UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20529
FORM 10-SB/A
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AMENDMENT #5
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TRIMFAST GROUP, INC.
(Name of Small Business Issuer)
NEVADA 88-0367136
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 S. Harbour Island Blvd. Suite 780, Tampa, Florida 33602
(Address of principal executive offices)
(813) 275-0050
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
Title of each class to Name of Each Exchange
be registered
None
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 Par Value
TABLE OF CONTENTS
Part I Page
Item 1. Description Of Business. . . . . . . . . . . . . . . . . . . . 2
Item 2. Management's Discussion And Analysis Or Plan Of Operation .. . 19
Item 3. Description Of Property. . . . . . . . . . . . . . . . . . . . 24
Item 4. Security Ownership Of Certain Beneficial Owners And Management 24
Item 5. Directors, Executive Officers, Promoters And Control Persons . . 26
Item 6. Executive Compensation. . . . . . . . . . . . . . . . . . . . . 27
Item 7. Certain Relationships And Related Transactions. . . . . . . . . 29
Item 8. Description Of Securities . . . . . . . . . . . . . . . . . . . 29
Part II
Item 1. Market For Common Equity And Related Stockholder Matters . . . 38
Item 2. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 40
Item 3. Changes In And Disagreements With Accountants. . . . . . . . . 43
Item 4. Recent Sale Of Unregistered Securities . . . . . . . . . . . . 43
Item 5. Indemnification Of Directors And Officers. . . . . . . . . . . 47
Part III
Index To Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Part F/S Financial Statements . . . . . . . . . . . . . . . . . . . . . 50
References in this document to "us," "we," or "the Company" refer to
TrimFast Group, Inc., its predecessors and its subsidiaries.
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development.
We were incorporated in the State of Nevada on February 23, 1987 as Kendrex
Systems, Inc. On November 18, 1996, we reverse split our common stock. We
issued one (1) new share of our common stock in exchange for five (5)
outstanding shares of our common stock.* On the same day, we entered into a
reverse acquisition with HLHK World Group, Inc. (hereinafter "World Group"), a
Nevada corporation, and subsequently changed our name to HLHK World Group, Inc.
World Group was in the business of telecommunications, which was an area in
which we wished to pursue the available opportunities. Pursuant to the terms of
this acquisition, we issued 6,000,000 of our post-split common shares to the
shareholders of World Group plus 250,000 of our post-split shares as finder's
fees. As a result of this transaction, World Group became our wholly owned
subsidiary.
On August 12, 1998, we acquired TrimFast, Inc., which was incorporated in the
State of Florida on April 28, 1991, in a common stock for common stock exchange.
Pursuant to the terms of this transaction, we issued 1,370,049 shares of our
common stock to the shareholders of Trimfast, Inc. As a result of the exchange,
Trimfast, Inc. became our wholly owned subsidiary. Trimfast, Inc.'s
stockholders became stockholders of approximately 60.42% of our common stock,
which represented 1,370,049 shares of our total 2,268,298 issued and outstanding
shares just subsequent to the exchange. As such, the shareholders of Trimfast,
Inc. obtained control of our Company, and Trimfast, Inc. became our wholly
owned subsidiary. On September 4, 1998, we changed our name to TrimFast Group,
Inc. We continued the operations of Trimfast, Inc. As such, the accounting and
disclosure throughout this document reflects Trimfast, Inc. as the surviving
corporation.
Prior to and at the time of this transaction, Trimfast, Inc. was engaged in the
business of formulating and distributing dietary and vitamin supplements. We
entered into the transaction with Trimfast, Inc. because we believed that the
nutrition and vitamin supplement field represented a business opportunity for
us. On December 20, 1998 we reverse split our common stock. We issued one (1)
new share of our common stock in exchange for ten (10) outstanding shares of our
common stock.*
(* Both reverse stock splits are reflected in the numbers and calculations
throughout this document, unless otherwise indicated.)
On September 4, 1998, we incorporated Body Life Sciences, Inc. (hereinafter
"Body Life"), a Florida corporation, as a wholly owned subsidiary of Trimfast,
Inc. We formed this subsidiary in order to expand our business by offering
products under the Body Life trade name.
On March 18, 1999, we acquired IMMMU, Inc. (hereinafter "IMMMU"), a Delaware
corporation, and IMMCEL Pharmaceuticals, Inc. (hereinafter "IMMCEL"), a New York
corporation. Both companies were engaged in the business of developing and
marketing nutritional supplements manufactured by third parties. Pursuant to the
terms of this acquisition, IMMMU and IMMCEL became our wholly owned
subsidiaries. We issued 235,000 shares of our common stock, $50,000 in cash, an
option agreement based upon performance criteria and an employment agreement
pursuant to the terms of the agreement.
We rescinded these acquisitions effective November 1, 1999. In accordance with
a rescission agreement dated October 23, 1999 the following consideration was
returned and delivered on November 30, 1999, as follows: (i) from our Company to
the prior shareholders of IMMMU and IMMCEL, Leo Ehrlich, Helenka Bodner and
Joseph Levi, stock certificates reflecting 200 shares each of IMMMU and IMMCEL,
representing all of the outstanding shares of those corporations; and (ii) to
our Company, stock certificates reflecting 150,750 shares, 60,750 shares and
13,500 shares of our restricted common stock, respectively from prior IMMMU and
IMMCEL shareholders, Bodner, Ehrlich and Levi. In addition, on November 12,
1999, the $50,000 cash payment was returned to us by IMMMU shareholders Bodner,
Ehrlich and Levi, and on November 15, we received the final 10,000 free trading
shares of our common stock from Moishe Bodner.
From our operations of IMMMU/IMMCEL we had a loss of $88,830. We maintained
sufficient reserves to cover this loss from our accumulated deficits. To date,
we have received no amounts from IMMMU/IMMCEL to reimburse us for such loss.
Because we believe that IMMMU/IMMCEL does not have funds available to reimburse
us for any loss from operations, which we incurred as a result of the
transaction, we have not made a demand from them to reimburse us for our loss
from operations.
When we entered into the IMMMU/IMMCEL agreement, we believed that the
acquisitions of these companies would enhance our product lines. However,
approximately six months after entering into this agreement, we were unable to
obtain audited financial statements for the acquired companies. As such, our
management deemed it in our best interest to rescind the transactions. We
rescinded the transaction because:
i) These companies may have had undisclosed liabilities;
ii) We were unable to verify inventory; and
iii) We were unable to verify previous sales.
As a result of the rescission, we have no formal agreement to sell IMMMU and
IMMCEL products in the United States. This rescission has reduced our product
line by approximately 18 products. We do not feel this will have a materially
adverse effect on our operations given the short period of time in which these
companies were our subsidiaries.
Despite the above, management believed that the products of IMMMU would enhance
our product line. Our management deemed it in our best interest to enter into a
distribution agreement with IMMMU to sell their products in Canada. On November
1, 1999, we entered into an exclusive distributor agreement with IMMMU, Inc.
Such agreement provides that IMMMU appoints us as the exclusive distributor of
products in Canada. Under the agreement, we may market, sell, and distribute
IMMMU products pursuant to a pricing structure set forth by IMMMU. The
compensation provision for the Canadian distribution agreement is verbal and
requires us to pay IMMMU 12% of our sales of IMMMU products. The agreement
includes provisions that we will be indemnified by IMMMU for any loss, damages,
claim or settlement that may arise out of any defect, known or unknown, in any
of the products at the time of manufacture, assuming no material alteration of
the product occurred after manufacture. There is no assurance that IMMMU will
have sufficient assets or insurance coverage to indemnify us against any such
liabilities. The agreement is for a term of November 1, 1999 through December
31, 2001 with automatic renewals. Either party may terminate the agreement on
thirty days written notice.
On March 18, 1999, we entered into a written agreement with Aryeh Trading, Inc.,
a third party investment group and formerly one of our market makers, providing
that: (i) Aryeh would purchase shares of our stock in the open market having
an aggregate value of no less than $300,000; (ii) Aryeh would purchase 300,000
shares of our common stock from us at a price of $4.00 per share according to
a stipulated schedule based on the average market price of the outstanding
shares. The purposes of the Aryeh Trading agreement included to obtain capital
for the Company by buying shares from the Company and for Aryeh to purchase
other free trading shares of the Company's common stock for its inventory
account to sell to its clients. On March 30, 1999, we entered into a written
agreement with Aryeh which added terms to the March 18th agreement. The purpose
of the March 30th agreement was to clarify that Aryeh trading would purchase
the full 300,000 shares issued to them for $1,200,000. Additional clauses were
added to restrict Aryeh's ability to sell these shares prior to the entire
$1,200,000 purchase being completed.In consideration of this clause the Company
agreed to indemnify and hold Aryeh harmless from any federal income tax
liability should the Internal Revenue Service determine that Aryeh's basis in
the stock was less than $4.00 per share. Since the Company asserts that Aryeh
Trading never fully performed on the March 18th agreement, the Company's
position was that the March 30th agreement is unenforceable as to the tax
indemnification.
From May 13, 1999 to July 20, 1999, Aryeh purchased 155,000 shares from us at
$4.00 per share for a total purchase price of $620,000. As a result the 300,000
share certificate held in escrow was returned to the Company and a new
certificate was issued and delivered for 155,000 shares on July 13, 1999.
On July 13, 1999 we issued 155,000 restricted shares of our common stock for
$4.00 each to Aryeh Trading. On October 22, 1999 the Company entered into a
stock repurchase agreement with Aryeh Trading where we agreed to repurchase the
155,000 shares at $8.25. Our intent was to repurchase these shares at the market
value for cash. The agreement sets out a schedule for repurchase and the shares
were to be fully repurchased by December 15, 1999. If the shares were not
repurchased by December 15th the Company agreed to a $0.25 per share premium for
each two weeks subsequent to December 15th. On November 10, 1999 the Company
entered into an agreement with Aryeh Trading to modify the repurchase schedule.
This agreement calls for the Company to repurchase all shares before January 25,
2000. Any shares not repurchased by January 25th are subject to a $0.25 per
share per month premium. As additional security, in the November 10th agreement
we pledged our warehouse facility located at 2555 Blackburn St., Clearwater,
Florida, the facility from which we operate Nutrition Cafe as security against
the October 22, 1999 purchase agreement.Our original commitment was at $8.25 per
share. As of December 31, 1999, we recorded a charge to additional paid-in
capital for the October 22, 1999 stock repurchase commitment for the 155,000
shares at $8.50 per share. As of July 25, 2000, the repurchase price had
increased by $1.25 since December 31, 1999 to $9.75 per share. The additional
$1.25, plus increases thereafter, is or will be treated for financial reporting
purposes as an expense rather as a reduction of paid-in capital. Redemption
accruals or payments will not be treated as an expense for tax purposes. To date,
we have not repurchased any of the 155,000 shares. The relevant agreements are
filed as Exhibits with Amendment No. 4 to the Company's Form 10-SB filed on June
6, 2000. See Part II. Item 2. "Legal Proceedings-Breach of Contract."
On April 21, 1999, we formed a wholly owned subsidiary Nutrition Cafe, Inc., a
Florida Corporation which operates a website NutritionCafe.com. The website is
designed to provide nutritional information, provide links to other informative
sites and to market and sell our products.
On May 24, 1999, we acquired certain assets of Ice Cold Water, Inc.
(hereinafter "Ice Water"), a Florida corporation incorporated on August 7, 1997,
including certain receivables, inventory, property, equipment, a customer list
and the name "Ice Cold Water" and all other intellectual property rights
associated with the name. We acquired these assets for $20,000 cash and a
promissory note in the amount of $100,000 bearing interest at 8.5% per annum and
due in four monthly installments of $25,000 plus accrued interest. The
installment payments commenced on June 10, 1999. The promissory note was
secured by 23,000 restricted shares of our common stock held in escrow. The
acquisition agreement provides in the event of our default upon the terms of the
agreement, we must release to Ice Water an amount of our restricted stock equal
to the outstanding principal and accrued interest balance. On November 22,
1999, the escrow agent was notified of a default upon the promissory note of
$30,881 and released 7,321 of our shares to satisfy the note. At the time of
this transaction, Ice Water was engaged in the business of selling bottled water
and leasing water coolers in Tampa, Florida and the surrounding metropolitan
areas. We entered into this transaction in order to expand our product line to
include water products, which would also complement our existing line of
nutritional supplements.
On November 7, 1999 Perfumania.com, Inc. signed a letter of intent to acquire
Nutrition Cafe.com. The letter of intent provides proposed terms in which
Perfumania.com., Inc. would acquire NutritionCafe.com from our company. The
Letter of intent provides that our company would sell to Perfumania.com, Inc.
all of the assets of NutritionCafe.com, including, but not limited to, goodwill,
trademarks, trade secrets, other proprietary information, domain trade
registrations, computer software and hardware and inventory. Perfumania.com,
Inc. would provide the Company with shares of their common stock valued at
$1,000,000 and $500,000 in cash consideration for the acquisition of
NutritionCafe.com. On January 13, 2000, we received notice from Perfumania.com,
Inc. that they would not be acquiring the assets of NutritionCafe.com and would
not otherwise pursue the acquisition of NutritionCafe.com from us.
On March 20, 2000, we consummated a stock exchange agreement with Nutrition
Superstores.com, Inc. to acquire one hundred per cent of the issued and
outstanding common stock of Nutrition Clubstores, Inc. in exchange for $150,000
and 570,000 shares of the our common stock valued at $4.80 per share based on
the average quoted trading price a few days before and after the announcement of
the transactions for a total of $2,886,000, which includes approximately $5,000
in transaction costs. As a result of the exchange, Nutrition Clubstores became
our wholly owned subsidiary. In the event that Nutrition Clubstores' net worth
as reflected on its audited financial statements, to be provided to us within 60
days of the closing date of this transaction, is less than 85% of the net worth
as reflected on its financial statements as of February 29, 2000, Nutrition
Superstores will receive one share less of our common stock for every $5.00
reduction or portion thereof in net worth. Under the terms of this agreement,
we agreed to pay a royalty fee of 3% of the gross sales revenues generated from
Nutrition Clubstores kiosks for a period beginning three months following the
closing date of the transaction and continuing for a period beginning three
months following the closing date and continuing for a period of twelve months
thereafter. We have thus far issued 570,000 shares and paid the $150.000.
On November 30, 1999, we received approval from the Deutsche Borse AG for our
stock to start trading on the Third Segment of the Frankfurt Stock Exchange. Our
common stock trades under the German trading symbol "TFT" .
On December 23, 1999, our company entered into a letter of intent to sign a
licensing agreement with Marvel Characters, Inc. (Marvel Comics) granting
Trimfast a license to market Spiderman's Children's Chewable Multi-Vitamin and
Mineral Supplement. On February 25, 2000 we signed the licensing agreement with
Marvel Enterprises, Inc.
The following are incorporated by reference herein:
Business Description.
I. Nutritional Product Line Activities.
We are engaged in the nutraceutical business. We formulate, distribute and
market natural dietary supplements and health and fitness products through
wholesale and retail outlets. Third parties do all manufacturing of our
products. We also distribute bottled water through our subsidiary Ice Water.
We sell approximately thirty-three (33) varieties of vitamins, nutritional
supplements, weight loss and muscle growth supplements and food supplements
under brand line names TrimFast, Body Life Sciences and IMMMU. TrimFast and Body
Life are our own product lines. We sell the IMMMU products through an exclusive
distributor agreement. (See this ITEM above). Products are formulated in
vitamins/minerals combinations with varying potency levels. They are offered in
soft-gel, two-piece capsule, chewable, and liquid and powder forms to
accommodate various consumer preferences.
There can be no assurances that any of our products will produce the desired
results since the consuming population is diverse in their physical,
psychological and mental makeup and differs in their metabolic rates, genetic
composition and other factors and hence there is no scientific basis for
believing that any of the desired results will be produced. Further, there have
been occurrences where ingredients in certain nutritional supplements have been
determined to be harmful when consumed by humans. We believe that our products
do not currently contain any ingredients not safe for human consumption, however
there is no assurance this assumption is correct. (See PART II, ITEM 2. Legal
Proceedings). Any product liability claims made against us could have an adverse
affect on our business. Many of the ingredients in our products are vitamins,
minerals, herbs and other substances for which there is not a long history of
human consumption. In addition, although we believe all of our products to be
safe when taken as directed by us, there is little experience with human
consumption of certain of these innovative product ingredients in concentrated
form.
Accordingly, no assurance can be given that our products, even when used
as directed, will have the effects intended or be safe for human consumption.
However, because we are highly dependent upon consumers' perception of the
safety and quality of our products as well as similar products distributed by
other companies (which may not adhere to the same quality standards as we do),
we could be adversely affected in the event any of our products or any similar
products distributed by other companies should prove or be asserted to be
harmful to consumers. In addition, because of our dependence upon consumer
perceptions, adverse publicity associated with illness or other adverse effects
resulting from consumers' failure to consume our products as we suggest or other
misuse or abuse of our products or any similar products distributed by other
companies could have a material adverse effect on the results of our operations
and financial condition.
We, like any other retailer, distributor and manufacturer of products that are
designed to be ingested, face an inherent risk of exposure to product liability
claims in the event that the use of our products results in injury. Such claims
may include, among others, that our products contain contaminants or include
inadequate instructions as to use or inadequate warnings concerning side effects
and interactions with other substances. With respect to product liability
claims, we have a product liability policy effective May 27,1999 covering
$1,000,000 per occurrence and $2,000,000 in aggregate liability insurance
subject to a self-insurance retention of $10,000. In addition, if such claims
should exceed $2,000,000, we have excess umbrella liability insurance of up to
$4,000,000. We also had received a certificate of insurance effective February
10, 1998 through February 10, 1999 under our third party manufacturer policy
covering $1,000,000 per occurrence and $2,000,000 in the aggregate; however, we
were denied all claims under this policy relating to the Revivarant product (See
item 3 Legal Proceedings). There can be no assurance that product liability
insurance will cover existing claims or continue to be available at a reasonable
cost, or, if available, will be adequate to cover liabilities. We generally do
not obtain contractual indemnification from parties supplying raw materials or
marketing our products. In any event, any such indemnification if obtained will
be limited by our terms and, as a practical matter, to the creditworthiness of
the indemnifying party. In the event that we do not have adequate insurance or
contractual indemnification, product liabilities relating to defective products
could have a material adverse effect on our results of operations, financial
condition and liquidity, including that we may be unable to continue in
business. See "Part II. Item 2. Litigation."
Specific Products.
The TrimFast Dietary Supplement, formerly named Herbal Plus, was introduced in
January of 1999. It is an all-natural herbal formula marketed weight loss
supplement. It is sold by distributors and in the following health food stores
and weight loss centers: Ansley's Natural Marketplace, Beehive Natural Foods of
Miami, The Honey Tree, Health Quest, Natural Nutrition, Physicians Weight Loss
Clinics and Supplement Warehouse. TrimFast was designed to assist in curbing
appetite and increasing metabolism to affect the fat burning process. In
addition, TrimFast was designed to increase energy and reduce water retention.
However, there can be no assurances that this product will have such effects
uniformly upon all users since the consuming population is diverse from the
standpoint of various metabolic rates. The TrimFast product has also been used
in combination with St. Johns Wort to provide the mental drive in implementing
the positive effects of St. Johns Wort - reducing stress and nervous tension and
causing an alert mood. This product is packaged in a one-month supply bottle.
Immune Blast, introduced in July of 1998, is an all-natural immune system
enhancer designed to aid in the prevention of colds and flu. The product is
marketed to the distributors: Abyss Distributors and Nutraline Distributors.
Max Impact is an entire product line targeted to convenience stores and gasoline
outlets. The products include all-natural packages, thirty count bottles and
daily supply packages of St. John's Wort, Trim Fast, Sudden Energy and Ginseng
Zing.
Kicks, introduced in October of 1998, is an all natural chewable multi-vitamin
and mineral supplement developed and formulated exclusively for active children
and young athletes. This product is designed to compete with national brand
children's vitamins such as Flintstones.
The TrimFast Weight Loss Bar is a new product we introduced on June 14, 1999. We
designed this product to assist the user in a weight loss program by helping to
curb appetite, increase metabolism and increase energy levels; however, there
can be no assurance that any one or all of these effects will be produced in all
or any case. This product was designed to be implemented in conjunction with a
sensible nutritional diet program with exercise. The product was designed to
compete with several national companies including Slim Fast, Nestle's, MediFast
and Pounds Off nutrition. This product is offered in three flavors: chocolate
chocolate chip, chocolate peanut butter and passion fruit.
St. John's Wort: The only herb that has been scientifically studied and proven
to elevate mood and positive outlook, reduce stress and nervous tension which is
used to treat depression and mood related ailments.
Body Life, our wholly owned subsidiary, will market under its trade name Muscle
Recovery nutritional supplement. This product is a comprehensive remedy for
muscle aches, pains and soreness. It is to be taken immediately after injury or
exercise to boost the body's natural recuperative powers.
To date, we have not undergone any research and development of potential new
products or regarding any other areas of potential development. Although we plan
to devote 2% of our revenues to research and development within the next fiscal
year, such plans are totally dependent upon a number of factors, including:
sufficient revenue streams to support this expense, the retention of qualified
personnel participating in research and development. Currently we employ Steve
Kushner, the company nutritionist that has over 20 years of practical experience
and trained under Dr. Hazel Parcells. In addition, we must have the ability to
attract new qualified personnel to perform research and development and numerous
other factors which management may have not currently contemplated.
Competition.
Nutritional and dietary supplement products involve highly competitive markets.
We are in the process of developing our marketing strategies and product lines
and expect that both will involve an ever-changing and evolving process.
Although we will attempt to competitively price our products, provide superior
quality products, and achieve success through attentive and efficient customer
service and effective marketability strategies, we are limited by a number of
factors, including the developmental character of our company and the
unpredictability and uncertainty of our future revenues. In addition, we are
limited by the intensely competitive nature of the dietary food and vitamin
product industry in which more established companies may offer any combination
of the following: superior service, more competitive pricing, superior product
quality and availability, a variety of marketing strategies and distribution
networks and profitability achieved through sales volume and narrow profit
margins. There are many well-established competitors with substantially greater
financial revenues, as well as, significant new market entrants. Many of these
competitors have been in existence for substantially longer periods of time than
we have and may be better established in the market where we want to operate.
Further, they may have sufficient revenue streams to engage in extensive
advertising and promotional campaigns far in excess of our marketing
capabilities. In addition, many of the competitors in this field are privately
held, leading to unavailability of data of the size of our competition.
