control
of the Company.
Item 12. Certain Relationships and Related Transactions
The Company received a total of $19,200.00 ($0.04 per share) from the
sale of a total of 480,000 shares of Common Stock, $.001 par value per share
(the "Common Stock"), in a self- underwritten offering conducted pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the "Act"), and Rules
505 and 506 of Regulation D promulgated thereunder. This offering was made in
the State of Georgia and the State of Florida to a total of 24 individuals
investors. The Company undertook the offering of shares of Common Stock on June
1, 1999, and did not pay any underwriting discounts or commissions. The Company
claimed the exemption from registration in connection with each of the offerings
under Sections 3(b) and 4(2) of the Act and Rules 505 and 506 promulgated
thereunder, Section 10-5-9(13) of the Georgia Code and Section 517.061(11) of
the Florida Code.
On December 31, 1999, the Company, CCSF and the Holders consummated
the Agreement. Pursuant to the Agreement, the Holders tendered to the Company
all issued and outstanding shares of common stock of Clements Citrus Sales of
Florida, Inc. in exchange for 3,750,000 Shares of Common Stock of the Company.
The reorganization is being accounted for as a reverse acquisition.
In connection with the Agreement, John Samartine, a Director, was
issued 175,000 shares, Bonnie Ludlum, the Company's current Secretary and a
Director, was issued 175,000 shares, Joseph Rizzuti, the Company's current
Vice-President, Chief Operating Officer, Treasurer and a Director, was issued
700,000 shares and Henry T. Clements, the Company's current Chairman, President
and Chief Executive Officer was issued 1,575,000 shares.
Prior to the reorganization the Company effected a forward split of
its Common Stock at the rate of 3 to 1, for holders of record on December 30,
1999, with distribution effective January 18, 1999. Total issued and outstanding
stock following the forward split and after effecting the Agreement was
5,000,000.
<PAGE>
In January 2000, the Company issued convertible notes to two (2)
investors for a total of $125,000. The term of the notes is for a period of
three (3) years, and are convertible at any time, in the sole discretion of the
noteholders to shares of the Company's restricted Common Stock at a price of $3
per share. Both notes bear interest at a rate of twelve percent (12%) per annum.
Interest is payable quarterly in either cash or shares of the Company's
restricted Common Stock in the sole discretion of the payee. For such offering,
the Company relied upon Section 4(2), Rule 506, and Section 551.29(2) of the
Wisconsin Code.
Since January 2000, the Company has sold 455,858 shares of its Common
Stock to one hundred eleven (111) investors. For such offering the Company
relied upon Section 4(2) of the Act, Rule 506, Section 11-51-308(1)(p) of the
Colorado Code, Section 517.061(11) of the Florida Code, Section 10-5-9(13) of
the Geogia Code, Section 402(b)(9) of the Massachusetts Code, Rule 803.7 and
Section 402(b)(21) of the Michigan Code, Section 359(f)(2)(d) of the New York
Code, Section 49:3-50(b)(9) of the New Jersey Code, Rule .1211. of the North
Carolina Code, Section 109.13 of the Texas Code, Rule 21 VAC 5-40-120 of the
Virginia Code and Section 551.29(2) of the Wisconsin Code.
In March 2000, the Company issued a convertible note to one (1)
investor for $100,000. The term of the note is for a period of one (1) year, and
is convertible at any time, in the sole discretion of the noteholders to shares
of the Company's restricted Common Stock at a price of $5 per share. The note
bears interest at a rate of twelve percent (12%) per annum. Interest is payable
quarterly in either cash or shares of the Company's restricted Common Stock in
the sole discretion of the payee. For such offering, the Company relied upon
Section 4(2), Rule 506, and Section 359(f)(2)(d) of the New York Code.
Item 13. Exhibits and Reports on Form 8-K.
(a) The exhibits required to be filed herewith by Item 601 of Regulation S-B, as
described in the following index of exhibits, are incorporated herein by
reference, as follows:
<PAGE>
<TABLE>
<S> <C>
Exhibit No. Exhibit Name
-------------- ---------------------
3.(i).1 [1] Articles of Incorporation of The Silk Road Renaissance Company filed July 5, 1994.
3.(i).2 [1] Articles of Amendment to Articles of Incorporation changing the name to Gillette
Industries Group, Inc. filed December 5, 1994.
3.(i).3 * Articles of Amendment to Articles of Incorporation changing the name to Lucid
Concepts, Inc. filed June 3, 1999.
3.(i).4 * Articles of Amendment to Articles of Incorporation changing the name to Clements
Golden Phoenix Enterprises, Inc. filed January 4, 2000.
3.(ii).1 [1] Bylaws of the Company.
4.1 * Convertible Note between the Company and Bassuener Cranberry Corporation dated
January 13, 2000.
4.2 * Convertible Note between the Company and Ranger Cranberry Company, LLC dated
January 13, 2000.
4.3 * Convertible Note between the Company and Philip Taurisano dated March 1, 2000.
10.1 [2] Share Exchange Agreement between the Company and Clements Citrus Sales of
Florida, Inc. dated December 31, 1999.
10.2 * Exclusive Distributorship Agreement between Clements Citrus Sales of Florida, Inc.
and Hongrun Trade Co., Ltd. dated September 29, 1999.
10.3 * Exclusive Distributorship Agreement between Clements Citrus Sales of Florida, Inc.
and Qinhuangdao RutherSoft dated May 16, 2000.
10.4 * Lease between Clements Citrus Sales of Florida, Inc. and Edward Sellian for the
premises located at 32C East Osceola Street, Stuart, FL 34996.
27.1 * Financial Data Schedule.
</TABLE>
----------------
(* Filed herewith)
[1] Previously filed with the Company's Form 10SB filed August 24, 1999
[2] Previously filed with the Company's report on Form 8-K filed January 12,
2000.
(b) A report on Form 8-K was filed on January 12, 2000 reporting the Share
Exchange conducted between the Company and Clements Citrus Sales of Florida,
Inc. on December 31, 1999. An amended report on Form 8-KA was filed on February
28, 2000 which included the required financial statements of Clements Citrus
Sales of Florida, Inc. Another report on Form 8-K was filed on April 18, 2000
changing the Company's fiscal year to March 31.
<PAGE>
SIGNATURES
In accordance with Section 13 and 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Clements Golden Phoenix Enterprises, Inc.
(Registrant)
Date: July 11, 2000 By: /s/ Henry T. Clements
--------------------------------------------------------
Henry T. "Skip" Clements, Chairman, President and CEO
By: /s/ Joseph Rizzuti
--------------------------------------------------------
Joseph Rizzuti, V.P., Treasurer, COO and Director
By: /s/ Bonnie Ludlum
--------------------------------------------------------
Bonnie Ludlum, Secretary and Director
By: /s/ John Samartine
--------------------------------------------------------
John Samartine, Director
Pursuant to the requirements of the Exchange Act, this report has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ Henry T. Clements Chairman, President and CEO July 11, 2000
-----------------------------
Henry T. "Skip" Clements
/s/ Joseph Rizzuti V.P., Treasurer, COO and Director July 11, 2000
-----------------------------
Joseph Rizzuti
/s/ Bonnie Ludlum Secretary and Director July 11, 2000
-----------------------------
Bonnie Ludlum
/s/ John Samartine Director July 11, 2000
-----------------------------
John Samartine
</TABLE>