Accordingly, our competition is difficult to assess with any preciseness.
Distribution Methods for our Dietary and Nutritional Supplements.
We utilize five different distribution channels for our health and fitness
products. These are wholesalers, distributors, food brokers, and direct sales to
retail outlets and the Internet. Currently, we distribute to twelve (12)
wholesalers and fifteen (15) distributors. We also have agreements with eleven
(11) food brokerage firms that sell products to nationwide retailers and
distributors.
Wholesalers buy products directly from us. These wholesalers in turn sell to
independent sales agents, who then sell to various retail establishments. The
distributors on the other hand buy the product directly from us and resell to
various retail outlets. Brokers are contracted to sell our products to retail
chains, distributors and wholesalers. Any retail accounts secured by the brokers
are directed to the distributors that currently supply the retailer with other
products.
Wholesalers and distributors are set up on terms of two percent (2%) fifteen-
(15) days net thirty (30) days as long as pre-approved credit has been
established. If credit has not been approved, we require one-half (1/2) of the
purchase order price upon ordering and the balance due on delivery.
We also market through direct response television advertising. Inside sales
personnel who work directly for us will accept orders, arrange for production
and delivery of the products as required to service demand and co-ordinate
delivery of product to retailers and end customers.
Prospective retail locations include convenience stores, supermarkets, drug
stores, health clubs, gasoline outlets, restaurants and bars, and health
specialty outlets.
Once the purchase order has been verified, shipping instructions are delivered
to our distribution center where orders are fulfilled within forty-eight (48)
hours. Typically, product orders are generally shipped by UPS ground
transportation and customers receive their product within seven (7) days.
Express delivery services are also available. Express product orders are
generally shipped within twenty-four (24) hours. Special order products may take
up to a week to deliver but, in general, can be shipped within seventy-two (72)
hours. Unless alternate payment plans are provided, payment is due within thirty
(30) days of delivery.
We plan to the ten Nutrition Clubstore locations in Gold's Gyms in the States of
Florida, California, New York, Iowa and New Hampshire to distribute our products
in the immediate future. We plan to open up additional point of purchase
"micro-stores" or kiosks" located in Gold's gyms in the States of Florida and
California. To date, however, no additional stores have been opened.
II. Internet Activities: Nutrition Cafe.
Nutrition Cafe, Inc., a wholly owned subsidiary of the Company, launched its
Internet site (www.nutritioncafe.com) in June of 1999. The Internet site became
fully operational on July 1, 1999 and currently offers approximately 1,365
products. Through this Internet site, we offer nutritional products, including
vitamins, minerals, dietary supplements, sports nutrition products and
homeopathic products for sale to the public. These products are also offered at
our retail store located in Clearwater, Florida. We will attempt to market
approximately 10,000 vitamins, herbs, dietary supplements and homeopathic
products to members at distributor wholesale prices. The Internet site is
planned to promote all of our products, as well as, market and sell vitamins and
nutritional products from such other manufacturers as Met-Rx, Prolabs and
Nature's Way. Our warehouse facility is equipped with adequate space to
accommodate these expanded number of products and product lines.
In addition to offering a complete line of vitamins and supplements, the
nutritioncafe.com web page offers visitors advice relating to a variety of
highlighted subject areas including nutrition, health, diet, physical fitness
and nutritional supplements. Daily columns on such topics as health care,
vitamins, homeopathic remedies, chiropractic care, fitness and exercise may also
be provided. Management believes that the subject areas, style and special
features are arranged in a simple, easy-to-use fashion intended to enhance
product search and customer knowledge while encouraging repeat business.
There can be no assurance that we will have the ability to effectively market
our current products or those of other manufacturers. In addition, there can be
no assurance that our Internet site will be able to market a projected 10,000
such products. The marketability rate resulting from our Internet site is
dependent upon revenues from our Internet site and other sources, the relative
success of promoting our Internet site and competition from well-established
Internet sites operated by strong revenue based companies with long-life
operational success.
Membership.
During the period from July 1, 1999 to January 18, 2000, anyone wishing to
purchase products from the NutritionCafe.com site was required to purchase a
membership at the price of $9.95 per month.
Memberships were sold on a pay-as-you-go basis in one-month increments.
Members had the option to continue their membership each month and no long-term
agreements were required. Competing web sites did not charge a membership fee.
As such, we decided to eliminate the monthly membership fee on January 19, 2000,
because we believed that it would increase our ability to attract new customers.
At that time, there were 1,330 enrolled members.
Payment.
Payment for orders placed on the nutritioncafe.com website may be made by check,
money order or credit card. Because of consumer concern on the issue of
utilizing their credit card for Internet purchases, we utilize secure server
software. This software encrypts all of the customer personal information
including credit card number, name and address, so that it cannot be read during
Internet transmission.
Availability and Shipment. Most of the products that are ordered from the
Nutrition Cafe site would be available for shipment within forty-eight (48)
hours. Those products not in stock can be ordered from various distributors or
directly from the
manufacturer. Delivery time for these products can range from two (2) to four
(4) weeks. Orders are planned to be shipped via UPS ground transportation.
Express delivery options will be available at an additional cost. Our goal is to
continue developing our distribution infrastructure to increase efficiency and
support greater customer demand.
Marketing And Promotion.
Our marketing strategy is designed to strengthen the nutritioncafe.com brand
name, to increase customer traffic to the nutritioncafe.com website, to build
customer loyalty, to increase the membership base and to encourage repeat
business. We intend to utilize traditional advertising media to gain name
recognition in the general public including television, radio and print
advertising. We also intend to utilize banners, agreements with search engine
providers and hyperlinks. All products sold on our website are offered with a
100% money back guarantee, if the customer is dissatisfied for any reason with
the purchase.
Competition.
The online commerce market, particularly over the Web, is new, rapidly evolving
and intensely competitive. Our current or potential competitors include Rexall
Sundown, Metabolife and Lifetrends International, each of which may be or are
currently offering their products on the Web. We also face competition from such
indirect sources as Yahoo and AOL that are involved in online commerce either
directly or in collaboration with other retailers, traditional retailers who
currently sell, or who may sell, products or services through the Internet. We
believe that the principal competitive edge in our market will be brand
recognition, price, selection, and a knowledgeable provider of health care
products, reliability and speed of performance. As the online commerce market
continues to grow, other companies may enter into business combinations or
alliances that strengthen their competitive positions. Our prospective customers
already have the opportunity to purchase various nutritional supplements from
various websites including greentree.com, rx.com, drugstore.com and vitamin.com.
Retail Location.
On May 15, 1999, we opened a Nutrition Cafe retail store at our warehouse
facility in Clearwater. The retail establishment occupies approximately 1,300
square feet of space and caters primarily to local clientele. We expect to use
this store to test the viability of opening additional Nutrition Cafe retail
establishments.
Raw Materials, Suppliers and Manufacturing.
While we employ our own consultants to develop new product mixes, we do not
currently manufacture any of our products; instead, we rely on third-party
contract manufacturers. Currently, Innovative Labs, Phillips Pharmatech Labs,
Inc., Dolisos America, Inc. and Five Star Brands, Inc. manufacture most of the
products for TrimFast and Body Life Sciences.
We procure raw materials from various suppliers, but we contract our finished
product production to one third party primarily. Since December 1998, we have
used a second production factory for some of our products to reduce the risk of
having a sole producer of our products or in the event that any manufacturer
ceases operations or cannot continue to manufacture any product for us. We
believe that there will be little difficulty in locating a manufacturer to
produce any of our products without delivery delays or significantly higher
costs.
The raw materials required for the manufacture of our products are readily
available from a number of different sources. As such, we do not believe there
will be any difficulties obtaining the required raw materials.
III. Bottled Water Activities.
We recently acquired the assets of Ice Water, a bottled water distributor
located in the Tampa, Florida area. Ice Water delivers bottled water to a base
of customers in the Tampa, Florida area. Customers typically either own or rent
their water coolers from Ice Water. Rental customers typically sign a one-year
contract, providing Ice Water with a modest, but relatively stable stream of
revenue from both a monthly cooler rental charge and the sale of bottled water.
Water only customers generate revenues for us through the sale of bottled water
and ancillary services such as cooler repairs. We believe that direct delivery
water cooler companies enjoy several advantages over retailers of bottled water.
Management believes the strong industry growth has been and will continue to be
driven by: (i) concerns related to the quality of tap water sources, (ii)
consumer preferences for healthy products, (iii) taste preferences over tap
water and other refreshment beverages and (iv) favorable demographics.
Tap Water Concerns.
The aging of the tap water supply infrastructure and the high cost of adequately
maintaining or replacing existing water delivery systems have resulted in an
increase in tap water contamination incidences in recent years. Consequently,
there has been a decrease in consumers' confidence in the quality of tap water,
accompanied by an increase in consumption of bottled water. Management believes
that this trend will continue.
Healthy Products.
There is a movement toward a healthier lifestyle and the consumption of healthy
products, a theme that we attempt to promote in our varied line of products.
Within the "healthy products" segment, clear or natural colored products are
experiencing significant growth. Bottled water is perceived as a product with
strong health and fitness appeal.
Competition.
The bottled water industry is highly fragmented in North America. The bottled
water market is comprised of approximately 2,500 companies generating
approximately $4.0 billion in sales. Of these companies, the five largest
companies account for approximately 55% of the total market, with the remainder
comprised of hundreds of small regional companies. Management believes that the
industry will continue to consolidate as (i) operating leverage of the larger
companies makes the smaller companies uncompetitive, (ii) succession issues at
many smaller, family owned companies lead a number of independent companies to
exit the industry, and (iii) pressure to meet improving water quality standards
eliminates low quality producers.
We compete in the "alternative to tap water" market in two areas. First, we
compete directly with other home and office delivery bottled water companies in
our geographic markets. This segment is highly fragmented with the vast majority
of the companies being operated as small entrepreneurial and family-owned
businesses. We also compete indirectly with companies that distribute water
through retail stores and vending machines.
Management believes that the competitive advantage of water coolers over these
alternative distribution channels is primarily based on the convenience of home
or office delivery and, to a lesser extent, price. Similarly, we compete with
providers of on-premises water filtration systems, including systems distributed
through retail outlets, which we believe are aimed at less affluent consumers.
In certain markets, we market and provide on-premises water filtration system
The "alternative to tap water" industry also includes a number of
well-established, well-capitalized companies. These include Nestle S.A., which
owns Perrier and the Perrier Group of America. Perrier Group of America operates
the Arrowhead, Poland Spring, Zephyrhills, Ozarka, Oasis and Great Bear brands.
Suntory owns Belmont Springs, Hinkley & Schmitt, Crystal, Kentwood, and Polar.
BSN Group owns the Evian and Dannon brands and also operates the Crystal Spring
(Toronto), Spring Valley, and Laurentian businesses. McKesson Corporation
operates the Sparkletts business. Ionics Incorporated operates the Aquacool
businesses. In addition, United States Filter Corp. and Culligan Water
Technologies, Inc. compete in the water filtration segment.
Business and Products.
We primarily market two types of water. These are spring water and premium
drinking water.
Spring Water.
Spring water is water that has been naturally filtered by its passage through
various geological layers, and is drawn from a protected underground reservoir
called an aquifer. It can then be either bottled at the source or transported in
stainless steel tankers to a more strategically located bottling facility.
Before bottling, spring water is passed through a micron filter that removes
sediment while retaining the natural mineral content of the water. The water is
then purified through an industry standard purification process known as
ozonation.
The Company draws its spring water from local sources. The spring water is
bottled at the source or transported to an independently owned bottling
facility. At the bottling facility, the spring water is filtered and ozonated.
Ozonation is a process whereby impurities not removed through ordinary
filtration are removed through the injection of oxygen. The process involves a
special form of oxygen, ozone, which is the strongest disinfectant and oxidizing
agent available for water treatment. The added oxygen quickly dissipates and
results in tasteless and odorless purification as compared to chlorination. This
process is designed to prevent bacteria and other contaminants from being
transferred from the spring or the tanker to the finished product.
Premium Drinking Water.
Premium Drinking Water is drawn from local municipal sources. It is passed
through a series of carbon and sand filters, processed by either reverse osmosis
or deionization, ozonated and then bottled. Premium drinking water has 99.9% of
all impurities removed from it, including its natural mineral content.
Premium drinking water, like spring water is obtained from an independent
bottler. Premium drinking water is accessed through local, publicly available
water supplies. It is further purified through reverse osmosis to remove
chlorine and other chemicals frequently found in tap water. The product then
goes through the ozonation process prior to bottling as premium drinking water.
All water is obtained from sources in the Tampa area. We do not do any bottling;
rather, we rely upon independent bottlers to deliver our supply of water bottles
and coolers that, in turn, are delivered to our customers.
Water Coolers.
Rental customers typically sign a one-year contract, providing us with a stream
of relatively stable revenue from both a monthly cooler rental charge and the
sale of bottled water. While pricing varies depending on the water cooler
selected and the lease term selected by the customer, our current average
monthly rental charge for our coolers is approximately $8 -$10 per month.
We strip down, clean, and redeploy returned water coolers prior to all new
installations. Our average cost per water cooler is approximately $150, and we
estimate that the average life of a water cooler is ten (10) years. The typical
pay back period on a water cooler investment (assuming only rental revenue) is
approximately fifteen (15) months. In the event of termination of the rental
agreement, water coolers can be readily redeployed at a relatively low cost to
us. In addition, we charge a water cooler collection fee in certain markets when
a customer opts to discontinue purchasing water.
Delivery.
We believe that one of the most important success factors in the delivered
bottled water business is delivery route efficiency.
Route efficiency is the critical cost factor in the water cooler business, as
the average cost of local delivery per bottle is over four (4) times the cost of
preparing one (1) bottle for distribution. However, the marginal distribution
cost of an additional bottle on an existing route is relatively low.
Dependence on a Few Customers.
As of December 31, 1998, we had only 79 customers, of whom one (1) accounted for
sixty percent (60%) of our business and one other accounted for an additional
twelve percent (12%) of our business. Although, our marketing strategy
contemplates increasing our customer base to 250 there are no assurances that we
will meet this goal.
As of December 31, 1999 we had no significant customer concentration.
Intellectual Property.
We currently rely primarily on common law and proprietary protection. Our
business prospects will depend largely upon our ability to capitalize on
favorable consumer recognition of our trade names. We do not hold a trademark
registration for most of our products. We have been granted trademarks in the
state of Florida for TrimFast, Herbal Blast and Water with an Attitude. TrimFast
has also been registered with the U.S. Patent and Trademark Office (75-434993).
We have applied for trademark protection for Kicks. These applications are
currently pending, have not been approved and may not ever be approved. Even, if
obtained, there can be no assurance that our trademarks will not violate the
proprietary rights of others or that our trademarks would be upheld and not
prevented from using our trademarks, if challenged, any of which could have an
adverse effect on us. It is possible that our competitors will adopt product or
service names similar to ours, thereby impeding our ability to build brand
identity and possibly leading to customer confusion. Our inability to protect
our trade names will have a material adverse effect on our business, results of
operations and financial condition.
We also rely on trade secrets and proprietary know-how, and employ various
methods, to protect our concepts. However, such methods may not afford complete
protection, and there can be no assurance that others will not independently
develop similar know-how or obtain access to our know-how and concepts. We do
not maintain confidentiality or non-competition agreements with all of our
executives, key personnel or suppliers. There can be no assurance that we will
be able to adequately protect our trade secrets. Third parties may assert
infringement claims against us or against third parties upon whom we rely and,
in the event of an unfavorable ruling on any claim, we may be unable to obtain a
license or similar agreement to use technology that we rely upon to conduct our
business.
Unlike pharmaceutical products that rely on specific combinations of drugs and
chemicals, patents cannot protect herbal products. However, management believes
that simply knowing the ingredients to an herbal product does not mean that
other manufacturers can duplicate the product. Effective trademark, copyright
and trade secret protection may not be available in every country in which we
may offer or intend to offer or sell our products. Failure to adequately protect
our intellectual property rights could harm brand-name recognition, devalue our
proprietary content and adversely affect our ability to compete effectively in
the marketplace. Further, defending the intellectual property rights could
result in the expenditure of significant financial and managerial resources,
which could materially affect the operations of the business.
While we believe that our steps are adequate to secure our intellectual property
rights, there can be no assurance that a third party will not misappropriate any
of our proprietary information.
Government Approval and Regulation.
We do not plan to collect sales or other similar taxes in respect of goods sold
by our Nutrition Cafe.com website except where required by law for purchasers
located in certain jurisdictions. However, one or more states or the federal
government may seek to impose sales tax collection obligations on out-of-state
companies (such as nutritioncafe.com) which engage in or facilitate online
commerce, and a number of proposals have been made at the state and local level
that would impose additional taxes on the sale of goods and services through the
Internet. Such proposals, if adopted, could substantially impair the growth of
electronic commerce, and could adversely affect our opportunity to derive
financial benefit from such activities.
Due to the increasing popularity and use of the Internet, it is possible that a
number of laws and regulations may be adopted with respect to the Internet,
covering issues such as user privacy, pricing, and characteristics and quality
of products and services. Furthermore, the growth and development of the market
for Internet commerce may prompt calls for more stringent consumer protection
laws that may impose additional burdens on those companies conducting business
over the Internet. The adoption of any additional laws or regulations may
decrease the growth of the Internet, which, in turn, could decrease the demand
for our Internet products and increase our cost of doing business or otherwise
have an adverse effect on our business, results of operations and financial
condition. Moreover, the applicability to the Internet of existing laws in
various jurisdictions governing issues such as sales tax, libel and personal
privacy is uncertain and may take years to resolve.
In addition, since our service is available over the Internet in multiple states
and we may sell to numerous consumer residents in such states, such
jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in each such state. Our failure to qualify as a foreign
corporation in a jurisdiction where we are required to do so could subject our
business to taxes and penalties for failure to qualify. Any such existing or new
legislation or regulation, including state sales tax, or the application of laws
or regulations from jurisdictions whose laws do not currently apply to our
business, could have a material adverse effect on our business, results of
operations and financial condition.
The manufacturing, processing, formulating, packaging, labeling, distributing,
selling and advertising of our products are subject to regulation by one or more
federal agencies. The most active regulation has been administered by The Food
and Drug Administration (hereinafter the "FDA") which regulates our products
pursuant to the Federal Food, Drug and Cosmetic Act (hereinafter the "FDCA") and
regulations promulgated thereunder. In particular, the FDA regulates the safety,
manufacturing, labeling and distribution of dietary supplements, including
vitamins, minerals and herbs, food additives, food supplements, over-the-counter
drugs and prescription drugs, medical devices and cosmetics. In addition, the
Federal Trade Commission (hereinafter the "FTC") has overlapping jurisdiction
with the FDA to regulate the labeling, promotion and advertising of dietary
supplements, over the counter drugs, cosmetics and foods.
Although the dietary supplement industry is subject to regulation by the FDA and
local authorities, dietary supplements, including vitamins, minerals, herbs and
other dietary ingredients, now have been statutorily affirmed as a "food."
Dietary supplement companies are authorized to make substantiated statements of
nutritional support and, subject to several possible limitations, to market
manufacture-substantiated-as-safe dietary supplement products without FDA
pre-clearance. Failure to comply with applicable FDA requirements can result in
sanctions being imposed on the Company or the manufacturers of our products,
including but not limited to fines, injunctions, product recalls, seizures and
criminal prosecution.
Compliance with applicable FDA and any state or local statutes is critical.
Although we believe that we are in compliance with applicable statutes, there
can be no assurance that, should the FDA amend its guidelines or impose more
stringent interpretations of current laws or regulations, we would be able to
comply with these new guidelines. We are unable to predict the nature of such
future laws, regulations, interpretations or applications, nor can we predict
what effect additional governmental regulations or administrative orders, when
and if promulgated, would have on our business in the future. These regulations
could, however, require the reformation of certain products to meet new
standards, market withdrawal or discontinuation of certain products not able to
be reformulated, imposition of additional record keeping requirements, expanded
documentation regarding the properties of certain products, expanded or
different labeling and/or additional scientific substantiation.
The FDCA has been amended several times with respect to dietary supplements,
most recently by the Dietary Supplement Health and Education Act of 1994
(hereinafter "DSHEA"). DSHEA was enacted on October 15, 1994. It provides a new
statutory framework governing the composition and labeling of dietary
supplements. DSHEA provides a regulatory framework to ensure safe, quality
dietary supplements and the dissemination of accurate information about such
products. Under DSHEA, dietary supplements are generally excluded from the legal
definition of "food additive."
With respect to composition, DSHEA created a new class of "dietary supplements",
consisting of vitamins, minerals, herbs, amino acids and other dietary
substances for human use to supplement the diet, as well as concentrates,
metabolites, extracts or combinations of such dietary ingredients. Generally,
under DSHEA, dietary ingredients that were on the market before October 15, 1994
may be sold without FDA pre-approval and without notifying the FDA. On the other
hand, a new dietary ingredient (one not lawfully on the market before October
15, 1994) requires proof that it has been present in the food supply as an
article used for food without being chemically altered, or evidence of a history
of use or other evidence of safety establishing that it is reasonably expected
to be safe. The FDA must be supplied with such evidence at least seventy-five
(75) days before the initial introduction into interstate commerce use of a new
dietary ingredient. There can be no assurance that the FDA will accept the
evidence of safety for any new dietary ingredients that we may decide to use,
and the FDA's refusal to accept such evidence could result in regulation of such
dietary ingredients as adulterated until such time as reasonable expectation of
safety for the ingredient can be established to the satisfaction of the FDA.
As for labeling, DSHEA permits "statements of nutritional support" for dietary
supplements without FDA pre-approval. Such statements may describe how
particular dietary ingredients affect the structure,
function or general well-being of the body, or the mechanism of action by which
a dietary ingredient may affect body structure, function or well-being (but may
not state that a dietary supplement will diagnose, mitigate, treat, cure or
prevent a disease). A company making a statement of nutritional support must
possess substantiating evidence for the statement, and, for such statements that
are not about the effects on the body as a result of a dietary supplement used
as a tool for its nutritive value and are not otherwise "health claims,"
disclose on the label that the FDA has not reviewed that statement and that the
product is not intended for use for a disease, and notify the FDA of the
statement within thirty (30) days after its initial use. The manner for making
the disclosure and notifying the FDA are set forth in the regulations. However,
there can be no assurance that the FDA will not determine that a given statement
of nutritional support that we decide to make is a drug claim rather than an
acceptable nutritional support statement. Such a determination would require
deletion of the drug claim or our submission, and the FDA's approval of a New
Drug Application (hereinafter "NDA"), which would entail costly and
time-consuming clinical studies. In addition, DSHEA allows the dissemination of
"third party literature", publications such as reprints of scientific articles
linking particular dietary ingredients with health benefits. Third party
literature is exempted from FDA regulation as dietary supplement "labeling" and
may be used in connection with the sale of dietary supplements to consumers.
Such a publication may be so used if, among other things, it is not false or
misleading, no particular manufacturer or brand of dietary supplement is
promoted and a balanced view of available scientific information on the subject
matter is presented. There can be no assurance, however, that all pieces of
third party literature that may be disseminated in connection with our products
will be determined by the FDA to satisfy each of these requirements, and any
such failure could subject the product involved to regulation as a new drug or
as a "misbranded" product.
DSHEA permits substantiated, truthful and non-misleading statements of
nutritional support to be made in labeling, such as statements describing
general well being resulting from consumption of a dietary ingredient or the
role of a nutrient or dietary ingredient in affecting or maintaining structure
or function of the body. Any statement of nutritional support beyond traditional
claims must be accompanied by disclosure that the FDA has not evaluated such
statement and that the product is not intended to cure or prevent any disease.
We anticipate that the FDA will promulgate Good Manufacturing Practices
(hereinafter "GMPs"), which are specific to dietary supplements and require at
least some of the quality control provisions contained in the GMPs for drugs.
Management anticipates that the FDA may promulgate GMP regulations authorized by
DSHEA, which are specific to dietary supplements. GMP regulation would require
supplements to be prepared, packaged and held in compliance with such rules, and
may require similar quality control provisions contained in the GMP regulations
for drugs. There can be no assurance that, if the FDA adopts GMP regulations
specific to dietary supplements, that either we or our manufacturers will be
able to comply with such GMP rules upon promulgation or without incurring
material expenses to do so.
Our products and product related activities may also be subject to regulation by
other regulatory agencies, including but not limited to the FTC, the Consumer
Products Safety Commission, the United States Department of Agriculture, the
United States Postal Service, the United States Environmental Protection Agency
and the Occupational Safety and Health Administration.
These activities are also regulated by various agencies of the states and
localities in which our products are sold.
Advertising of dietary supplement products is subject to regulation by the FTC
under the Federal Trade Commission Act (hereinafter the "FTCA"). Section 5 of
the FTCA prohibits unfair methods of competition and unfair or deceptive trade
acts or practices in or affecting commerce. Section 12 of the FTCA provides that
the dissemination or the causing to be disseminated of any false advertising
pertaining to drugs or foods, which would include dietary supplements, is and
unfair or deceptive act or practice. Under the FTC's Substantiation Doctrine, an
advertiser is required to have a "reasonable basis" for all objective product
claims before the claims are made. Pursuant to this FTC requirement, we are
required to have adequate substantiation of all material advertising claims made
for its products. Failure to adequately substantiate claims may be considered
either deceptive or unfair practices.
In recent years the FTC has initiated numerous investigations of dietary
supplement and weight loss products and companies. The FTC has recently issued a
guidance document to assist supplement marketers of dietary supplement products
in understanding and complying with the substantiation requirement.
The FTC is authorized to use a variety of processes and remedies for
enforcement, both administratively and judicially including compulsory process,
cease and desist orders, and injunctions. FTC enforcement can result in orders
requiring, among other things, limits on advertising, corrective advertising,
consumer redress, divestiture of assets, rescission of contracts and such other
relief as may be deemed necessary. State and local authorities can also regulate
advertising and labeling for dietary supplements and conventional foods. There
can be no assurance that state and local authorities will not commence
regulatory action that could restrict the permissible scope of our product
claims.
Employees.
With the addition of Nutrition Clubstores, we currently have forty five (45)
employees, of whom twenty three (23)are employed full-time and twenty two (22)
are employed part-time.
Material Agreements.
License Agreement with WCW. In June 1999 we developed our first private label
product by entering into a licensing agreement with the World Championship
Wrestling Organization ("WCW") to produce Energy Bars in three flavors under the
WCW brand name in the United States, its territories and possessions and its
Military Installations. This license agreement is non-exclusive and expires on
December 31, 2002. This agreement provides that we may use logos, slogans and
the likeness of WCW wrestlers, as provided by WCW, on the labels of our energy
bars, which have been designed to target an audience of millions of adults and
children watching and attending professional wrestling matches.
Our agreement with WCW provides that WCW will receive royalty payments of 6% of
net sales with the following minimum payments guaranteed: (i) December 31, 1999
- $100,000; (ii) June 30, 2000 - $100,000; (iii) September 30, 2000 - $100,000;
(iv) December 31, 2000 - $100,000; and (v) June 30, 2001 - $100,000.
There is no provision in this agreement to grant authority to our company to
sell the Energy Bars at WCW wrestling matches. WCW would not be the proper party
from which to obtain this authority, since the company which manages the
location of each individual wrestling match would grant this authority. We have
no plans of pursuing any such grant with any venue at which the WCW wrestling
matches are held.
As of the date of this filing, our WCW energy bars included the three wrestling
figures, Hulk Hogan, Randy "Macho Man" Savage and Bill Goldberg. Because Bill
Goldberg has been injured, preventing him from appearing in our planned
advertising campaign, our advertising campaign to promote the bars has been
delayed. It is unlikely he will appear in our advertising campaign due to his
injury. We are planning to use other wrestling figures to promote the WCW
energy bars if we are able to obtain them on terms acceptable to us. There is no
assurance that we will be able to obtain other wrestling stars on commercially
reasonable terms.
Venture Direct Worldwide Agreement. On June 29, 1999 we entered into an
agreement with Venture Direct Worldwide Inc. as agent for Microsoft Network to
exclusively utilize the keywords vitamins, supplements and Sports Nutrition on
the Microsoft Network. Venture Direct never provided any services to our company
and the contract was terminated on December 31, 1999.
May Davis Group of New York Agreement. We have entered into a series of
agreements with the May Davis Group of New York, whereby the May Davis Group of
New York acts as a placement agent for our securities offered and sold in
private placements. In exchange for these services, May Davis Group of New York
has been compensated with options to purchase forty thousand (40,000) shares of
our common stock at a variable price depending on an equation involving the
trading price at the time of exercise. Such options are exercisable for sixteen
(16) months from the date of each agreement and have registration rights.
Year 2000 Compliance.
Our systems are Year 2000 ("Y2K") compliant. The cost of such compliance on our
part was less than $5,000. The Y2K compliance issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. Computer programs that have time sensitive software may
recognize a date using "00" as the year 1900 rather than 2000. This could result
in a systems failure or miscalculation causing disruption of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. We have verified
that our two principal customers are Y2K compliant. We do not know if our other
suppliers or distributors are Y2K compliant, but believe there will be no
material adverse impact upon us if one of our individual distributors or
manufacturers is not Y2K compliant. We have experienced no adverse affects
related to the Y2K compliance issue at any time. We are unaware of any adverse
affects experienced by any of our suppliers related to the Y2K compliance issue.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS/PLAN OF OPERATION
FINANCIAL STATEMENT PRESENTATION.
The September 30, 1999 interim financial statements are presented without
comparable 1998 quarterly information. We were not publicly traded in 1998 and
systems, though adequate to address annual audit needs, were not in place to
allow for extracting reliable quarterly information. We have presented the
comparison with adjustments from the year end 1998 numbers.
RESULTS OF OPERATIONS.
December 31, 1997 and 1998 as compared to September 30, 1999
Sales for the nine months ended September 30, 1999 were $581,337 as compared to
$1,925,332 for the year ended December 31, 1998 ($1,443,999 adjusted
proportionately for the nine months ended September 30, 1998 and $22,338 as of
December 31, 1997). The significant decline in sales from 1998 to 1999 is
primarily attributable to our decision to discontinue the sale of Revivarant, a
muscle replenishment supplement, which accounted for approximately $1.4 million
of revenues during 1998. This decision was initiated by an industry wide
investigation by the Food and Drug Administration into the active ingredient in
Revivarant.
Our salaries and compensation increased from $31,633 in 1997 to $993,773 in 1998
to $505,372 for the nine months ended September 30, 1999 for several reasons.
The 1998 amount included $762,000 non-cash stock based compensation expense.
Our 1999 salaries include increased expenses of support staff. Specifically, we
added two administrative assistants, upgraded our accounting position to Chief
Financial Officer and added a salesman to our staff. In addition, during 1999 we
added two new subsidiaries, Ice Cold Water and Nutrition Cafe, which account for
approximately 40% of the increased salary reported. Moreover, the employment
market in Tampa has been highly competitive in 1999 resulting in our company
paying higher wages to all employees to retain and recruit qualified employees.
Management expected that the introduction of the IMMCEL and IMMMU product lines
would add to revenues. However, customer acceptance proved disappointing and the
prior owner, and key employee refused to honor his contractual commitments to
manage the newly added subsidiaries. As a result, we have rescinded our
agreement with the prior owners of IMMMU and IMMCEL and will focus on the
expansion of our own line of nutritional supplements. All rights title and
interest to the IMMMU/IMMCEL product lines will revert back to their prior
owners, all consideration paid or received will be returned and any profits or
losses generated from the operation on IMMMU and IMMCEL will be allocated to its
prior owners. We recorded in the "Receivable - other" account the loss from
operating IMMMU and IMMCEL for the period of time we managed those companies. We
then recorded a 100% reserve against the balance at September 30, 1999. As of
December 31, 1999, the receivable and reserve balances were written off.
Management believes that a significant boost to its revenues will be generated
from its licensing agreement with World Championship Wrestling ("WCW"), once
other wrestling stars agree to promote our energy bars. We intend to sell high
nutrition, energy bars with the WCW logo and images of the various wrestling
personalities. Both food brokers and retail stores have shown tremendous
interest in the product. Although we have made shipments to small
retailers, we anticipate that our shipments to large retailers will commence
with the launch of our national advertising campaign, which is tentatively
scheduled to begin in May. While there can be no assurance that the product will
meet anticipated demand, management believes that the sale of the WCW energy
bars will be a significant source of revenues for the Company.
With the acquisition, formation and expansion of business activities during
1999, operating expenses increased significantly. Salaries and compensation
total $31,633 and $983,773 for the year ended December 31, 1997 and 1998
respectively,as compared to $505,372 for the nine months ended September 30,
1999. New employees had to be hired to handle the increased business activities
of the Company.
For the nine months ended September 30, 1999, we recorded $1,467,900 in
professional fees. A significant portion of this amount is non-cash expense,
representing the issuance of common stock to certain professionals in exchange
for professional services. Management anticipates that professional fees will
decline significantly in the future.
Selling general and administrative expenses were $92,565 and $423,289 for the
years ended December 31, 1997 and December 31, 1998 respectively, as compared to
$623,451 for the nine months ended September 30, 1999. Approximately $175,000 of
this increase was attributable to advertising for NutritionCafe.
Approximately $250,000 of the interest expense of $354,569 is attributable to
the intrinsic value of the convertible debenture executed by the Company.
Net loss for the year ended December 31, 1997 was $151,846. Net loss for the
year ended December, 31 1998 was $739,974. Loss before income taxes for the
year ended December 31, 1998 was $719,374. We have generated a net loss of
$3,478,802 for the nine months ended September 30, 1999 or net loss of $0.87 per
share.
LIQUIDITY AND CAPITAL RESOURCES.
December 31, 1997 & 1998 as compared to September 30, 1999.
Total cash and cash equivalents as of September 30, 1999 were $100,312 as
compared to $120,938 as of December 31, 1998 and $17,658 as of December 31,
1997, a decline of approximately 17% from the period ending December 31, 1998 to
the period ending September 30, 1999.
Trade receivables were $4,889 at December 31, 1997 and $357,889 at December 31,
1998, including $267,240 related to Cutting Edge that was subsequently written
off, but declined to $318,407 for the period ending September 30, 1999. Our 1998
trade receivables also included $11,745 related to IMMMU and IMMCEL, an amount
for which we maintained adequate receivables and was fully reserved to cover an
allowance for bad debt.
We recorded $503,839 in bad debt expense in December 1998, $267,240 of which was
due to unknown financial difficulties experienced by Cutting Edge. The bad debt
expense of $267,240 attributable to Cutting Edge represented 50% of the
receivable balance due from Cutting Edge at December 31, 1998 and was due to the
Cutting Edge's failure to return product we sold them. We recorded the bad
debt expense relating to Cutting Edge in December 1998 and ceased doing business
with them at that time. In addition,the bad debt expense was due to the
bankruptcy of another customer, Dynamic Health Concepts. During 1998 a total of
two (2) customers, Cutting Edge and Dynamic Health Concepts, accounted for
approximately seventy-two percent (72%) of our sales.
Our decision to pull Revivareant from the market impacted our short-term income
potential due to the large percent of 1998 revenues from this product. During
1999 we have made several decisions, which we believe will help replace the lost
revenue. Specifically, we developed our Max Impact line of supplements and
packaged them in a daily package of three pills each, which are marketed to
convenience stores.
Additionally, we signed an agreement with the WCW to produce and market the
ultra energy bars, which include the likenesses of Hulk Hogan, Bill Goldberg and
Randy "Macho Man" Savage. Additionally, during 1999 we increased our usage of
outside brokers for sales to independent retail locations and hired sales
personnel for direct marketing to our target industries. The result of these
changes has been the elimination of our reliance on a few large customers for
our revenue. We believe these changes will position us for increased revenues in
the near future.
Inventory was $23,699 at December 31, 1997, increased to $188,737 at December
31, 1998 and to $377,270 at September 30, 1999. This increase in inventory is
attributable to the launch of Nutrition Cafe and the inventory that we are
required to carry to meet customer orders.
Total current assets were $46,246 at December 31, 1997 and $679,309 at December
31, 1998 and increased approximately 40% to $1,308,267 at September 30, 1999
Property and equipment increased from $5,481 on December 31, 1997 to $33,403 on
December 31, 1998 and to $1,459,270 on September 30, 1999. This increase is due
primarily to our purchase of the facility, which houses our warehouse operations
for Nutrition Cafe, and the equipment purchased to operate this facility. The
$228,705 attributable to software development represents our investment in the
Nutrition Cafe website software.
We also experienced a significant increase in liabilities. Accounts payable
increased from $14,873 on December 31, 1997 to $625,767 on December 31, 1998 and
to $926,612 on September 30, 1999. In addition, we issued a convertible debt
instrument in the amount of $1,000,000 in 1999. The proceeds raised from this
debt offering were used to purchase the warehouse facility.
Management believes that we have sufficient revenue and reserves to finance
ongoing business activities for the 12 months ending September 30, 2000.
However, any judgment or claim in favor of a claimant regarding Revivarant could
have a materially adverse effect on our results of operations, our financial
condition and liquidity, including that we may be unable to continue in
business.
BUSINESS DEVELOPMENT.
Trimfast, Inc. was organized as a Florida corporation in April of 1997 and, in
its first year of operations generated revenues of $22,338. Start-up and
operating costs totaled $164,559 that resulted in a net loss of $151,846.
Trimfast, Inc.'s president, Michael Muzio, who, as of December 31, 1997, was
owed a total of $150,200, funded these operating expenses. Fiscal year 1998
represented the first full year of operations for Trimfast, Inc. From the
beginning, management chose not to invest the capital required to lease or
acquire the machinery needed to manufacture their products. Instead, Trimfast,
Inc. relied upon contract manufacturers, freeing working capital for other
matters.
At the beginning of August 1998, our assets were negligible, totaling $599.
Liabilities at that time totaled $680,917 with no revenues being generated and
no business plan in place. Accumulated losses totaled $1,122,218 with a
stockholders deficiency of $680,318. Due to the lack of revenues and no business
plan, our management sought out an acquisition candidate and, on August 12,
--
1998, acquired all of the issued and outstanding shares of common stock of
Trimfast, Inc., a company engaged in the nutraceutical business.
With the addition of our wholly owned subsidiary, Trimfast, Inc., revenues in
1998 were $1,925,332.
Cost of sales was $567,472 resulting in a gross profit of $1,357,860. Operating
expenses totaled $2,076,797 resulting in loss from operations of $718,937. We
recorded $503,839 in bad debt expense in December 1998. This sum was partially
due to the financial difficulties experienced by Cutting Edge, a customer who
accounted for approximately sixty percent (60%) of our revenues in 1998 and the
bankruptcy of another customer. The bad debt expense of $267,240 attributable to
Cutting Edge represented 50% of the receivable balance due from Cutting Edge at
December 31, 1998 and was due to the failure of Cutting Edge to return product
we sold to them. In December 1998, we recorded the bad debt expense relating to
Cutting Edge and ceased doing business with them at that time. During 1998, a
total of two (2) customers accounted for approximately seventy-three (72%) of
our sales. Prior to our acquisition of Trimfast, Inc., Trimfast, Inc. was
engaged in the nutraceutical business, distributing health and fitness products.
Our cash balance as of December 31, 1998 was $105,641. We also had approximately
$358,000 in accounts receivable and $188,000 in inventory. Our total assets as
of December 31, 1998 were $731,438. Liabilities totaled $718,467 that was
comprised of approximately $626,000 in accounts payable, $72,000 in notes and
$20,600 in income taxes payable.
1998 represented a growing year for us. Relationships with distributors,
manufacturers and wholesalers had to be established. Manufacturing rates and
shipping costs all had to be analyzed and evaluated. With our acquisition of
Trimfast, Inc. in 1998, we opened new financing opportunities that would have
otherwise been foreclosed to us. We received a significant capital infusion
through the issuance of our common stock in private placements and borrowed
funds from private lenders.
1999 saw our launch of the NutritionCafe website and the purchase of the assets
of Ice Water. Management believes direct sales to consumers will significantly
reduce reliance on several customers. During the next twelve months of
operation, management remains confident that revenues from operations will be
able to support our ongoing operations. However, any judgment or claim in favor
of a claimant regarding Revivarant could have a materially adverse effect on our
results of operations, our financial condition and liquidity, including that we
may be unable to continue in business. Should the Company determine additional
financing is necessary, the additional financing will be to expand current or
proposed operations.
Debentures.
In June 1999, we entered into a debenture agreement. As a result, we have
$1,000,000 of 7.0% convertible debentures outstanding, which mature on June 14,
2002. After the date of issuance and continuing until the maturity date of the
Debentures, the Debentures may be converted, at the option of the holder, into
shares of our common stock, $0.001 par value per share, at a conversion price
equal to the lesser of $8.50 or 80.0% of the 5 day average closing bid price as
reported by Bloomberg, LP for the five consecutive trading days prior to the
conversion date.
Interest will be paid on the Debentures at a rate of 7.0% per annum, at the time
of any conversion, with respect to the principal amount of the Debenture being
converted, until the principal amount is paid in full or has been converted
entirely. Interest may be paid in cash or shares of common stock, at our option.
With our twenty (20) days notice, we may redeem the Debentures in whole or in
part at any such time as the closing bid price of our common stock, as reported
by Bloomberg, LP, falls to $6.00 or less at a redemption price equal to the
principal amount of the Debenture being redeemed plus accrued interest on such
amount and the profit that the holder would have received upon conversions
of that portion of the Debenture being redeemed.
ITEM 3. DESCRIPTION OF PROPERTY
Our executive offices are located at 777 South Harbour Island Boulevard, Suite
780, Tampa, Florida 33602, where we lease approximately 2,772 square feet of
office space at a monthly rent of $5,197.50. We feel that this space is adequate
for our needs at this time. The current lease term expires on October 31, 2004.
Upon such expiration, we believe that we will be able to obtain renewal terms or
a lease for new space at terms favorable to the Company.
We also exercised a lease option to acquire a 17,000 square foot warehouse
facility in Clearwater, Florida. The total purchase price for the property was
$1.2 million. On July 30, 1999, we paid for the warehouse facility in full with
funds raised from the issuance of preferred stock and warrants.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth the ownership, as of September 30, 1999, of our
common stock by our officers, directors and principal shareholders who are known
by us to own, either beneficially or of record, more than 5% of said stock and
by all directors as a group.
Security Ownership of Officers and Directors.
TITLE OF NO. OF NATURE OF
CLASS NAME & ADDRESS SHARES(1) OWNERSHIP %OWNED
------------------------------------------------------------------ ------------
Common Michael Muzio 1,194,203 Direct 26.30%
4957 Bayshore Blvd.
Tampa, Florida 33611
Common Gregg Vosler 0 Direct 0%
851 Lantana Avenue
Clearwater Beach, Florida 34630
Common Christopher Hee 1,590 Direct Less than 1%
3152 Fiesta Drive
Dunedin, Florida 34689
Common John Troy 0 Direct 0%
4014 W Waters Avenue #1508
Tampa, Florida 33614
------------------------------------------------------------------------------
All Officers and Directors as a Group
(3 Individuals) 1,195,793
26.5%
(1) Any shares of Common stock underlying outstanding options, warrants
or convertible debentures are included in the figures under number
of shares.
Changes in Control.
There are currently no arrangements, which would result in a change in control
of our Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our Bylaws provide that we shall have a minimum of three (3) directors on the
board at any one time. Vacancies are filled by a majority vote of the remaining
directors then in office. The directors and executive officers of the Company
are as follows:
NAME AND ADDRESS AGE POSITIONS HELD
------------------------------------------------------------------------------
Michael Muzio 36 President/Treasurer/Director
4957 Bayshore Blvd.
Tampa Florida 33611
Gregg Vosler 52 Vice President/Secretary/Director
851 Lantana Avenue
Clearwater Beach Florida 34630
Christopher Hee 58 Director
3152 Fiesta Drive
Dunedin Florida 34689
John Troy 37 Chief Financial Officer
4014 W Waters Avenue #1508
Tampa, Florida 33614
The directors named above will serve until the next annual meeting of our
shareholders or until their successors shall have been elected and accepted
their positions. Directors are elected for one-year terms. Mr. Muzio, Mr. Vosler
and Mr. Troy are parties to oral employment agreements with the Company that
pays annual salaries of $150,000, $50,000 and $65,000 respectively. In addition,
these oral employment agreements include provisions for family health insurance
coverage through the Company, provisions for memberships at the Harbour Island
Athletic Club, and Mr. Vosler has use of an automobile owned by the Company.
We have no minimum or maximum bonuses, which are implied or expressly
communicated, to any of our employees. Bonuses are only paid at the direction of
our Board of Directors. All factors affecting performance are evaluated by our
board of directors, including the company's overall performance and the impact
that individual had upon our performance. When appropriate, a bonus amount is
proposed to the Board of Directors and is submitted for a vote.
MICHAEL MUZIO: Since 1996, Mr. Muzio has served as president of the Company and
Trimfast, Inc. Prior thereto, from 1991 until 1995 he served as chief executive
officer of Advanced Medical Diagnostics, Inc. Research and development in health
related products represent a significant portion of his prior work experience.
In 1994, Mr. Muzio filed for Bankruptcy Protection under Chapter 7 in the
Southern District of Florida, Case Number 93-5409-8P7.
GREGG VOSLER: Mr. Vosler has served as vice president of the Company and
Trimfast, Inc. since November of 1997. Previously, from June 1996 to November
1997, he served as Director of Development for Physician's Weight Loss Center in
Akron, Ohio. In that capacity he was responsible for systems and franchise
development in the United States. From 1993 through June 1996, he served as an
independent consultant in the medical weight loss and health industry.
CHRISTOPHER HEE: Mr. Hee was appointed to serve as a director of the Company on
October 6, 1998. Dr. Hee received his M.D. degree at Sydney University, in
Sydney, Australia. He completed his residency at State General Hospital in
Melaka, Malaysia in 1975. Dr. Hee opened and operated four medical clinics in
Tampin, Malaysia from 1981 to 1992. After gaining admission to practice medicine
in the United States in 1992, Dr. Hee became the Chief Medical Officer of the
Tampa Military Processing Station for the United States Department of Defense,
where he still presently works. Dr. Hee provides the Board with the medical
background and skills necessary for the Company to develop vitamins and
supplements.
JOHN TROY: Mr. Troy became our Chief Financial Officer in October of 1999. Prior
to his current position, he served as a Controller for EnviroSys International
from February to September of 1999. From November 1997 through October 1998, Mr.
Troy was an Assistant Controller of Raymond James & Associates. From November
1995 through May of 1997, he was Accounting Manager at Lykes, Financial Services
Division. Prior to this position, Mr. Troy was a Controller of Chico's FAS, Inc.
until March of 1995. Mr. Troy obtained his Associates of Science Degree in May
of 1988 from Holyoke Community College and his Bachelor of Science Degree in
Accounting from Western New England College in 1990.
ITEM 6. EXECUTIVE COMPENSATION
Mr. Muzio, our president and treasurer, oversees the operations of the Trimfast,
Inc. subsidiary and in consideration thereof, receives annual compensation of
$150,000. Mr. Vosler, the Company's vice president and secretary, oversees sales
and in consideration thereof receives annual compensation of $50,000. Mr. Muzio
and Mr. Vosler exercise complete control over employee compensation. Mr. Troy is
responsible for the accounting and financial reporting activities of the Company
and receives annual compensation of $65,000.
The terms and conditions of each officer's employment is reviewed annually by
our Board of Directors who may also award annual bonuses. There is no
compensation paid to our board members for serving on the Board of Directors.
However, board members are reimbursed for all costs and expenses incurred in
either attending Board meetings or, for any expenses incurred on our behalf.
The following table sets forth the compensation of the company's three (3)
officers for the last three (3) fiscal years:
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
Compensation ---------
Name & -------------------
---------------------- Other
Position Year Salary Bonus Other Stock
SARs LTIP Comp
-------------------------------------
Michael Muzio 1999 $150,000 $0 $0 $0
$0 $0 $0
President & 1998 $150,000 $0 $0 $240,000(1)
$0 $0 $0
Treasurer 1997 $0 $0 $0 $0
$0 $0 $0
Gregg Vosler 1999 $50,000 $0 $0 $0
$0 $0 $0
Vice President 1998 $50,000 $0 $0 $96,000(1)
$0 $0 $0
& Secretary 1997 $31,000 $0 $0 $0
$0 $0 $0
John Troy 1999 $52,500 $0 $0 $53,750(2)
$0 $0 $0
Chief Financial 1998 $0 $0 $0 $0
$0 $0 $0
Officer 1997 $0 $0 $0 $0
$0 $0 $0
(1) The amount used in this table was calculated using the market close price
for TRIM common stock on December 31, 1998.
(2) The amount used in this table was calculated using the market close price
for TRIM common stock on December 31, 1999.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 12, 1998, we acquired all of the issued and outstanding shares of
common stock of Trimfast, Inc., in exchange for the issuance of 1,370,049
shares of our common stock. In conjunction therewith, Michael Muzio acquired
975,000 shares of our common stock and Gregg Vosler was issued 120,000 shares
of our common stock.As a result of this transaction the shareholders of Trimfast,
Inc. gained control of our Company after August 12, 1998.
On December 8, 1998, Mr. Muzio purchased all 508,313 shares of our outstanding
common stock held beneficially by our prior principal shareholder in a private
transaction.
Effective December 31, 1998, our principal shareholder exchanged $126,664 of
loans due to him by us for 70,358 shares of our common stock. The number of
shares received by Mr. Muzio was on a dollar for dollar basis, based upon the
outstanding debt obligation as of December 1, 1998 and the stock valued at $1.80
per share, with the debt due Mr. Muzio. During 1998, we issued 19,500 shares of
our common stock to Marsha Hardin, an associate and business consultant to Mr.
Muzio, in a related party exchange for a loan payable by us in the amount of
$40,000.
In February Michael Muzio contributed 500,000 shares of restricted stock of
Insiderstreet.com, Inc. to the Company. The shares were valued at the $7.50
based on the quoted trading price on the date of contribution. The shares
contributed are less than 5% of issued and outstanding shares of
Insiderstreet.com, Inc. and is accounted for as a long-term investment.
Mr. Muzio has entered into an oral employment agreement with us, which pays him
an annual compensation of $150,000. It is expected that we will renew this
agreement in the year 2001. Mr. Vosler has entered into an oral employment
agreement with us, which pays him an annual compensation of $50,000. It is
expected that we will renew this agreement in the year 2001. As of January 1,
2000, Mr. Troy has entered into an oral employment agreement with us, which pays
him an annual compensation of $65,000. It is expected that we will renew this
agreement in the year 2001.
We periodically advance funds to the principal stockholder and his affiliates as
well as borrow funds from the same parties. All of these amounts are interest
free without specific repayment terms. Millennium Health Products, Inc.
loaned the Company $259,558 without specific repayment terms. The Company has
recorded the amount of this indebtedness to Millennium on the Company's balance
sheet as of March 31, 2000.
Mike Muzio, our President,loaned TrimFast an aggregate of about $126,000 in 1998.
The full outstanding amount of the loan was converted into TrimFast common stock
in December 1998. Interest was not charged.
A loan by us to Millennium Health Products, Inc., of an amount of about $220,000
took place in 1998. We made a loan to Millennium in the form of assigning some
shares of a publicly traded security to Millennium so that it could settle a
sale of the same security that was executed on behalf of Millennium in a
matching amount. At the time of the sale, the Company managed some of its cash
by buying and trading in the stock market. Other companies also traded in the
stock market, including Millennium. Mr. Muzio had executed a sale of shares on
behalf of Millennium, even though the shares were in another account he managed.
Whichever of the two companies had held the shares, Mr. Muzio would have sold
the shares. Mr. Muzio managed these trading accounts at the time as best he
could, but mistakes are possible,and in this case the shares held by the Company
were needed to be transferred to Millennium, which is an affiliate of Mr. Muzio.
But during the time concerned, Mr. Muzio personally loaned the Company, first,
and later Millennium, the cash to trade in the stock market in the first place--
so that, when we transferred approximately $220,000 in stock to Millennium,
$220,000 of our indebtedness owed to Mr. Muzio was transferred and assigned to
Millennium. Millennium assumed $220,000 of indebtedness from us, and we were not
subject to any obligation in the event Millennium failed to repay that amount to
Mr. Muzio.
ITEM 8. DESCRIPTION OF SECURITIES
The following description is a summary and is qualified in its entirety by the
provisions of our Articles of Incorporation and Bylaws, copies of which have
been filed as exhibits to the Registration Statement.
COMMON STOCK.
General.
We are authorized to issue one-hundred million (100,000,000) shares of common
stock having a par value of $ 0.001 per share. As of September 30, 1999, there
were 4,540,978 common shares issued and outstanding. All shares of common stock
outstanding are validly issued, fully paid and non-assessable.
Voting Rights.
Each share of common stock entitles the holder thereof to one vote, either in
person or by proxy, at meetings of shareholders. The holders are not permitted
to vote their shares cumulatively. Accordingly, the holders of common stock
holding, in the aggregate, more than fifty percent (50%) of the total voting
rights can elect all of our directors and, in such event, the holders of the
remaining minority shares will not be able to elect any of such directors. The
vote of the holders of a majority of the issued and outstanding shares of common
stock entitled to vote thereon is sufficient to authorize, affirm, ratify or
consent to any item submitted a vote of the shareholders, except as otherwise
provided by law.
Dividend Policy.
All shares of common stock are entitled to participate ratably in dividends when
and as declared by our Board of Directors out of the funds legally available
therefore and subject to the rights, if any, of the holders of outstanding
shares of preferred stock. Any such dividends may be paid in cash, property or
additional shares of common stock. We have not paid any dividends since our
inception and presently anticipate that all earnings, if any, will be retained
for development of our business, and that no dividends on the shares of common
stock will be declared in the foreseeable future. Any future dividends will be
subject to the discretion of our Board of Directors and will depend upon, among
other things, our future earnings, operating and financial condition, our
capital requirements, general business conditions and other pertinent facts.
Therefore, there can be no assurance that any dividends on the common stock will
be paid in the future.
Miscellaneous Rights and Provisions.
Holders of common stock have no preemptive or other subscription rights,
conversion rights, redemption or sinking fund provisions. In the event of our
dissolution, whether voluntary or involuntary, each share of common stock is
entitled to share ratably in any assets available for distribution to holders of
our equity after satisfaction of all liabilities and payment of the applicable
liquidation preference of any outstanding shares of preferred stock.
Under Nevada law, stockholders may take certain actions without the holding of a
meeting by a written consent or consents signed by the holders of a majority of
the outstanding shares of the capital stock of the company entitled to vote
thereon. Prompt notice of the taking of any action without a meeting by less
than unanimous consent of the stockholders will be given to those stockholders
who do not consent in writing to the action. The purposes of this provision are
to facilitate action by stockholders and to reduce corporate expense associated
with annual special meetings of the shareholders. If shareholder action is taken
by written consent, we will be required to send each shareholder entitled to
vote on the applicable matter, but whose consent was not solicited, an
information statement containing information about the action taken.
PREFERRED STOCK.
We have authorized the issuance of twenty million (20,000,000) shares of Class A
Preferred Stock with a par value of $0.01 and twenty-million (20,000,000) shares
of Class B Preferred Stock with a par value of $0.01.
31
These shares have such rights and preferences as determined by the Board of
Directors. The Board of Director's ability to issue preferred stock without
further shareholder approval has the potential to delay, defer or prevent a
change in control of the Company.
As of March 31, 2000, there were 15,000 shares of Series A Preferred Stock, par
value $0.01 per share, outstanding. According to the terms of the Security
Purchase Agreement for these shares signed on the same date, such shares were
purchased at a price of $100.00 per share. The shares are (i) validly issued,
fully paid and non-assessable and (ii) free from all taxes, liens and charges
with respect to the issue thereof. All shares of our common stock are declared
junior in rank to such Series A preferred shares.
Dividends.
Regular Dividends. Each holder of the preferred shares shall be entitled to
receive on each July 1 and January 1, or if such date is not a business day, the
immediately subsequent business day, commencing January 1, 2000, dividends at a
rate of eight percent (8%) per annum, computed on the basis of $100.00 per
preferred share. Such dividends shall be cumulative from (and including) the
issuance date of such preferred shares and shall accrue daily, whether or not
earned or declared, thereafter until paid, and shall be calculated on the basis
of a 360 day year. Dividends shall be payable in cash; provided, however, that
in lieu of paying such dividends in cash, we may, at our option, pay any or all
of such dividends by delivery of a number of shares of our common stock equal to
the quotient of (x) the dollar amount of the Regular Dividends to be paid on
such date, divided by (y) the conversion price, as provided by agreement,
determined on the day which is the third (3rd) business day prior to the date.
Participating Dividends. In the event any dividend or other distribution payable
in cash or other property is declared on our common stock, each Series A
preferred shareholder on the record date for such dividend or distribution shall
be entitled to receive, per preferred share on the date of payment or
distribution of such dividend or other distribution, the amount of cash or
property equal to the cash or property which would be received by the Series A
preferred shareholders of the number of shares of common stock into which such
preferred share would be converted immediately prior to such record date.
Conversion.
Any holder of the Series A preferred shares shall be entitled to convert any
whole number of preferred shares into fully paid and nonassessable shares of
Common Stock in accordance with the Certificate of Designations, Preferences and
Rights for such preferred shares. Without our prior consent, a holder shall not
be entitled to convert any preferred shares during the period beginning on and
including the issuance date and ending on and including the date that is 120
days after such issuance date.
We shall not issue any fraction of a share of common stock upon any conversion.
If the issuance would result in the issuance of a fraction of a share of common
stock, we shall round such fraction of a share of common stock up to the nearest
whole share. Each share of the Series A Preferred Stock is convertible at the
lesser of (a) $8.5938 or (b) 80% of the market price of the common stock as
defined in the agreement and is subject to adjustment as provided in the
Certificate of Designations, Preferences and Rights for such preferred shares
which is included as an exhibit to this Registration Statement. Adjustment is
provided for in situations such as, but not limited to: our issuance of options,
our issuance of convertible securities, or our change or alternative treatment
of option prices or prices of conversion.
Voting.
Holders of Series A preferred shares shall have no voting rights, except as
required by law, including but not limited to the General Corporation Law of the
State of Nevada, and as expressly provided in the Certificate of Designations,
Preferences and Rights. The person or persons entitled to receive the shares of
common stock issuable upon a conversion of Series A preferred shares shall be
treated for all purposes as the record holder or holders of such shares of
common stock, with rights described above, on the date of conversion.
Liquidation.
In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Company, the holders of the Series A preferred shares shall be
entitled to receive in cash out of our assets, whether from capital or from
earnings available for distribution to our stockholders, before any amount shall
be paid to the holders of any of our capital stock of any class junior in rank
to the preferred shares in respect of the preferences as to the distributions
and payments upon our liquidation, dissolution and winding up, an amount per
preferred share equal to $100 and any accrued but unpaid Regular Dividends and
Participating Dividends. If insufficient funds are available to fulfill this
obligation, each Series A preferred shareholder would receive his pro rata
share.
Redemption.
In addition to all other rights of the holders of Series A preferred shares,
upon our consummation of a major transaction or triggering event, as defined by
the Certificate of Designations, Preferences and Rights for such preferred
shares, each holder of Series A preferred shares shall have the right, at their
option, to require us to redeem all or a portion of such holder's preferred
shares at a price per Series A preferred share equal to the greater of (i) 125%
of the stated value of such preferred share and (ii) the product of the
conversion rate in effect at such time as such holder delivers a Notice of
Redemption at Option of Buyer and the Closing Sale Price of our common stock on
the date immediately preceding such major transaction or triggering event on
which the principal market, or the market or exchange where the common stock is
then traded, is open for trading.
Taxes.
We shall pay any and all taxes that may be payable with respect to the issuance
and delivery of common stock upon the conversion of Series A preferred shares.
THE FOLLOWING DESCRIPTIONS OF CERTAIN TERMS OF THE DEBENTURES AND WARRANTS DO
NOT PURPORT TO BE COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO
THE DEBENTURES AND WARRANTS PURSUANT TO WHICH THE DEBENTURES AND WARRANTS WERE
ISSUED, A COPY OF WHICH IS AN EXHIBIT TO THE REGISTRATION STATEMENT.
TERMS (WHETHER OR NOT CAPITALIZED) USED BUT NOT DEFINED IN THIS SECTION HAVE THE
MEANINGS GIVEN TO THEM IN THE RESPECTIVE WARRANTS OR DEBENTURES.
WARRANTS.
MAY 1999 WARRANTS.
In General.
We have warrants outstanding to purchase 20,000 common shares at an exercise
price of $4.00 per share. These warrants are exercisable on any date until May
12, 2000. In addition, we have warrants outstanding to purchase 20,000 common
shares at an exercise price of $7.00 per share. These warrants are exercisable
on any date until May 13, 2000. These warrants carry no other rights or
provisions.
JULY 1999 WARRANTS.
In General.
We currently have Warrants outstanding affording the holders thereof the
opportunity to purchase a total of 223,881 shares of our common stock. The
holders of the Warrants are entitled to purchase each share of common stock at a
price of $10.31 per common share (subject to adjustment as hereinafter provided)
at any time until 11:59 p.m. Central Time on July 16, 2002. Unless exercised,
the Warrants will automatically expire on July 16, 2002. The Warrant Agreement
may be amended, subject to certain exceptions, by the Company and the warrant
agent with the consent in writing of the holders of at least a majority of the
Warrants, provided that no such action may increase the Warrant Exercise Price
of the Warrants or decrease the number of shares or class of stock obtainable
upon exercise of any Warrants without the written consent of the holder of such
Warrant.
Adjustment of Warrant Exercise Price.
The Warrant Exercise Price and the number of shares of common stock issuable
upon exercise of the Warrant may be adjusted from time to time due to our
subsequent issuance of any shares of common stock not issued in connection with
an approved stock plan or upon exercise or conversion of the other Securities,
our issuance of options, our issuance of convertible securities, our declaration
of dividends or subscription rights, our subdivision or combination of common
stock, our distribution of our assets other than dividends, or other certain
events undertaken on our part including, without limitation, the granting of
stock appreciation rights, phantom stock rights or other rights with equity
features.
Immediately upon any adjustment of the Warrant Exercise Price, we are required
to give written notice thereof to the holders of these Warrants, setting forth
in reasonable detail, and certifying the calculation of such adjustment.
Further, we are required to give written notice to the holders of these Warrants
at least twenty (20) days prior to the date on which we close our books or take
a record (a) with respect to any dividend or distribution upon the common stock,
(b) with respect to any pro rata subscription offer to holders of common stock
or (c) for determining rights to vote with respect to any organic change,
dissolution or liquidation, provided that such information shall be made known
to the public prior to or in conjunction with such notice being provided to such
holder.
Failure to Issue.
If we shall fail for any reason or for no reason to issue to the holder, on a
timely basis as described in the Warrant, a certificate for the number of shares
of common stock to which the holder is entitled upon the holder's exercise of
this Warrant or a new Warrant for the number of shares of common stock to which
such holder is entitled pursuant to the Warrant, we shall pay the amount of
0.25% of the product of (a) the number of shares of common stock not issued to
the holder on a timely basis and to which the holder is entitled and/or, the
number of shares represented by the portion of this Warrant which is not being
converted, as the case may be, and (b) the average of the closing bid price of
our common stock for the three consecutive trading days immediately preceding
the last possible date which we could have issued such common stock or Warrant,
as the case may be, to the holder as additional damages in cash each day the
issuance of such common stock certificate or new Warrant, as the case may be, is
not timely effected.
Taxes.
We shall pay any and all taxes which may be payable with respect to the issuance
and delivery of Securities upon exercise of the Warrant.
JULY 1999 WARRANTS.
In General.
We have warrants outstanding to purchase 18,000 common shares at an exercise
price of $4.00 per share. These warrants are exercisable on any date until July
26, 2000. In addition, we have warrants outstanding to purchase 50,000 common
shares at an exercise price of $4.00 per share. These warrants are exercisable
on any date until July 29, 2000. These warrants carry no other rights or
provisions.
DEBENTURES.
In General.
We have $1,000,000 of 7.0% convertible debentures to Calp II LP, a Bermuda
corporation with a mailing address in Toronto, Ontario outstanding, which mature
on June 14, 2002. After the date of issuance and continuing until the maturity
date of the Debentures, the Debentures may be converted, at the option of the
holder, into shares of our common stock, $0.001 par value per share at a
conversion price equal to the lesser of $8.50 or 80.0% of the 5 day average
closing bid price as reported by Bloomberg, LP for the five consecutive trading
days prior to the conversion date. (see item 4 recent sales of unregistered
securities)
DEFAULT UNDER PREFERRED STOCK
Commencing April 25, 2000, we have received notices from Cranshire Capital, L.P.,
The DotCom Fund, LLC, S Roberts Productions, LLC and Keyway Investments Limited,
the subscribers to the Company's Series A Convertible Preferred Stock that each
seeks redemption of its holdings, a total of 15,000 preferred shares issued
to these investors. The investors seek $1,875,000 for the redemption of their
Series A Preferred Stock plus all accrued but unpaid dividends and all accrued
but unpaid liquidated damages. The redemption requirement (See Item. 8 entitled
"Description of Securities" under the heading "PREFERRED STOCK-Redemption" as
set forth in the Company's Form 10-SB/A as filed on or about August 24, 2000)
applies unless the Company performs as required under its agreements with the
holders, including registering the Common Stock issuable upon conversion
by the holders. The Company has not filed the registration statement, as and
when required. The Company is also required to cause a registration statement
covering the shares to be declared effective before November, 2000. The Company
is unable to pay the redemption price at this time. The Company's funds are
insufficient to redeem the preferred stock and also thereafter provide for the
payment of all of its creditors, and therefore the present default situation is
expected to continue at least until a registration statement is filed and
declared effective as required of the Company under these Series A Preferred
Stock registration rights. Until this redemption price shall have been paid by
the Company, the holders who have demanded redemption will continue to have the
ability to convert their shares of Preferred Stock into previously unissued
shares of TrimFast common stock. The Company issued 15,000 shares of Series A
Convertible Preferred Stock for $100 per share, and each is convertible any time
after the issuance date at the face amount divided by the lesser of (a) $8.5938
or (b) 80% of the market price of the common stock as defined in the Agreement,
which is defined based on a relevant average during a period before a given
conversion date. The redemption notices were given commencing April 25, 2000.
Therefore, the Company has decided that it will in its June 30, 2000 financial
reports reclassify the preferred stock as a short-term liability in light of the
present demands for redemption, and reduce stockholders' equity by about
$1,875,000, which is the amount of its redemption obligation at the date of the
balance sheet, plus all accrued dividends and liquidated damages accrued, as
required according to Rules 5-02.28 of Regulation S-X and SAB Topic 3C. The
redemption rights were triggered by the existence of a triggering event, as
defined by the Certificate of Designations, Preferences and Rights for such
preferred shares, and therefore each holder of Series A preferred shares shall
have the right, at their option, to require us to redeem all or a portion of
such holder's preferred shares.
The Company has already defaulted under the Registration Rights that belong to
the holders of the outstanding Preferred Stock,and this default will continue so
long as the Company (a) has failed to file a registration statement covering the
Common Stock issuable upon conversion of the Preferred Stock or (b)fails to have
a registration statement declared effective by the Securities and Exchange
Commission. While the default continues,Company shall automatically be subjected
to penalties. The Company for each month or partial month while the default is
continuing shall be required to make a payment to the holder. We cannot predict
when a registration statement will be filed and be declared effective. The
Registration Rights Agreement is filed as Exhibit 10.11 to the Company's Form
10-SB/A amendment number 5 filed on or about August 24, 2000.The Preferred Share
Agreement is filed as Exhibit 4.4 to the Company's Form 10-SB/A filed on
December 23, 1999.
The amount payable on redemption of one share is $125 multiplied by the number
of shares redeemed (which is 15,000 shares,or $1,875,000), plus accrued dividends
to the date of redemption, at the rate of $8.00 per share per year from June 1999,
plus applicable liquidated damages. Liquidated damages accrue under the
Registration Rights Agreement and under the Series A Preferred Share Agreement.
If the Company violates any provision of or fails to fulfill any of its
obligations or duties to the holders of outstanding Preferred Stock, other than
the Registration Rights Agreement, the Company agrees to pay liquidated damages
to each Buyer following the occurrence of such violation in an amount determined
by multiplying (i) $2.00 per Preferred Share then held by such Buyer by (ii) the
percentage derived by dividing (A)the actual number of days elapsed from the last
day of the date of the Company Violation or the prior 30-day period,as applicable,
to the day such Company Violation has been completely cured by (B) 30, in cash,
or at the Buyer's option, in the number of shares of Company common stock equal
to the quotient of (v) the dollar amount of the Liquidated Damages on the Payment
Date (as defined below) divided by (w) the closing bid price of the Company's
common stock as of the date of the Company Violation (as quoted in the Principal
Market or the market or exchange where the Company's common stock is then traded).
The Liquidated Damages payable pursuant hereto shall be payable within five (5)
business days from the end of the calendar month commencing on the first calendar
month in which the Company's violation occurs. In the event the Buyer elects to
receive the Liquidated Damages amount in shares of Company common stock, such
shares shall also be considered Conversion Shares and shall have the registration
rights set forth in the Registration Rights Agreement.
Interest.
Interest will be paid on the Debentures at a rate of 7.0% per annum, at the time
of any conversion, with respect to the principal amount of the Debenture being
converted, until the principal amount is paid in full or has been converted
entirely. Interest may be paid in cash or shares of common stock, at our option.
Redemption.
With our twenty (20) days notice, we may redeem the Debentures in whole or in
part at any such time as the closing bid price of our common stock, as reported
by Bloomberg, LP, falls to $6.00 or less at a redemption price equal to the
principal amount of the Debenture being redeemed plus accrued interest on such
amount and the profit that the holder would have received upon conversions of
that portion of the Debenture being redeemed.
Marketability.
There is no public market for the Debentures and a limited public market for our
common stock. There can be no assurance that a public market will develop for
the Debentures or that the public market for the common stock will continue. The
terms of the Debentures were determined by negotiation between the parties bound
thereby and do not necessarily bear any direct relationship to our assets,
earnings, book value per share or other generally accepted criteria of value.
Our common stock is presently quoted on the OTCBB under the trading symbol
"TRIM."
Taxes and Fees.
We shall pay any and all documentary, stamp, or similar issue or transfer tax
due on the issue of shares of common stock upon conversion of the Debenture.
Conversion of Debentures.
The holder of a Debenture will be entitled at any time prior to the close of
business on June 14, 2002, subject to prior redemption and conversion, to
convert the Debentures in denominations of $5,000, or multiples thereof, at the
principal amount thereof, into shares of our common stock at the conversion
price of the lesser of $8.50 or 80.0% of the 5-day average closing bid price as
reported by Bloomberg, LP, for the five consecutive trading days prior to the
conversion date. We will not issue fractional shares upon conversion of
Debentures. Instead, we will round up or down, as the case may be, to the
nearest whole share.
The number of shares of common stock purchasable upon the conversion of the
debenture is subject to adjustment in certain events, as set forth in the
Debentures. Such adjustments include the issuance of our stock as a dividend or
distribution on the common stock; subdivisions, combinations and
reclassifications of the common stock; the issuance to all holders of common
stock of certain rights (but only when the rights become exercisable) or
warrants entitling them to subscribe for our common stock at less than the
current market price; except for cash dividends permitted by the Indenture, the
distribution to all holders of our common stock of our assets or debt securities
or rights (other than those referred to above, but only when such additional
rights become exercisable) or warrants (other than those referred to above) to
purchase our assets, debt securities or other securities; the issuance, in
certain circumstances, of shares of our common stock for less than the then
current market price; and the issuance in certain circumstances of securities
which are convertible into or exchangeable for common stock (other than pursuant
to transactions described above) for a consideration per share less than the
then current market price of the common stock.
If we consolidate or merge with or into or transfer or lease all or
substantially all of our assets to any person, the person must assume in writing
our obligations under the Debenture.
Events of Default.
In the event that the common stock is not delivered per the written instruction
of the Debenture holder, within seven (7) business days of the conversion date,
we must pay the Debenture holder one percent (1.0%) in cash of the dollar value
of the Debentures being converted per each day after the seventh (7th) business
day following the conversion date that the common stock is not delivered. A
provision for liquidated damages is also included in the Debenture in order to
provide for damages that would be difficult to ascertain in the case of default
on our part.
Should the delivery of shares of common stock upon conversion be delayed by our
failure to have the common stock necessary for complete conversion available, we
have agreed to pay to all holders of the outstanding Debentures for conversion
default. The exact terms of such conversion default payment are included in the
Debenture.
An Event of Default occurs if we default in payment of any principal of the
Debenture when the same becomes due and payable at maturity, upon redemption or
otherwise; default for five (5) business days on a payment other than the
principal; fail to comply with the provisions of the Debenture for the period
and after the notice required by the Debenture; engage in certain events of
bankruptcy, insolvency or reorganization; or fail to maintain listing on any
recognized exchange including the OTCBB. We must cure such default within five
(5) business days of such notice as provided for in the Debenture, or the
Debenture holder will have the right to accelerate the payments due and declare
the remaining principal amount of the Debenture to be due and payable upon such
failure to cure.
SHARES ELIGIBLE FOR FUTURE SALE.
A significant portion of the shares of our common stock currently outstanding
are "restricted securities" within the meaning of Rule 144 promulgated under the
Securities Act, and may not be sold except in compliance with the registration
requirements of the Securities Act or an applicable exemption under the
Securities Act, including an exemption pursuant to Rule 144 thereunder.
In general, under Rule 144 as currently in effect, any of our affiliates and any
person (or persons whose sales are aggregated) who has beneficially owned his or
her restricted shares for at least one year, may be entitled to sell in the open
market within any three-month period a number of shares of common stock that
does not exceed the greater of (i) 1% of the then outstanding shares of our
common stock, or (ii) the average weekly trading volume in the common stock
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain limitations on manner of sale, notice requirements, and
availability of current public information about us. Non-affiliates who have
held their restricted shares for one year may be entitled to sell their shares
under Rule 144 without regard to any of the above limitations, provided they
have not been affiliates for the three months preceding such sale.
Further, Rule 144A as currently in effect, in general, permits unlimited resales
of certain restricted securities of any issuer provided that the purchaser is an
institution that owns and invests on a discretionary basis at least $100 million
in securities or is a registered broker-dealer that owns and invests $10 million
in securities. Rule 144A allows our existing stockholders to sell their shares
of common stock to such institutions and registered broker-dealers without
regard to any volume or other restrictions. Unlike under Rule 144, restricted
securities sold under Rule 144A to non-affiliates do not lose their status as
restricted securities.
TRANSFER AGENT.
Florida Atlantic Stock Transfer, located in Tamarac, Florida, has recently been
appointed the transfer agent of our common stock and preferred stock. Our prior
transfer agent was in Nevada, and we wanted to appoint a transfer agent in the
Eastern Standard Time Zone for convenience purposes.
PART II.
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information.
Our common stock is currently traded on the National Quotation Service Inc.'s
pink sheets under the symbol "TRIM." As of December 31, 1999, there were
4,521,682 common shares and 15,000 preferred shares outstanding. There is
limited trading activity in our securities, and there can be no assurance a
regular trading market for our common stock will be sustained.
The following table sets forth, for the period indicated, the bid price range of
our common stock. Please note that the prices reflected prior to August 12, 1998
reflect those of World Group and are not representative of the current business
activities reflected throughout this registration statement.
High Bid Low Bid
-------- -------
1997
Quarter Ended March 31, 1997 $ 9.00 $ 3.37
Quarter Ended June 30, 1997 5.50 1.55
Quarter Ended September 30, 1997 3.75 1.50
Quarter Ended December 31, 1997 2.62 0.25
1998
Quarter Ended March 31, 1998 $ 12.50 $ 2.50
Quarter Ended June 30, 1998 5.31 3.10
Quarter Ended September 30, 1998 2.60 1.50
Quarter Ended December 31, 1998 5.30 1.20
1999
Quarter Ended March 31, 1999 $ 6.31 $ 2.75
Quarter Ended June 30, 1999 10.37 5.12
Quarter Ended September 30, 1999 9.19 7.06
Quarter Ended December 31, 1999 7.31 4.00
2000
Quarter Ended March 31, 2000 7.25 3.50
Quarter Ended June 30, 2000 3.875 1.0469
Quarter ending September 30, 2000 2.8438 0.7969
(to August 21, 2000)
Such market quotations reflect the high bid and low prices as reflected by the
OTC BB or by prices, without retail mark-up, markdown or commissions and may not
necessarily represent actual transactions. The following companies serve as
market makers for our securities: D.L.Cromwell, Wilson-Davis & Co., Inc.
and Knight Securities, L.P. The trading in our shares may be sporadic.
Holders.
As of March 31, 2000 there were approximately 196 holders of record of our
common stock.
Dividends.
We have not paid any cash dividends since our inception, and the Board of
Directors does not contemplate doing so in the near future. Dividends payments
on the common stock are restricted while any shares of preferred stock or
debentures remain outstanding. Loan agreements entered into in the future will
likely restrict the payment of dividends. Any decisions as to future payment of
dividends will also depend on our earnings and financial position and such other
factors as the Board of Directors deems relevant.
ITEM 2. LEGAL PROCEEDINGS
Product Liability.
In early 1999, our product, Revivarant, which contains the chemical GBL was
determined by the Food and Drug Administration to be unsafe for human
consumption. Pursuant to a voluntary arrangement with the Food and Drug
Administration, the product was recalled and removed from sale. Since the time
of the recall, we have been subject to five known lawsuits and three
notifications of possible claims relating to consumer use of this product. As of
the date of this report, only one lawsuit has claimed a specific dollar amount
of damages, specifically, $400,000 of compensatory damages and $350,000 of
punitive damages.
At the time that the alleged causes of action arose, our third party
manufacturer had an insurance policy in the amount of $1,000,000 per occurrence
and up to $2,000,000 in the aggregate. We had received a certificate of
insurance from the insurer under such policy. We have since obtained a company
owned policy with an effective date of May 27, 1999. Our company owned product
liability insurance will not be available to cover these claims, should we be
found liable. The claims have been denied under our third party manufacturer's
policy. We intend to contest the claim denials. As such, if we are found
liable for these claims, our business, results of operations and financial
condition could be adversely affected, including that we may be unable to
continue in business. We intend to vigorously oppose any factual basis for
imposition of punitive damages based upon research and efforts made prior to the
distribution of the Revivarant product to determine its safety. We estimate
that the total damages sought in these cases may be, in the aggregate, millions
of dollars. Our management and outside legal counsel are unable to evaluate and
determine the likely outcome of each cause of action.
The Revivarant Suits.
An action was filed in the District Court of the Fourth District of Idaho on
June 7, 1999 (Case No. CV PI 9900250D; Jensen v. Body Life Sciences, Inc. &
Trimfast Group, Inc.). In this case, the Plaintiff has requested an unspecified
amount of damages "to be proven at the time of trial, including punitive
damages."
On June 14, 1999 an action was filed in the Circuit Court for Harrison County,
Mississippi (Sheri Peck v. Trimfast Group, Inc., Body Life Sciences et al.) Case
No.CV-PI_99-250D). In the Peck case, the Plaintiff has requested an unspecified
amount of "actual, compensatory and punitive damages."
On April 5, 1999, an action was filed in the Circuit Court of Tennessee for the
Thirteenth Judicial District at Memphis (Case No. 99-3121; Cliffton v. Body Life
Sciences, Inc.), seeking $400,000 in compensatory damages and $350,000 in
punitive damages. The consumer of the product alleges serious harm, including
seizures and loss of consciousness requiring hospitalization, from the
consumption of Revivarant.
On August 6, 1999, an action was filed (Shaw v. Body Life Sciences, Inc.
Trimfast Group, Inc., et al, State Court in Fulton County, State of Georgia,
Case No. 99-US156301-E) against Body Life Sciences by Bryan Shaw resulting from
the use of Revivarant. In this case the Plaintiff has requested an unspecified
amount of damages.
In October 22,1999, an action (Brooks vs. Body Life Sciences, Inc. Trimfast,
Inc. et al. U.S. District Court, Western District of the State of Tennessee Case
No. 00-2300-GA) was filed against us seeking an unspecified amount of damages
resulting from the use of Revivarant.
Since our company owned product liability insurance only became effective on May
27, 1999, we may have no insurance coverage, other than any coverage that we may
have under our third party manufacturer's policy, for the above mentioned claims
or for future claims relating to the sale of Revivarant. All claims that we
have submitted to our third party manufacturers insurance company have been
denied. Further, we have insufficient assets available to pay any such product
liability claims. Any judgment or claim in favor of the Claimant could have a
materially adverse effect on our results of operations, our financial condition
and liquidity, including that we may be unable to continue in business.
We are presently engaged in various legal actions as mentioned above, although
ultimate liability for such other actions cannot be determined at the present
time. As a result, our business could be adversely affected, including that we
may not be able to continue in business.
Intellectual Property.
In June of 1999, we received a written communication from counsel for Slimfast
Foods Company including a demand to cease and desist use of the TrimFast name.
To date, no litigation has been filed in this matter, and management feels
confident that our registration of the name with the U.S. Patent and Trademark
office as well as the State of Florida will be sufficient to defend this usage.
We believe that there is no confusion between the TrimFast and Slimfast in the
marketplace, and the matter has been referred to outside counsel for an opinion
on this matter. Should Slimfast Foods Company file suit in this matter and a
judgment be rendered against us, it could have a material adverse effect on our
business and operations. On July 21, 2000 we entered into a settlement
agreement with Slim-Fast Foods Co. whereby it is agreed that we will discontinue
the use of the name TrimFast on our weight loss bars after September 20, 2000
and immediately discontinue using TRIMFAST as a product name or mark in all
other instances. It was further agreed that we can continue to use the name
TrimFast on our weight loss capsules sold through specified sales channels. In
exchange, Slim-Fast has agreed to discontinue their claim against the Company.
Breach of Contract.
Phillips Pharmatech Labs filed suit against us on July 12,1999 (County Court
Pinellas 99-004791; Phillips Pharmatech Labs v. Body Life Sciences, Inc.)
seeking damages in the amount of $14,000 in outstanding invoices for prior
products not delivered. We have not had the opportunity to evaluate the
likelihood of an unfavorable outcome in this suit, but plan to vigorously defend
this action. Should a judgment be granted against us, the amount should not
exceed the damages claimed.
On June 14, 1999, a suit was filed against us for breach of contract (Case No.
99-8611CC; L.N. Label Company, Inc. v. Trimfast, Inc.) claiming damages in
the amount of approximately $10,500.00 as a result of labels being produced for
us. We have not had the opportunity to evaluate the likelihood of an unfavorable
outcome in this suit, but plan to vigorously defend this action. Should a
judgment be granted against us, the amount should not exceed the damages
claimed.
On April 21, 1999, a suit was filed against us for breach of contract (Case No.
99-5117CC; Graffiti Graphics Corporation v. Trimfast, Inc.) claiming damages in
the amount of approximately $5,500.00. A judgment was awarded against us in the
amount of $6,442.95. Plaintiff has garnished our bank account for this amount
and a satisfaction of judgment should be forthcoming.
On June 1, 1999, a suit was filed against us for breach of contract (Supreme
Court of New Jersey Docket # BER-L-4756-99; Kingchem, Inc. v. TrimFast Group,
Inc.) claiming damages in the amount of approximately $35,000. Kingchem was one
of our suppliers, until a dispute arose about the quantity of supplies that had
been delivered to us. A default judgment has been entered against us in this
matter in the amount of $34,949.
On March 27 2000, a suit was filed against us for breach of contract (United
States District Court for the Southern District of New York Docket # 00CV229
Gainsford Ventures, Inc. v. TrimFast Group, Inc. Harry Kay, Arcobel Investment
and Interwest Transfer). The suit alleges, that 600,000 shares of the TrimFast
stock, which was previously owned by Kay, were improperly canceled by us while
still validly owned by the Plaintiff Gainsford Ventures, SA. Gainsford has
demanded the removal of the stop transfer order from their share certificate(s)
or in the alternative demanded that the company reissue new share certificates.
Gainsford has also alleged in its complaint a breach of fiduciary responsibility
on the part of our Company. In addition to the allegations made by Gainsford
Ventures, Royalsea International Incorporated, a Panamanian corporation has
alleged a breach of a consulting agreement with us and is seeking the issuance
of 270, 000 shares of the company's common stock. In addition to the remedies
set forth herein, the Plaintiffs seek $100,000 in compensatory damages and
$10,000,000 in punitive damages. We have not had the opportunity to evaluate
whether we will prevail in this suit, but plan to vigorously defend this action.
Should a judgment be granted against us, the amount should not exceed the
damages claimed. A damage award could have an adverse effect upon our
operations and financial condition. On August 2, 2000 the case against
TrimFast by Gainsford Ventures was dismissed with prejudice pending a voluntary
settlement agreement being finalized. The case could be reinitiated only if such
settlement agreement is not executed and carried out between the parties and
only after September 1, 2000. The Company believes that such settlement, if
finalized, will result in the lawsuit being continued in a state court rather
than in the Federal court.
On February 8, 2000, a suit was filed against us in Pinellas County Circuit
Court (Case No. 00-802) Aryeh Trading Inc, Plaintiff vs. Trimfast Group, Inc.
The action in Pinellas County Circuit Court seeks specific performance pursuant
to an agreement for us to purchase 155,000 shares of our common stock from
Aryeh. The Plaintiff also seeks to foreclose on our warehouse facility located
at 2555 Blackburn St., Clearwater, Florida, the facility from which we operate
Nutrition Cafe. We have filed a Motion to Dismiss with respect to both causes
of action. Discovery is beginning and no opinion is available as to the likely
result. Aryeh Trading Inc. was formerly market maker for our securities until
approximately November 1, 1999. See also Note 8, entitled "Litigation," under
the subheading "Breach of Contract" in the Notes to the Consolidated Interim
Financial Statements herein.
Francois Goelo had filed an action in Hillsboro County Circuit Court(Case No.
00-1444) against TrimFast Group, Inc.,Michael Muzio and certain other parties
in connection with alleged non-delivery of 22,000 shares of TrimFast and 100,000
shares of common stock of Sierra Holdings Group. The complaint,is a multi-count
complaint and included counts for breach of contract, specific performance,
fraud and civil theft.The complaint alleged that a total of $95,750 ($77,000 for
the TrimFast shares) was delivered as per the instructions of Mr. Muzio. The
shares of common stock that had not been delivered to Mr. Goelo, as Mr.
Muzio has advised the Company, were shares of common stock personally owned by
Mr. Muzio. The Plaintiff sought delivery of the shares of common stock
pursuant to the agreement and sought compensatory and punitive damages in excess
of $790,000. On May 3, 2000 plaintiff offered to settle this matter whereby Mr.
Muzio would pay $95,750 and transfer to the plaintiff 20,000 shares of TrimFast
common stock. In addition, the settlement offer provided that the parties will
enter into a joint stipulation for dismissal of the action and execution of a
general release. We subsequently signed a written settlement agreement with Mr.
Goelo and Mr. Muzio, and Mr. Goelo has released the other parties, including the
Company, from all liabilities or obligations. As part of this settlement, the
litigation was dismissed and the Company was not required to make any payment,
or give any shares, to Mr. Goelo.
Popov and McCullogh LLP v. Trimfast
On February 4, 2000, a suit was filed against us in Superior Court, San Diego
County California.(Case No. GIC-742910) Popov and McCullogh LLP, Plaintiff vs.
TrimFast Group, Inc., Defendant. The case alleges that during 1999 Popov and
McCullogh LLP performed services on behalf of TrimFast Group, Inc. and was never
compensated for those services. The Plaintiff seeks payment for services
rendered in the amount of $5,978.59. We have not had the opportunity to evaluate
the likelihood of an unfavorable outcome in this suit.
Other.
In 1999, we initiated a legal proceeding against a former major customer in
April of 1999 (Case No. 99-003807; Body Life Sciences, Inc. v. Threshold
Technology, Inc.) to collect amounts receivable from such customer in an
approximate amount of $535,000.00 as of December 31, 1998. Such receivables
related to products sold to that customer during 1998, a portion of which were
voluntarily recalled by us in January 1999, but never returned by the customer.
The amounts recalled included 27 boxes of (12 count) 32oz. Revivarant, 1 Box of
(9 count) 32oz. Revivarant, 3 Bottles of 4oz. Revivarant, 29 Boxes of (12 count)
200g Revivarant and some individual products from these lines. These products
were voluntarily recalled because they contained GBL, which was found by the FDA
to cause significant and potentially dangerous sedating effects. These products
have no commercial value as they were recalled.
We have had difficulty ascertaining the domicile of corporation, and are in the
process of attempting to confirm that we are making a claim against the
appropriate defendant. Once this is ascertained, we will proceed with this
action.
Bankruptcy.
We incorporated HLHK International Systems Pte Ltd., as a wholly owned
subsidiary in the State of Nevada on July 8, 1996 to conduct telecommunications
business in Malaysia and Singapore. This entity filed for bankruptcy protection
in Singapore, and pursuant to The Companies Act Cap 50, the affairs of HLHK
Interactive were wound up by High Court Order No. 84 of 1988 on May 22, 1998. We
have no operations through this subsidiary and do not plan to have operations
through this subsidiary in the future.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The accounting firm of Schvaneveldt and Company previously audited our financial
statements. As a result of the stock exchange agreement entered into between the
Shareholders of Trimfast, Inc. and us on August 12, 1998, there was a change in
control of the Company and a relocation of our principal place of business from
Las Vegas, Nevada to Tampa, Florida. As a result of this move, the Board of
Directors felt that we would be better served by retaining an accounting firm
located in the State of Florida. As a result, we engaged the firm of Weinberg &
Co. to conduct our latest audit.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On August 12, 1998, while we were still known as HLHK World Group, Inc., and
while we had a total of 817,749 shares of common stock issued and outstanding,
we acquired 100% of the issued and outstanding common stock of Trimfast, Inc., a
Florida corporation, in exchange for 1,370,049 shares of our stock. Under this
exchange every 3 of our shares were exchanged for every 1 of Trimfast, Inc.'s
shares. Concurrent with the acquisition, 5,500 additional shares of common stock
were issued to an attorney and an employee.
On August 12, 1998, concurrent with our acquisition of Trimfast, Inc., Florida,
we issued 75,000 shares of our common stock to our principal stockholder, in
exchange for $491,198 which we owed to him.
In December 1998, our principal stockholder and president, Mike Muzio, exchanged
$126,644 of loans due to his wholly owned affiliates for 70,358 shares of our
common stock valued at a market price of $1.80 per share based upon the trading
price of our common stock at the exchange date.
During 1999, we issued 44,500 shares of our common stock to unrelated parties in
exchange for loans payable of $70,125 plus accred interest resulting in a loss
on extinguishment of debt of $150,979.
During 1999, we issued 7,321 shares of common stock to an unrelated party in
exchange for the remaining unpaid balance of a loan payable plus accred interest
of a total of $30,882.
During 1999, one of our principal stockholder returned 50,000 shares of our
common stock to us to settle $400,000 of liabilities owed to us.
During 1999, we issued 655,005 shares of our common stock to unrelated parties
for cash consideration of $635,750. Included in these shares are the 155,000
restricted shares of common stock issued to Aryeh Trading for $4.00 each, and
the shares were not purchased for distribution or resale by Aryeh. Under
agreements dated October 22, 1999 and November 10, 1999 the Company is obligated
to repurchase these shares. To date none of the 155,000 shares have been
repurchased. See Part II,Item 2, entitled "Legal Proceedings-Breach of Contract."
We believe Section 4(2) under the Securities Act of 1933 provides an exemption
for each and every such private offering.
During 1999, we issued 918,300 shares of our common stock to consultants and
other professionals, in exchange for consulting and other professional services
during 1999 and payment of software, all of which was valued at $4,745,061
During 1999, we issued 104,900 shares of our common stock to employees for
$500,180 representing bonuses to these employees. The shares of common stock
were valued for accounting purposes on the trading price of the grant date of
the commons stock.
During 1999, we issued 100,000 shares of common stock valued at $4.75 per share
to an escrow account as a $475,000 security deposit for an inventory line of
credit.
During 2000, we issued 570,000 shares of common stock valued at $4.80 per share
for the acquisition of Nutrition Clubstores, Inc.
During 2000, we issued 10,000 shares of common stock valued at $4.88 per share
for legal services rendered in connection with various SEC filings.
On April 25, 2000 the Company entered into two convertible debenture agreements,
with Gibralt U.S., Inc., a Colorado Corporation and FAC Enterprises, Inc. a
Pennsylvania Corporation, each providing for the sale of $500,000 of its
convertible debentures due July 13,2001 with interest at 12%. This sale was part
of a private placement in which the Company intends to sell an aggregate of
$3,000,000 of debentures, but no assurance is made that we will be able to do so.
The proceeds will be used to open additional Nutrition Clubstores and produce
and broadcast the commercial spots for our WCW Ultra Energy Bars. On April 28,
2000 we received the first $1,000,000. The outstanding principal amount of
debentures is convertible at the option of the holder into the Company's Common
Stock at the lower of (I) Two and 50/100 Dollars ($2.50) per share; or (ii)
seventy-five percent (75%) of the closing bid price of the Company's publicly
traded common stock on the Closing Date. As to the Closing on April 28, 2000,the
conversion price is therefore about $2.00 per share for the first $1,000,000 of
debentures. No later than June 9, 2000, the Company was required to fi1e a
registration statement on Form S-2 under the Securities Act and under all
applicab1e Blue Sky laws covering the Common Stock. By August 26, 2000, the
Company is required to have caused such registration statement to be declared
effective by the SEC, all at the Company's sole cost and expense.
Because the Company (a) has failed to file a registration statement covering the
Common Stock issuable upon conversion of the Convertible Debentures, within 45
days of the first Closing Date and (b) in the event the Company fails to have a
registration statement declared effective by the Securities and Exchange
Commission within 120 days of the first Closing Date,Company shall automatically
be subjected to penalties. The Company for each month or partial month while the
default is continuing shall either: (a) Make a payment of Fifty Thousand Dollars
($50,000) to the Purchaser; or (b)deliver Twenty Thousand (20,000) shares of the
Company's common stock to the Purchaser, whichever the Purchaser elects. The
purchasers in the aggregate therefore, may receive up to One Hundred Thousand
Dollars ($100,000) in cash per month commencing June 9, 2000. We cannot predict
when a registration statement will be filed and be declared effective. As of
August 9, 2000, the liquidated damages amounted to $200,000, in cash, or 80,000
shares of Common Stock. We have granted the purchasers a security interest in
all of the 500,000 shares of common stock of Insiderstreet.com (NSDR) that our
Company owns to secure our obligations to the debentureholders. The Company's
president, Mr. Mike Muzio,also owns some shares of Insiderstreet.com. Originally,
he had contributed the 500,000 shares of Insiderstreet.com to the Company. In
total,Mr.Muzio and TrimFast own about 20%of the voting stock of Insiderstreet.com.
The Company owns 500,000 shares, about 4%, of Insiderstreet.com.
The above issuances of our common stock were made by us in reliance upon the
exemption from registration contained in Section 4(2) of the Act. We believe
Section 4(2) was available because there was no general solicitation or
advertising used in connection with the offering and the transaction did not
involve a public offering.
We conducted an offering pursuant to Rule 504 of Regulation D of the Securities
Act of 1933, as amended, raising total cash proceeds of $934,500 and resulting
in the issuance of 403,000 shares of common stock. At the time of the offering,
we were not subject to the reporting requirements of Section 13 of 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). We were not a
development stage company at the time of the offering and had not raised funds
in the twelve months prior to the offering in reliance on Section 3(b) of the
Act. A Form D was filed in connection with the offering. These shares were
purchased from February 9, 1999 through April 5, 1999. Each shareholder in this
offering received subscription documents stating that the securities had not
been registered under the Act, and subsequently made representations that they
were purchasing for investment purposes only and not with a view toward
distribution of the securities.
In May of 1999, we issued warrants for the purchase of 40,000 shares of our
common stock in exchange for placement services. Of these, 20,000 were issued to
Cranshire Capital and were exercisable on any date until May 12, 2000 at a price
of $4.00 per share. The remaining 20,000 were issued to Namex and were
exercisable on any date until May 13, 2000 at a price of $7.00 per share. These
warrants were issued without registration in reliance on the exemption from
registration provided in Section 4(2)of the Securities Act. The warrants expired
unexercised.
In June 1999, we issued a total of $1,000,000 in convertible debentures to Calp
II LP, a Bermuda corporation with a mailing address in Toronto, Ontario, out of
a total offering of $3 million which mature on June 14, 2002. After the date of
issuance and continuing until the maturity date of the Debentures, the
Debentures may be converted, at the option of the holder, into shares of our
common stock, $0.001 par value per share at a conversion price equal to the
lesser of $8.50 or 80.0% of the 5 day average closing bid price as reported by
Bloomberg, LP for the five consecutive trading days prior to the conversion
date. The Company issued these debentures in reliance upon the exemption from
registration contained in Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. The issuance of the convertible debenture was an
isolated issuance of securities to a non-U.S. entity, which is also an
accredited investor. We believe section 4(2) was available because there was no
general solicitation or advertising used in connection with the offering and the
transaction did not involve a public offering.
In July 1999, we issued 15,000 Class A convertible preferred shares and 223,881
warrants. The Company issued 15,000 shares of Series A Convertible Preferred
Stock for $100 per share, and each is convertible any time after the issuance
date at the face amount divided by the lesser of (a) $8.5938 or (b) 80% of the
market price of the common stock as defined in the Agreement, which is defined
based on a relevant average during a period before a given conversion date.
Cranshire Capital purchased 5,000 preferred shares and 74,627 warrants for
consideration of $300,010. Dotcom Fund purchased 3,000 preferred shares and
44,776 warrants for consideration of $500,010. Keyway Investments purchased
5,000 preferred shares and 74,627 warrants for $500,010. Robert Productions,
Inc. purchased 2,000 preferred shares and 29,851 warrants for consideration
of $200,010. The debentures contain a beneficial conversion feature whereby
the stock is convertible any time after the issuance date at the lesser of (a)
$8.5938 or (b) 80% of the market price of the common stock as defined in the
Agreement. The preferred stock entitled the holder to receive on each July 1,
and January 1, commencing January 1, 2000 cumulative dividends at 8% per annum
computed on the basis of $100 per preferred stock. The warrants are exercisable
at any time until July 16, 2002 at an exercise price of $10.31per share and vest
immediately. The Company relied upon the exemption from registration provided
in Section 4(2) of the Act. We believe Section 4(2) was available for the
issuance of the preferred shares and warrants because there was no general
solicitation or advertising used in connection with the offering and the
transaction did not involve a public offering.
Commencing April 25, 2000, we have received notices from Cranshire Capital,
L.P., The DotCom Fund, LLC, S Roberts Productions, LLC and Keyway Investments
Limited, the subscribers to the Company's Series A Convertible Preferred Stock
that each seeks redemption of its holdings, a total of 15,000 preferred
shares issued to these investors. The investors seek $1,875,000 for the
redemption of their Series A Preferred Stock plus all accrued but unpaid
dividends and all accrued but unpaid liquidated damages. The redemption
requirement (See Item. 8 entitled "Description of Securities" under the heading
"PREFERRED STOCK-Redemption" as set forth in the Company's Form 10-SB/A as filed
on or about August 24, 2000) applies unless the Company performs as required
under its agreements with the holders, including registering the Common Stock
issuable upon conversion by the holders. The Company has not filed the
registration statement, as and when required. The Company is also required to
cause a registration statement covering the shares to be declared effective
before November, 2000. The Company is unable to pay the redemption price at this
time.The Company's funds are insufficient to redeem the preferred stock and also
thereafter provide for the payment of all of its creditors, and therefore the
present default situation is expected to continue at least until a registration
statement is filed and declared effective as required of the Company under these
Series A Preferred Stock registration rights. Until this redemption price shall
have been paid by the Company, the holders who have demanded redemption will
continue to have the ability to convert their shares of Preferred Stock into
previously unissued shares of TrimFast common stock. The Company issued 15,000
shares of Series A Convertible Preferred Stock for $100 per share, and each is
convertible any time after the issuance date at the face amount divided by the
lesser of (a) $8.5938 or (b) 80% of the market price of the common stock as
defined in the Agreement, which is defined based on a relevant average during a
period before a given conversion date. The redemption notices were given
commencing April 25, 2000. Therefore,the Company has decided that it will in its
June 30, 2000 financial reports reclassify the preferred stock as a short-term
liability in light of the present demands for redemption,and reduce stockholders'
equity by about $1,875,000, which is the amount of its redemption obligation at
the date of the balance sheet, plus all accrued dividends and liquidated damages
accrued, as required according to Rules 5-02.28 of Regulation S-X and SAB Topic
3C. The redemption rights were triggered by the existence of a triggering event,
as defined by the Certificate of Designations, Preferences and Rights for such
preferred shares, and therefore each holder of Series A preferred shares shall
have the right, at their option, to require us to redeem all or a portion of
such holder's preferred shares.
The Company has already defaulted under the Registration Rights that belong to
the holders of the outstanding Preferred Stock, and this default will continue
so long as the Company (a) has failed to file a registration statement covering
the Common Stock issuable upon conversion of the Preferred Stock or (b) fails to
have a registration statement declared effective by the Securities and Exchange
Commission. While the default continues,Company shall automatically be subjected
to penalties. The Company for each month or partial month while the default is
continuing shall be required to make a payment to the holder. We cannot predict
when a registration statement will be filed and be declared effective. The
Registration Rights Agreement is filed as Exhibit 10.11 to the Company's Form
10-SB/A amendment number 5 filed on or about August 24, 2000. The Preferred
Share Agreement is filed as Exhibit 4.4 to the Company's Form 10-SB/A filed on
December 23, 1999.
The amount payable on redemption of one share is $125 multiplied by the number
of shares redeemed (which is 15,000 shares, or $1,875,000), plus accrued
dividends to the date of redemption, at the rate of $8.00 per share per year
from June 1999, plus applicable liquidated damages. Liquidated damages accrue
under the Registration Rights Agreement and under the Series A Preferred Share
Agreement.
If the Company violates any provision of or fails to fulfill any of its
obligations or duties to the holders of outstanding Preferred Stock, other than
the Registration Rights Agreement, the Company agrees to pay liquidated damages
to each Buyer following the occurrence of such violation in an amount determined
by multiplying (i) $2.00 per Preferred Share then held by such Buyer by (ii)
the percentage derived by dividing (A) the actual number of days elapsed from the
last day of the date of the C ompany Violation or the prior 30-day period, as
applicable, to the day such Company Violation has been completely cured by (B)
30, in cash, or at the Buyer's option, in the number of shares of Company common
stock equal to the quotient of (v)the dollar amount of the Liquidated Damages on
the Payment Date (as defined below) divided by (w) the closing bid price of the
Company's common stock as of the date of the Company Violation (as quoted in the
Principal Market or the market or exchange where the Company's common stock is
then traded). The Liquidated Damages payable pursuant hereto shall be payable
within five (5) business days from the end of the calendar month commencing on
the first calendar month in which the Company's violation occurs. In the event
the Buyer elects to receive the Liquidated Damages amount in shares of Company
common stock, such shares shall also be considered Conversion Shares and shall
have the registration rights set forth in the Registration Rights Agreement.
On April 25, 2000 the Company entered into a convertible debenture agreement
with Gibralt U.S., Inc. a Colorado Corporation and FAC Enterprises, Inc. a
Pennsylvania Corporation for a total of $3,000,000 due July 13, 2001 with
interest at 12%. The proceeds will be used to open additional Nutrition
Clubstores and produce and air the commercial spots for our WCW Ultra Energy
Bars. On April 28, 2000 the first $1,000,000 was wired to our account.
In July of 1999, we issued warrants to purchase 68,000 shares of our common
stock in exchange for consulting services. Of these, 18,000 were issued to
Francois Goelo and were exercisable on any date until July 26, 2000 at a price of
$4.00 per share. The remaining 50,000 were issued to Sal Russo and were
exercisable on any date until July 29, 2000 at a price of $4.00 per share. These
warrants were issued without Registration in reliance on the exemption from
registration provided in Section 4(2) of the Act. We believe section 4(2) was
available because there was no general solicitation or advertising used in
connection with the offering and the transaction did not involve a public
offering. These warrants expired unexercised.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.7502 of the NRS provides that Nevada corporations may limit, through
indemnification, the personal liability of their directors or officers in
actions, claims or proceedings brought against such person by reason of that
person's current or former status as an officer or director of the corporation.
Indemnification of directors or officers is available if the person acted in
good faith and in a manner the person reasonably believed was, at least, not
opposed to the best interests of the corporation. In the event of a criminal
action or proceeding, indemnification is not available if the person had
reasonable cause to believe their action was unlawful.
Further, in an action brought by the corporation or in the right of the
corporation, if the person, after exhaustion of all appeals, is found to be
liable to the corporation, or if the person makes payment to the corporation in
settlement of the action, indemnification is available only to the extent a
court of competent jurisdiction determines the person is fairly and reasonably
entitled to indemnification. Such discretionary indemnification is available
only as authorized on a case-by-case basis by: (1) the stockholders; (2) a
majority of a quorum of the board of directors consisting of members of the
board who were not parties to the action, suit or proceeding; (3) if a majority
of a quorum of the Board of Directors consisting of members of the Board who
were not parties to the action, suit or proceeding so orders, by independent
legal counsel in a written opinion; or (4) if a quorum of the Board of Directors
consisting of members of the Board who were not parties to the action cannot be
obtained, by independent legal counsel in a written opinion.
To the extent that a director or officer of a corporation is successful in
defending against an action, suit or proceeding brought against that person as a
result of their current or former status as an officer or director, the
corporation must indemnify the person against all expenses actually and
reasonably incurred by the person in connection with their defense. Nevada law
also allows Nevada corporations to advance expenses of officers and directors
incurred in defending a civil or criminal action as they are incurred, upon
receipt of an undertaking by or on behalf of the director or officer to repay
such expenses if it is ultimately determined by a court of competent
jurisdiction that such officer or director is not entitled to be indemnified by
the corporation because such officer or director did not act in good faith and
in a manner reasonably believed to be in or not opposed to the best interests of
the corporation.
Section 78.751 of the NRS provides that any indemnification provided for by NRS
78.7502 (by court order or otherwise) shall not be deemed exclusive of any other
rights to which the indemnified party may be entitled and that the scope of
indemnification shall continue as to directors or officers who have ceased to
hold such positions and to their heirs, executors and administrators.
Section 78.752 of the NRS allows corporations to provide insurance, or other
financial arrangements such as a program of self-insurance, for their directors
or officers. Such insurance may provide coverage for any liability asserted
against the person and liability and expenses incurred by the person in their
capacity as a director or officer or arising out of their status as such,
whether or not the corporation has the authority to indemnify the person against
such liability and expenses. However, no financial arrangement made under
Section 78.752 may provide protection for a person adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be liable
for intentional misconduct, fraud or a knowing violation of law, except with
respect to the advancement of expenses or indemnification ordered by a court.
Our By-laws provide for the indemnification of its directors and officers to the
maximum extent provided by law. It is the position of the Securities and
Exchange Commission and certain state securities administrators that any attempt
to limit the liability of persons controlling an issuer under the federal
securities laws or state securities laws is contrary to public policy and
therefore unenforceable.
Our By-laws provide for the indemnification of its directors and officers to the
maximum extent provided by law. It is the position of the Securities and
Exchange Commission and certain state securities administrators that any attempt
to limit the liability of persons controlling an issuer under the federal
securities laws or state securities laws is contrary to public policy and
therefore unenforceable.
EXHIBIT INDEX
--------------------------------------------------------------------------------
Exhibit # Description
--------------------------------------------------------------------------------
2.1 Kendrex and HLHK Merger (Incorporated by
reference as filed in Form 10-SB/A filed on
12/23/99 as Exhibit 2.1)
--------------------------------------------------------------------------------
2.2 Trimfast, Inc. Acquisition (Incorporated by
reference as filed in Form 10-SB/A filed on
12/23/99 as Exhibit 2.2)
--------------------------------------------------------------------------------
2.3 Rescission of IMMMU and IMMCEL Acquisitions
(Incorporated by reference as filed in Form
10-SB/A filed on 12/23/99 as Exhibit 2.3)
--------------------------------------------------------------------------------
3.1 Articles of Incorporation (Incorporated by
reference as filed in Form 10-SB filed on
7/12/99 as Exhibit 3.1)
--------------------------------------------------------------------------------
3.2 Bylaws (Incorporated by reference as filed in
Form 10-SB filed on 7/12/99 as Exhibit 3.2)
--------------------------------------------------------------------------------
4.1 Specimen Share Certificate (Incorporated by
reference as filed in Form 10-SB/A filed on
12/23/99 as Exhibit 4.1)
--------------------------------------------------------------------------------
4.2 Debenture Agreement (Incorporated by reference
as filed in Form 10-SB filed on 7/12/99 as
Exhibit 4)
--------------------------------------------------------------------------------
4.3 Warrant Agreement (Incorporated by reference
as filed in Form 10-SB/A filed on 12/23/99 as
Exhibit 4.3)
--------------------------------------------------------------------------------
4.4 Preferred Share Agreement (Incorporated by
reference as filed in Form 10-SB/A filed on
12/23/99 as Exhibit 4.4)
--------------------------------------------------------------------------------
4.5 Series A Certificate of Designations,
Preferences and Rights (Incorporated by
reference as filed in the Form 10-SB/A filed on
March 13, 2000 as Exhibit 4.5)
--------------------------------------------------------------------------------
10.1 Lease Option Agreement (Incorporated by
reference as filed in Form 10-SB filed on
7/12/99 as Exhibit 10)
--------------------------------------------------------------------------------
10.2 WCW Agreement (Incorporated by
reference as filed in Form 10-SB/A filed on
6/6/00 as Exhibit 10.2)
--------------------------------------------------------------------------------
10.3 Venture Direct Worldwide Agreement
(Incorporated by reference as filed in Form
10-SB/A filed on 12/23/99 as Exhibit 10.3)
--------------------------------------------------------------------------------
10.4 Distribution Agreement (Incorporated by
reference as filed in Form 10-SB/A filed on
12/23/99 as Exhibit 10.4)
--------------------------------------------------------------------------------
10.5 Convertible Debenture Subscription Agreement between the Company
and FAC Enterprises and Convertible Debenture Subscription Agreement
between the Company and Gibralt U.S., Inc., including Annex A,
Intercreditor Agreement, Pledge and Security Agreement, including
Exhibits thereto, and Escrow Agreement (as filed herewith)
--------------------------------------------------------------------------------
10.6 Aryeh Trading Agreement dated March 18, 1999
(Incorporated by reference as filed in Form 10-SB/A filed on
6/6/00 as Exhibit 10.6)
--------------------------------------------------------------------------------
10.7 Aryeh Trading Agreement dated March 30, 1999
(Incorporated by reference as filed in Form 10-SB/A filed on
6/6/00 as Exhibit 10.7)
--------------------------------------------------------------------------------
10.8 Aryeh Trading Agreement dated October 22, 1999
(Incorporated by reference as filed in Form 10-SB/A filed on
6/6/00 as Exhibit 10.8)
--------------------------------------------------------------------------------
10.9 Aryeh Trading Agreement dated November 10, 1999
(Incorporated by reference as filed in Form 10-SB/A filed on
6/6/00 as Exhibit 10.9)
--------------------------------------------------------------------------------
10.10 Stock Exchange Agreement- Nutrition Clubstores
(Incorporated by reference as filed in Form 8-K
filed on 5/12/00)
---------------------------------------------------------------------------------
10.11 Registration Rights Agreement entered into by and between the Company
and certain investors in its Series A Preferred Stock, dated as of
July 16, 1999 (as filed herewith)
--------------------------------------------------------------------------------
21 Subsidiaries of Registrant (Incorporated by
reference as filed in Form 10-SB/A filed on
12/23/99 as Exhibit 21)
--------------------------------------------------------------------------------
27 Financial Data Schedule (as filed herewith)
--------------------------------------------------------------------------------
TRIMFAST GROUP, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION PAGE
----
Consolidated Balance Sheet as of
September 30, 1999 (Unaudited) and
December 31, 1998 3
Consolidated Statements of Operations
for the Twelve Months Ended December 31, 1998
and for the Three and Nine Month Periods
Ended September 30, 1999 (Unaudited) 4
Consolidated Statement of Cash Flows
for the Year ended December 31, 1998
and for the Nine Months Ended
September 30, 1999 (Unaudited) 5
Consolidated Statement of Changes in Stockholders'
Equity for the one year ended December 31, 1998 and
for the Nine Months Ended September 30, 1999 (Unaudited) 6
Notes to Consolidated Financial Statements
(Unaudited) as of September 30, 1999 7-15
Management Discussion and Analysis of Financial
Condition and Results of Operations 16-17
TRIMFAST GROUP, INC.
INTERIM CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
ASSETS
------
CURRENT ASSETS
SEPTEMBER 30, 1999
DECEMBER 31, 1998 (UNAUDITED)
------------------- --------------------
Cash 105,641 $ 59,092
Short-term investments 15,297 $ 41,220
Accounts Receivable- Trade 357,889 318,407
Accounts Receivable- Other 11,745 512,278
Inventory 188,737 377,270
------------------- --------------------
Total Current Assets 679,309 1,308,267
PROPERTY AND EQUIPMENT - NET 33,403 1,459,270
OTHER ASSETS
Prepaid expenses 0 50,000
Rent deposit 10,619 15,000
Cash surrender value of life insurance 8,107 12,646
Software development 0 228,705
Goodwill - Net 0 54,708
------------------- --------------------
Total Other Assets 18,726 361,060
------------------- --------------------
TOTAL ASSETS $ 731,438 $ 3,128,596
=================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 625,767 $ 926,612
Notes and loans payable 72,100 33,881
Income taxes payable 20,600 20,600
Convertible debentures 0 1,000,000
------------------- --------------------
Total Current Liabilities 718,467 1,981,093
------------------- --------------------
TOTAL LIABILITIES 718,467 1,981,093
------------------- --------------------
STOCKHOLDERS' EQUITY
Preferred Stock, Class A, $0.01 par value; 20,000,000
shares authorized; 0 and 15,000 shares issued and outstanding
as of December 31, 1998 and September 30, 1999 respectively 0 150
Preferred Stock, Class B, $0.01 par value;
20,000,000 shares authorized; none issued and outstanding 0 0
Common Stock, $0.001 par value; 100,000,000 shares
authorized, 2,260,775 and 4,540,978 shares issued and outstanding
as of December 31, 1998 and September 30, 1999 respectively 2,260 4,541
Common Stock to be issued (77,881 shares) as of December 31, 1998
and (8,478 shares) as of September 30, 1999 78 8
Additional Paid-in capital 925,987 6,936,610
Accumulated deficit (891,820) (4,370,622)
Less cost of treasury stock (5,500 as of December 31, 1998
and 32,500 as of September 30, 1999) (23,534) (139,547)
Less common stock shares advanced 0 (925,312)
Less common stock subscriptions receivable 0 (358,325)
------------------- --------------------
Total Stockholders' Equity 12,971 1,147,503
------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 731,438 $ 3,128,596
=================== ====================
TRIMFAST GROUP, INC.
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE ONE YEAR ENDED DECEMBER 31, 1998 (AUDITED)
AND THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
FOR THE THREE FOR THE NINE
FOR THE ONE YEAR MONTHS ENDED MONTHS ENDED
ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
DECEMBER 31, 1998 (UNAUDITED) (UNAUDITED)
------------------ ------------------- -------------------
NET SALES 1,925,332 207,201 581,337
COST OF SALES 567,472 89,925 408,495
------------------ ------------------- -------------------
GROSS PROFIT 1,357,860 117,276 172,842
------------------ ------------------- -------------------
OPERATING EXPENSES
Salaries and other compensation 983,773 208,215 505,372
Commissions 41,700 14,302 18,117
Depreciation and amortization 10,498 54,202 54,202
Professional fees 49,511 505,576 1,467,900
Bad debt expense 503,839 102,723 102,723
Selling, general and administrative expenses 423,289 249,593 623,451
Travel and entertainment 64,187 54,240 132,249
------------------ ------------------- -------------------
Total Operating Expenses 2,076,797 1,188,851 2,904,014
------------------ ------------------- -------------------
INCOME FROM OPERATIONS (718,937) (1,071,575) (2,731,172)
------------------ ------------------- -------------------
OTHER INCOME (EXPENSE)
Realized gain on sale of trading securities - net 1,905 499 499
Unrealized gain on sale of trading securities - net 922 0 (18,549)
Interest expense (3,264) (354,569) (354,569)
------------------ ------------------- -------------------
Total Other Income (Expense) (437) (354,070) (372,619)
------------------ ------------------- -------------------
LOSS BEFORE INCOME TAXES (719,374) (1,425,645) (3,103,791)
FEDERAL AND STATE INCOME TAXES 20,600 0 0
------------------ ------------------- -------------------
NET INCOME/ (LOSS) (739,974) (1,425,645) (3,103,791)
================== =================== ===================
Dividend on Preferred Stock (375,011)
------------------ ------------------- -------------------
NET INCOME/ (LOSS) APPLICABLE TO COMMON STOCK (739,974) (1,425,645) (3,478,802)
================== =================== ===================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
BASIC AND DILUTED 1,710,860 4,574,887 4,028,972
NET INCOME (LOSS) PER COMMON SHARE-BASIC AND DILUTED (0.43) (0.31) (0.87)
TRIMFAST GROUP, INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE ONE YEAR ENDED DECEMBER 31, 1998 (AUDITED)
AND THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
FOR THE NINE MONTHS
FOR THE ONE YEAR ENDED
ENDED SEPTEMBER 30, 1999
DECEMBER 31, 1998 (UNAUDITED)
-------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (739,974) (3,103,791)
Adjustments to reconcile net income (loss)
to net cash flows from operating activities:
Depreciation and amortization 10,498 54,202
Bad debt expense 503,839 6,498
Unrealized gain on short term investments (922) (18,459)
Stock based compensation 762,000 0
Issuance of common stock for professional services 0 1,238,505
Changes in operating assets and liabilities
(Increase) decrease in :
Accounts receivable (856,839) (472,796)
Prepaid expenses 0 (50,000)
Inventory (165,038) (188,533)
Increase (decrease) in :
Accounts payable and other liabilities 496,181 300,845
Income taxes payable 20,600 0
-------------------- -------------------
Total adjustments 770,319 870,262
-------------------- -------------------
Net cash (used in) provided by operating activities 30,345 (2,233,529)
-------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in :
Short term investments (14,375) (25,923)
Due from employees (5,800) 5,800
Property and equipment (37,821) (1,764,682)
Due from affiliate (5,945) 5,945
Rent deposit (8,119) (4,381)
Cash surrender value of life insurance (8,107) (4,529)
-------------------- -------------------
Net cash (used in) provided by investing activities (80,167) (1,787,770)
-------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 1,975 961,781
Purchase of treasury stock (23,534) (116,013)
Proceeds from issuance of common stock 177,800 1,628,942
Proceeds from issuance of preferred stock 0 1,500,040
Due to stockholder/ officer (18,436) 0
-------------------- -------------------
Net cash provided by (used in) financing activities 137,805 3,974,750
-------------------- -------------------
CHANGE IN CASH AND CASH EQUIVALENTS 87,983 (46,549)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 17,658 105,641
-------------------- -------------------
CASH AND CASH EQUIVALENTS - END OF YEAR 105,641 59,092
==================== ===================
TRIMFAST GROUP, INC.
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
FOR THE ONE YEAR ENDED DECEMBER 31, 1998 (AUDITED)
AND THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
Common Stock
and Common Additional Preferred
Stock to be Issued Paid-In Stock Issued Accumulated
SHARES Amount Capital SHARES Amount Deficit
---------- -------- ------------ ------ ------- ------------
BALANCE JANUARY 1, 1998 1,286,625 $ 1,287 (287) - - ($151,846)
Issuance of common stock for cash 63,924 64 187,736 - - -
Issuance of common stock in exchange to related
party in exchange for $40,000 debt 19,500 19 39,981 - - -
HLHK equity at August 12, 1998 817,749 818 441,083 - - (1,122,218)
Reclassification pursuant to recapitalization - - (1,122,218) - - 1,122,218
Common stock issued to employees 500 - - - - -
Common stock issued to attorney for services 5,000 5 (5) - - -
Common stock issued in exchange for debt of HLHK
principal stockholder 75,000 75 491,123 - - -
Issuance of common stock in exchange for
stockholder loans 70,358 70 126,574 - - -
Compensation to principal stockholder - - 762,000 - - -
Purchase of treasury stock at cost - - - - - -
Net income 1998 - - - - - (739,974)
---------- -------- ------------ ------ ------- ------------
Balance, December 31, 1998 2,338,656 $ 2,338 $ 925,987 - - ($891,820)
---------- -------- ------------ ------ ------- ------------
Equity financing - issuance of common stock for cash 1,058,005 1,058 1,659,817 - - -
Issuance of common stock in exchange for
consulting and other professional services 769,459 770 1,237,735 - - -
Issuance of common stock acquisition of Immmu and
Imcel. To be returned per rescission agreement. 235,000 235 925,077 - - -
Issuance of common stock to employees 150,358 150 95,247 - - -
Issuance of convertible debentures - - 250,000 - - -
Return of common stock in repayment of debt (50,000) (50) (399,950) - - -
Issuance of common stock held in escrow to
secure loan 23,000 23 199,790 - - -
Issuance of common stock for debt repayment 24,500 25 168,006 - - -
Repurchase of treasury stock at cost - - - - - -
Issuance of Preferred Stock - - 1,874,901 15,000 150 (375,011)
Net Loss, year to date as of September 30, 1999 - - - - - (3,103,791)
---------- -------- ------------ ------ ------- ------------
Balance, September 30, 1999 4,540,978 $ 4,549 $ 6,936,610 15,000 $ 150 ($4,370,622)
========== ======== ============ ====== ======= ============
Subscriptions Shares Treasury
Receivable Advanced Stock Total
----------- ---------- ---------- -------------
BALANCE JANUARY 1, 1998 - - - ($150,846)
Issuance of common stock for cash - - - $ 187,800
Issuance of common stock in exchange to related
party in exchange for $40,000 debt - - - $ 40,000
HLHK equity at August 12, 1998 - - - ($680,317)
Reclassification pursuant to recapitalization - - - $ 0
Common stock issued to employees - - - $ 0
Common stock issued to attorney for services - - - $ 0
Common stock issued in exchange for debt of HLHK
principal stockholder - - - $ 491,198
Issuance of common stock in exchange for
stockholder loans - - - $ 126,644
Compensation to principal stockholder - - - $ 762,000
Purchase of treasury stock at cost - - (23,534) ($23,534)
Net income 1998 - - - ($739,974)
----------- ---------- ---------- -------------
Balance, December 31, 1998 - - ($23,534) $ 12,971
----------- ---------- ---------- -------------
Equity financing - issuance of common stock for cash - - - $ 1,660,875
Issuance of common stock in exchange for
consulting and other professional services (358,325) - - $ 880,180
Issuance of common stock acquisition of Immmu and
Imcel. To be returned per rescission agreement. - (925,312) - $ 0
Issuance of common stock to employees - - - $ 95,397
Issuance of convertible debentures - - - $ 250,000
Return of common stock in repayment of debt - - - ($400,000)
Issuance of common stock held in escrow to
secure loan - - - $ 199,813
Issuance of common stock for debt repayment - - - $ 168,031
Repurchase of treasury stock at cost - - (116,013) ($116,013)
Issuance of Preferred Stock - - - $ 1,500,040
Net Loss, year to date as of September 30, 1999 - - - ($3,103,791)
----------- ---------- ---------- -------------
Balance, September 30, 1999 ($358,325) ($925,312) ($139,547) $ 1,147,503
=========== ========== ========== =============
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
the rules and regulations of the Securities and Exchange Commission for
interim financial information. Accordingly, they do not include all the
information and footnotes necessary for a comprehensive presentation of
financial position and results of operation.
It is management's opinion, however that all material adjustments
(consisting of normal recurring adjustments) have been made which are
necessary for a fair financial statements presentation. The results for the
interim period are not necessarily indicative of the results to be expected
for the year.
For further information, refer to the consolidated financial statements and
footnotes included in the company's Form 10-SB, as amended for the year
ended December 31, 1998.
The financial statements are presented without comparable 1998 quarterly
information. The Company was not publicly traded in 1998 and systems,
though adequate to address annual audit needs, were not in place to allow
for extracting reliable quarterly information.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) Revenue Recognition
--------------------
Nutrition Cafe charges a monthly membership fee for access to order
products at discounted prices. Memberships are sold on a pay-as-you-go
basis in one month increments. Members choose whether or not to continue
their membership each month; no long term agreements are required. The
membership fees are recognized as revenue in the month they are paid.
Effective January, 2000, the monthly membership fees have been eliminated.
Management believes the increased revenues from allowing everyone who
visits the site to place orders will offset the decrease in revenue from
membership fees. Revenue for products ordered is recognized and an accrual
for returns is posted when the product is shipped. To date returns of
products sold has been immaterial. We believe the returns will be
immaterial. Therefore no accrual for estimated returns has been made
for these financial statements.
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
Sales of our products offered through TrimFast, Inc. (weight loss bars, WCW
bars, and Max Impact supplements) are sold utilizing food brokers,
distributors
and directly to vendors. We use brokers and distributors to identify new
vendors, and all sales are made directly to the vendor with the distributor
or broker informed of any sales through their efforts. Because of this, we
ship to, invoice and receive payments directly from the end user; and our
policy is to record any returns against current sales. Due to the nature of
the products offered, and customers ordering product conservatively, we
have experienced no material product returns, and the estimated returns are
immaterial.
Revenue for the Cooler Group is earned through rental of water coolers and
delivery of water. A contract is signed for cooler rental and/or water
delivery service, and is invoiced monthly. Revenue is recognized for cooler
rental each month when invoiced and for water service based on usage when
delivered.
(B) Accounts Receivable - Other
------------------------------
Components of A/R - Other is as follows:
Millennium - related party $259,558
Cash from rescission of IMMMU purchase 50,000
Stock held in escrow securing loan 199,790
------------------------------------------- ---------
Other 2,930
---------
$512,278
---------
(B) Accounts Receivable - Other (Cont'd)
----------------------------------------
On May 26, 1999 the company placed in an escrow account 23,000 shares of
its' common stock valued at $199,790 to secure the loan to acquire Ice Cold
Water, Inc. (See note 7B) The shares will be returned to authorized when
the loan is satisfied.
The receivable from Millennium represents cash advances to an affiliated
company during the year. The balance at December 31, 1999 is $156,212.
(C) Inventory
---------
Components of inventory are as follows:
Finished Goods $ 320,296
---------------
Product Components 56,974
----------
Total $ 377,270
----------
The Company performs periodic inspections of inventory to identify expired
or obsolete items. Any merchandise, which has past its expiration date, or
has been deemed obsolete by management, is removed from inventory and
written off.
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION -
(CONT'D)
(D) Advertising Costs
------------------
Advertising costs are expensed as incurred unless a direct measurable
response exists. All advertising related costs have been recognized as
expense in these Interim Financial Statements.
(E) Software Development
---------------------
The Company has contracted with an outside software development firm to
develop software that runs the website for Nutrition Cafe. All costs
associated with the development of the software have been capitalized while
any costs associated with content have been expensed.
NOTE 3 - ACQUISITION OF BUILDING
On July 30, 1999 the Company exercised its option to purchase the facility
located at 2555 Blackburn Street, Clearwater, FL for $1,200,000. The
property is used as the sales, storage and distribution facility for
Nutrition Cafe, Inc. The funds were raised through the sale of 15,000
shares of Class A Preferred Stock and 223,681 warrants to purchase common
stock. (See Note 6)
NOTE 4 - WCW LICENSE AGREEMENT
On June 2, 1999 the Company signed a license agreement with World
Championship Wrestling, Inc (WCW) to utilize certain names, likeness,
characters, trademarks and/or copyrights in connection with the
manufacture, distribution, advertising, promotion and sale of certain
articles of merchandise.
The license extends through December 2002. The agreement includes a
non-refundable advance of $50,000 which, has been capitalized as prepaid
expense and
will be amortized over the life of the agreement. Terms of the agreement
include a royalty payment of 6% of net sales with the following guarantees:
$100,000 Due No Later Than 12-31-99
$100,000 Due No Later Than 6-30-00
$100,000 Due No Later Than 9-30-00
$100,000 Due No Later Than 12-31-00
$100,000 Due No Later Than 6-30-01
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
NOTE 5 - CONVERTIBLE DEBENTURE
On June 14, 1999 the Company issued $1,000,000 in Convertible Debentures in
exchange for $1,000,000 in cash. The agreement, which contains a beneficial
conversion feature, stipulates that the debentures may be converted as of
the closing date at the lower of $8.50 or 80% of the fair market value of
the common stock on the conversion date resulting in the recognition of
$250,000 interest expense at closing.
The Company accounts for the debentures in accordance with EITF 98-5
"Accounting for Convertible Securities with Beneficial Conversion Features
or Contingently Adjustable Conversion Ratios." Accordingly, the Company has
allocated a portion of the proceeds to additional paid-in capital equal to
the intrinsic value of the features as computed on the commitment date,
resulting in recognition on the closing date of $250,000 interest expense.
NOTE 6 - EQUITY TRANSACTIONS
SALE OF COMMON STOCK
--------------------
On July 13, 1999 we issued 155,000 restricted shares of common stock issued to
Aryeh Trading for $4.00 each, and the shares were not purchased for distribution
or resale by Aryeh. Under agreements dated October 22, 1999 and November 10,
1999 the Company is obligated to repurchase these shares. To date none of the
155,000 shares have been repurchased.(See Note 9.) See Part II, Item 3, entitled
"Legal Proceedings."
SALE OF PREFERRED STOCK AND WARRANTS
-----------------------------------------
The following shares were issued in consideration other than cash:
Pursuant to various agreements we issued the following shares of our restricted
common stock:
On July 7, 1999, we issued 10,000 shares of our common stock in exchange for
Legal Services rendered for the Company. On July 19, 1999, we issued 30,000
shares of our common stock for consulting services rendered to the Company. In
July 1999 we received 50,000 shares of our common stock from a principal
stockholder in exchange for $400,000 owed to the company. These shares were
issued pursuant to Section 4(2) of the Securities Act of 1933. We believed
section 4(2) was available because there was no general solicitation or
advertising used in connection with the offering and the transaction did not
involve a public offering.
On August 3, 1999, we issued 10,000 share of our common stock in exchange for
Business Consulting Services and 10,000 shares of our common stock in
consideration for Legal Services rendered to the Company. These shares were
issued pursuant to Section 4(2) of the Securities Act of 1933. We believed
section 4(2) was available because there was no general solicitation or
advertising used in connection with the offering and the transaction did not
involve a public offering.
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
The aforementioned issuances and sales were made in reliance upon the exemption
from registration contained in Section 4(2) of the Act. The purchasers of the
securities described above acquired them for their own account and not with a
view to any distribution thereof to the public. The shares which have been
issued pursuant to Section 4(2), bear legends stating that the securities may
not be offered, sold or transferred other than pursuant to an effective
Registration Statement under the Act, or an exemption from such registration
requirements. The Registrant will place stop transfer instructions with its
transfer agent with respect to all such securities.
The Company entered into several consulting agreements with various individuals
whereby the Company was to be provided with advice with regard to corporate
strategy and business development including targeting of acquisitions. The
Company advanced the consultants 490,000 shares in 1999 but minimal services as
anticipated in the consulting agreements were performed in 1999 and no services
were performed in 1998. Therefore on June 30, 1999 the consulting agreements
were rescinded and the Company offered the consultants the restricted shares at
a price of $0.25 per share resulting in a subscription receivable. The Company
expects to receive the payment in the form of invoices for prior services
rendered under the rescinded consulting agreements. As of the date of this
report invoices for $15,625 has been received. When an invoice is received, the
Company recognizes consulting expense for all shares issued based on the fair
market value of the stock on the grant date.
In July 1999, we issued 15,000 Class A convertible preferred shares and 223,881
warrants. Cranshire Capital purchased 5,000 preferred shares and 74,627
warrants for consideration of $300,010. Dotcom Fund purchased 3,000 preferred
shares and 44,776 warrants for consideration of $500,010. Keyway Investments
purchased 5,000 preferred shares and 74,627 warrants for $500,010. Robert
Productions, Inc. purchased 2,000 preferred shares for consideration of
$200,010. The warrants are exercisable at any time until July 16, 2002 at an
exercise price of $10.00 per warrant. The Company relied upon the exemption from
registration provided in Section 4(2) of the Act. We believed section 4(2) was
available for the issuance of the preferred shares and warrants because there
was no general solicitation or advertising used in connection with the offering
and the transaction did not involve a public offering. As a result of accounting
for the beneficial conversion feature, the Company charged a $375,011 dividend
to retained earnings on the issuance date. (See Note 3)
During the period ended September 30, 1999 the Company issued 108,000 warrants
(i.e., stock options) to certain consultants and other service providers of the
Company.
The Company applies SFAS 123 for warrants and options issued to consultants and
other service providers. For financial statement disclosure purposes and for
purposes of valuing these stock options, the fair market value of each stock
option granted was estimated on the date of grant using the Black-Scholes
Option-Pricing Model in accordance with SFAS 123 using the following
weighted-average assumptions: expected dividend yield 0%, risk-free interest
rate of 5.3%, volatility 70% and expected term of one year. Accordingly,
professional and consulting fees of
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
$413,780 was charged to operations in 1999. The deferred tax asset of $140,685
resulting from the professional and consulting fees of $413,780 was fully offset
by a valuation allowance at December 31, 1999.
A summary of the options issued to consultants as of September 30, 1999 is
presented below:
Weighted
Number of Average
Options Exercise Price
--------------------------
Stock Options
Balance at beginning of period - $ -
Granted 108,000 $4.55
Exercised - -
Forfeited
- $ -
----------- ------------
Balance at end of period 108,000 $4.55
=========== ============
Options exercisable at end of period 108,000 $4.55
Weighted average fair value of options
granted during the period 108,000 $3.83
The following table summarizes information about stock options outstanding at
September 30, 1999:
Options Outstanding Options Exercisable
----------------------------------------------------------------------------------------
Weighted Number
Number Average Weighted Exercisable Weighted
Range Of Outstanding At Remaining Average At Average
Exercise September 30, Contractual Exercise September Exercise
Price 1999 Life Price 30, 1999 Price
$ 4.00 68,000 0.67 Years $ 4.00 68,000 $ 4.00
$ 4.00 - 7.00 40,000 0.46 Years $ 5.50 40,000 $ 5.50
-------------------- --------- ---------
108,000 0.59 Years $ 4.55 108,000 $ 4.55
NOTE 7 - ACQUISITIONS
------------------------
(A) Acquisitions of Subsidiaries and Subsequent Rescission
-----------------------------------------------------------
On March 18, 1999 the Company acquired IMMMU, Inc. ("IMMMU") and IMMCEL
Pharmaceuticals, Inc. ("IMMCEL"), two companies related through common
stockholders, in a transaction accounted for as a purchase. Under terms of
the agreement, 235,000 shares of the Company's common stock, $50,000 in
cash and an option agreement for shares of
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
the Company's common stock exercisable based on stipulated Company
performance criteria were exchanged for all of the issued and outstanding
capital stock of IMMMU and IMMCEL. Subsequently, the Company entered into a
rescission agreement of the purchase. Activity from IMMMU and IMMCEL are
not part of these consolidated statements. The common stock shares are
recorded as "Common Shares Advanced" and deducted from stockholder equity
and the $50,000 is recorded in Accounts Receivable - Other. The Company
incurred a loss of $94,225 from operating the companies during 1999 which
is recorded in Accounts Receivable - Other with a reserve for 100% recorded
as bad debt.
(B) Asset Accumulation
-------------------
On May 24, 1999 the Company acquired certain assets of Ice Cold Water Co.,
Inc. ("ICW") including certain receivables, inventory, property and
equipment, a customer list and the name "Ice Cold Water" and all other
intellectual property rights associated with the name. Under terms of the
agreement, the Company acquired the assets for $20,000 in cash and a
$100,000 promissory note at 8.5% per annum which is due in four monthly
installments of $25,000 plus accrued interest, commencing June 10, 1999.
23,000 shares of the Company's common stock were reserved in an escrow
account to be released to ICW in the case of default of payments. The
Company then formed a new subsidiary, The Cooler Group and transferred
these assets into it. A balance of $30,406 remains outstanding as of
September 30, 1999.
NOTE 8 - LITIGATION
----------------------
In 1999 the Company initiated a legal proceeding against a former major customer
to collect amounts receivable from that customer aggregating approximately
$535,000 at December 31, 1998. Such receivable related to products sold to that
customer during 1998 that were voluntarily recalled by the Company, but never
returned by the customer. As of December 31, 1998, it was management's assertion
with regard to this matter that since the product was never returned to the
Company, and is believed to have been resold by the customer, a successful
outcome in favor of the Company was possible. The Company has therefore written
off $267,240 or fifty percent of the total receivable as of December 31, 1998.
Subsequent to the date of these financial statements, management does not expect
to receive any further payments of this customer and therefore decided to write
off the balance reduced by payments received during January, 1999.
In early 1999, pursuant to a voluntary arrangement with the Food and Drug
Administration, the Company's product, Revivarant, was recalled and removed from
sale. Since the time of the recall, the Company has been subject to five known
lawsuits and an additional three consumer-protection claims relating to consumer
use of the product. As of the date of this report, only one lawsuit has
specified a dollar amount, that being, $400,000 of compensatory damages and
$350,000 of punitive damages. All lawsuits have been referred by management to
the insurance carrier of our third party manufacturer, however, the Company has
received notice from the insurance carrier denying all claims. Management
intends to contest the claim denials. The Company obtained its own insurance
policy in May 1999 and believes it would not be covered under its own policy for
these prior
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
occurrences. With regard to any punitive damage claims, the Company intends to
vigorously oppose any factual basis for imposition of punitive damages based
upon research and efforts made prior to the distribution of the Revivarant
product to determine its safety. The Company's management and outside legal
counsel are unable to evaluate and determine the likely outcome of each cause of
action. Accordingly, pursuant to the Financial Accounting Standards Board,
Statement of Financial Accounting Standards No. 5, no liabilities have been
accrued as of September 30, 1999 relating to the above matters. Any future
liabilities required to be recorded pursuant to SFAS 5 will be recorded gross of
any expected insurance recovery pursuant to SAB5:Y. Any judgment or claim in
favor of a claimant could have a materially adverse effect on our results of
operations, our financial condition and liquidity, including that we may be
unable to continue in business.
The Company is subject to a cause of action seeking damages and specific
performance of an agreement to purchase stock. The Agreement called for certain
shares of stock to be sold pursuant to a letter agreement. The Complaint
contains seven counts alleging cause of action for specific performance,
equitable relief, fraud, civil theft damages, and lost profits. Discovery is
beginning and settlement discussions have been on going. The Company is unable
to assess the likely outcome of this suit at this time.
An action has been commenced against the Company, by a former principal
stockholder, and other parties alleging that 600,000 shares of the Company,
previously owned by the former principal stockholder, were improperly canceled
by the Company while still validly owned by the Plaintiff. The Plaintiff has
demanded the removal of the stop transfer order from their share certificates or
alternatively the Company re-issue new share certificates. The action also
alleges a consulting agreement for which the Company has not tendered the
required consideration of 270,000 shares of the Company's common stock. The
action also seeks $100,000 for breach of fiduciary duty and $10,000,000 in
punitive damages. An adverse judgment may have an adverse affect on the
Company's results of operations and financial condition.
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
The Company is subject to various other lawsuits, investigations and claims
primarily relating to amounts due to vendors which, in the opinion of
management, arise in the normal course of conducting Company business.
Appropriate amounts have been accrued at September 30, 1999. In the opinion of
the Company's management, after consultation with outside legal counsel, the
ultimate disposition of such remaining proceedings will not have a materially
adverse effect on the Company's consolidated financial position or future
results of operations.
NOTE 9 - SUBSEQUENT EVENTS
------------------------------
A. Contributed Capital
On February 1, 2000 Michael Muzio contributed 500,000 shares of restricted stock
to the Company. The shares were valued at the $7.50 based on the quoted trading
price on the date of contribution.
B. Acquisition of Nutrition Clubstores, Inc.
On March 20, 2000 we acquired from Nutrition Superstores.com, Inc. all of the
issued and outstanding shares of common stock in its wholly owned subsidiary,
Nutrition Clubstores, Inc. The purchase price was $150,000 cash plus 570,000
shares of our common stock valued at $4.80 per share based average quoted
trading price a few days before and after the announcement of the transaction
based on EITF 95-19 for a total of $2,886,000. In addition, for a period
beginning three months following the Closing and continuing for a period of
twelve months thereafter, the Seller shall receive a royalty equal to three
percent (3%) of the gross sales generated by the kiosks operated by Nutrition
Clubstores, Inc. The number of shares issuable to the Seller of the Nutrition
Clubstores, Inc. is subject to adjustment based upon the audited financial
statements, which are to be provided by the sellers of Nutrition Clubstores,
Inc. To the extent that the Nutrition Clubstores audited financial statements
for February 28, 2000 show a net worth which is less than 85% of the unaudited
financial statements, for every $5.00 reduction or portion thereof in net worth,
Seller shall be entitled to receive one less share of common stock.
The acquisition will be accounted for under the purchase method. Subject to the
completion of the Nutrition Clubstores audit, we anticipate allocating the
purchase price of this acquisition as follows: inventory $410,885, fixed assets
$367,848, goodwill $2,335,004 accounts payable $162,422 and notes payable
$65,315.
The goodwill balance will be amortized over 60 months. The Company will review
the audited financial statements when received and adjust our books accordingly.
The $150,000 cash used in the acquisition was advanced to the Company by the
principal stockholder. We believe the acquisition of Nutrition Clubstores will
have an immediate positive impact on the Company's cashflows and revenue stream.
Prior to our acquisition, Nutrition Clubstores had a negative cashflow of
approximately $10,000 per month. However, during our analysis of the company, we
identified several areas where we believe they were operating
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
inefficiently and implemented these changes immediately upon closing the deal.
Based on our changes Nutrition Clubstores had a positive cashflow of
approximately $5,000 for the eleven days we owned it in March. We have
continued to implement other cost cutting measures including promoting our
products in each location to increase margins and further changes to the
management structure in each location which should continue to increase the
positive cashflow each month.
C. Convertible Debenture.
On April 25, 2000 the Company entered into a convertible debenture agreement
with Gibralt U.S., Inc. a Colorado Corporation and FAC Enterprises, Inc. a
Pennsylvania Corporation for a total of $3,000,000 due July 13, 2001 with
interest at 12%. The proceeds will be used to open additional Nutrition
Clubstores and produce and air the commercial spots for our WCW Ultra Energy
Bars. On April 28, 2000 the first $1,000,000 was wired to our account.
D. Common Stock Redemption Agreement with Aryeh Trading
As of July 13, 1999 we had issued 155,000 restricted shares of our common
stock for $4.00 each to Aryeh Trading. On October 22, 1999 the Company entered
into a stock repurchase agreement with Aryeh Trading where we agreed to
repurchase the 155,000 shares at $8.25.Our intent was to repurchase these shares
at the market value for cash. The agreement sets out a schedule for repurchase
and the shares were to be fully repurchased by December 15, 1999. If the shares
were not repurchased by December 15th the Company agreed to a $0.25 per share
premium for each two weeks subsequent to December 15th. On November 10, 1999
the Company entered into an agreement with Aryeh Trading to modify the
repurchase schedule. This agreement calls for the Company to repurchase all
shares before January 25, 2000. Any shares not repurchased by January 25th are
subject to a $0.25 per share per month premium. As additional security, in the
November 10th agreement we pledged our warehouse facility located in Clearwater,
Florida as security against the October 22,1999 purchase agreement.Our original
commitment was at $8.25 per share. As of December 31,1999, we recorded a charge
to additional paid-in capital for the October 22, 1999 stock repurchase
commitment for the 155,000 shares at $8.50 per share. As of July 25, 2000, the
repurchase price had increased by $1.25 since December 31, 1999 to $9.75 per
share. The additional $1.25, plus increases thereafter, is or will be treated
for financial reporting purposes as an expense rather as a reduction of paid-in
capital. Redemption accruals or payments will not be treated as an expense for
tax purposes. To date, we have not repurchased any of the 155,000 shares. The
relevant agreements are filed as Exhibits with Amendment No. 4 to the Company's
Form 10-SB filed on June 6, 2000. See Part II. Item 2."Legal Proceedings-Breach
of Contract."
E. Goelo Litigation
A lawsuit filed against the Company, its Chief Executive Officer, principal
stockholder and certain affiliates demanded in excess of $790,000 in
compensatory and punitive damages, alleged that the plaintiff had purchased
approximately 22,000 shares of the Company's common stock for approximately
$77,000, but had not received the same. Francois Goelo had filed this action
in Hillsboro County Circuit Court (Case No. 00-1444) against TrimFast Group,
Inc., Michael Muzio and certain other parties in connection with alleged non-
delivery of 22,000 shares of TrimFast and 100,000 shares of common stock of
Sierra Holdings Group. The complaint,was a multi-count complaint and included
counts for breach of contract, specific performance, fraud and civil theft.
The complaint alleged that a total of $95,750 ($77,000 for the TrimFast shares)
was delivered as per the instructions of Mr. Muzio. The shares of common
stock that had not been delivered to Mr. Goelo, as Mr. Muzio has advised the
Company, were shares of common stock personally owned by Mr.Muzio. The Plaintiff
sought delivery of the shares of common stock pursuant to the agreement and
sought compensatory and punitive damages in excess of $790,000. On May 3, 2000
plaintiff offered to settle this matter whereby Mr. Muzio would pay $95,750 and
transfer to the plaintiff 20,000 shares of TrimFast common stock. In addition,
the settlement offer provided that the parties will enter into a joint
stipulation for d ismissal of the action and execution of a general release. We
subsequently signed a written settlement agreement with Mr. Goelo and Mr. Muzio,
and Mr. Goelo has released the other parties, including the Company, from all
liabilities or obligations. As part of this settlement, the litigation was
dismissed and the Company was not required to make any payment, or give any
shares, to Mr. Goelo.
TRIMFAST GROUP, INC. AND SUBSIDIARIES
-------------------------------------
FINANCIAL STATEMENTS
--------------------
AS OF DECEMBER 31, 1998
-----------------------
(CONSOLIDATED) AND 1997
------------------------
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
CONTENTS
--------
PAGES 1 - 2 INDEPENDENT AUDITORS' REPORT
PAGE CONSOLIDATED BALANCE SHEET
3 AS OF DECEMBER 31, 1998
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1998 (CONSOLIDATED) AND FOR THE
PERIOD FROM APRIL 27, 1997 (INCEPTION TO
PAGE 4 DECEMBER 31, 1997
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR
THE YEAR ENDED DECEMBER 31, 1998 (CONSOLIDATED)
AND FOR THE PERIOD FROM APRIL 27, 1997
PAGE 5 (INCEPTION) TO DECEMBER 31, 1997
STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED
DECEMBER 31, 1998 (CONSOLIDATED) AND FOR THE
PERIOD FROM APRIL 27, 1997 (INCEPTION) TO
PAGES 6 - 7 DECEMBER 31, 1997
NOTES TO FINANCIAL STATEMENTS AS
PAGES 8 - 24 OF DECEMBER 31, 1998 AND 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors of:
Trimfast Group, Inc.
We have audited the accompanying balance sheet of TrimFast Group, Inc. and
Subsidiaries as of December 31, 1998 (consolidated) and the related statements
of operations, changes in stockholders' equity and cash flows for the year ended
December 31, 1998 (consolidated) and for the period from April 27, 1997
(inception) to December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TrimFast Group, Inc. and
Subsidiaries as of December 31, 1998 (consolidated) and the results of their
operations and their cash flows for the year ended December 31, 1998
(consolidated) and for the period from April 27, 1997 (inception) to December
31, 1997 in conformity with generally accepted accounting principles.
As more fully described in Note 14, subsequent to the issuance of the Company's
1998 consolidated financial statements and our report thereon dated June 10,
1999 (except for Notes 13(G), 13(H), 13(D), 7(C), 13(B) and 13(A) as to which
the dates are June 14, 1999, July 16, 1999, July 30, 1999, November 29, 1999,
October 22, 1999 and October 23, 1999, respectively, we became aware that the
1998 consolidated financial statements did not include certain non-cash stock
based compensation expense. In our original report, we expressed an unqualified
opinion on the 1998 consolidated financial statements, and our opinion on the
revised consolidated financial statements, as expressed herein, remains
unqualified.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
June 10, 1999 (Except for Notes 13(G), 13(H), 13(D), 7(C),
13(B), 13(A), paragraphs 2 and 3 of Note 7(D) and Note 8(C) as to which
the dates are June 14, 1999, July 16, 1999, July 30, 1999,
November 29, 1999, October 22, 1999 and October 23, 1999,
March 10, 2000 and April 27, 2000, respectively.)
1
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
-----------------
ASSETS
------
CURRENT ASSETS
Cash $105,641
Short-term investments 15,297
Accounts receivable 357,889
Due from employees 5,800
Inventory 188,737
----------
Total Current Assets 673,364
----------
PROPERTY AND EQUIPMENT - NET 33,403
OTHER ASSETS
Due from affiliate 5,945
Rent deposit 10,619
Cash surrender value of life insurance 8,107
----------
Total Other Assets 24,671
----------
TOTAL ASSETS $731,438
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $625,767
Notes and loans payable 72,100
Income taxes payable 20,600
----------
Total Current Liabilities 718,467
----------
TOTAL LIABILITIES 718,467
----------
STOCKHOLDERS' EQUITY
Preferred Stock, Class A, $0.01 par value;
20,000,000 shares authorized;
none issued and outstanding -
Preferred Stock, Class B, $0.01 par value;
20,000,000 shares authorized;
none issued and outstanding -
Common stock, $0.001 par value; 100,000,000
shares authorized; 2,260,775 shares issued
and outstanding 2,260
Common stock to be issued (77,881 shares) 78
Additional paid-in capital 925,987
Accumulated deficit (891,820)
Less cost of treasury stock (5,500 shares) (23,534)
----------
Total Stockholders' Equity 12,971
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 731,438
========================================================================
See accompanying notes to financial statements.
2
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND FOR THE PERIOD FROM APRIL 27, 1997
(INCEPTION) THROUGH DECEMBER 31, 1997
------------------------------------
(CONSOLIDATED)
1998 1997
----------- -----------
NET SALES $1,925,332 $22,338
COST OF SALES 567,472 9,625
----------- -----------
GROSS PROFIT 1,357,860 12,713
----------- -----------
OPERATING EXPENSES
Executive compensation 963,077 31,633
Salaries 20,696 -
Commissions 41,700 -
Depreciation expense 10,498 230
Professional fees 49,511 9,245
Bad debt expense 503,839 11,226
Selling, general and administrative expenses 423,289 92,565
Travel and entertainment 64,187 19,660
----------- -----------
Total Operating Expenses 2,076,797 164,559
----------- -----------
LOSS FROM OPERATIONS (718,937) (151,846)
----------- -----------
OTHER INCOME (EXPENSE)
Realized gain on sale of trading securities - net 1,905 -
Unrealized gain on trading securities - net 922 -
Interest expense (3,264) -
----------- -----------
Total Other Income (Expense) (437) -
----------- -----------
LOSS BEFORE INCOME TAXES (719,374) (151,846)
FEDERAL AND STATE INCOME TAXES 20,600 -
----------- -----------
NET LOSS $ (739,974) $ (151,846)
=========== ===========
NET LOSS PER COMMON SHARE:
BASIC AND DILUTED $ (0.43) $ (0.12)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC AND DILUTED 1,710,860 1,286,625
=========== ===========
See accompanying notes to financial statements.
3
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998 (CONSOLIDATED)
AND FOR THE PERIOD FROM APRIL 27, 1997 (INCEPTION)
TO DECEMBER 31, 1997
--------------------
COMMON STOCK AND
COMMON STOCK TO ADDITIONAL
BE ISSUED PAID-IN ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
------------------------------------------------------------------------------------------------------------------------
Issuance of common stock 1,286,625 $ 1,287 $ (287) $ - $ - $ 1,000
Net loss 1997 - - - (151,846) - (151,846)
------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 1,286,625 1,287 (287) (151,846) - (150,846)
Issuance of common stock for cash 63,924 64 187,736 - - 187,800
Issuance of common stock to related
party in exchange for $40,000 debt 19,500 19 39,981 - - 40,000
Recapitalization:
HLHK equity at August 12, 1998 817,749 818 441,083 (1,122,218) - (680,317)
Reclassification pursuant to
recapitalization - - (1,122,218) 1,122,218 - -
Common stock issued to employees 500 - - - - -
Common stock issued to attorney
for services 5,000 5 (5) - - -
Common stock issued in exchange
for debt of HLHK principal stockholder 75,000 75 491,123 - - 491,198
Issuance of common stock in exchange
for stockholder loans 70,358 70 126,574 - - 126,644
Compensation to principal stockholder - - 762,000 - - 762,000
Purchase of treasury stock at cost - - - - (23,534) (23,534)
Net income 1998 - - - (739,974) - (739,974)
------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 2,338,656 $2,338 $ 925,987 $(891,820) $(23,534) $ 12,971
========================================================================================================================
See accompanying notes to financial statements.
4
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND FOR THE PERIOD FROM APRIL 27, 1997
(INCEPTION) TO DECEMBER 31, 1997
--------------------------------
(CONSOLIDATED)
1998 1997
--------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(739,974) $(151,846)
Adjustments to reconcile net income
to net cash provided by (used in) operating
activities:
Depreciation 10,498 230
Bad debt expense 503,839 11,226
Unrealized gain on short-term investments (922) -
Stock based compensation 762,000 -
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable (856,839) (16,115)
Inventory (165,038) (23,699)
Increase (decrease) in:
Accounts payable and accrued expenses 496,181 14,873
Income taxes payable 20,600 -
--------------------------------------------------------------------------
Total adjustments 770,319 (13,485)
--------------------------------------------------------------------------
Net cash provided by (used in) operating
activities 30,345 (165,331)
--------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Short-term investments (14,375) -
Advances to employees (5,800) -
Purchases of property and equipment (37,821) (5,711)
Advances to affiliate (5,945) -
Rent deposit (8,119) (2,500)
Cash surrender value of life insurance (8,107) -
--------------------------------------------------------------------------
Net cash used in investing activities (80,167) (8,211)
--------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to stockholder/officer (18,436) 150,200
Due to related party - 40,000
Proceeds from borrowings 1,975 -
Proceeds from issuance of common stock 177,800 1,000
Purchase of treasury stock (23,534) -
--------------------------------------------------------------------------
Net cash provided by financing activities 137,805 191,200
--------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 87,983 17,658
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 17,658 -
--------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR $105,641 $17,658
==========================================================================
See accompanying notes to financial statements.
5
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND FOR THE PERIOD FROM APRIL 27, 1997
(INCEPTION) TO DECEMBER 31, 1997
--------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
-------------------------------------------------
AND FINANCING ACTIVITIES:
----------------------------
On August 12, 1998 HLHK World Group, Inc. acquired one hundred percent of
the issued and outstanding common stock of Trimfast, Inc. in a transaction
accounted for as a recapitalization of Trimfast, Inc. HLHK subsequently
changed its name to Trimfast Group, Inc. (See Note 12)
On August 12, 1998, concurrent with the HLHK stock exchange discussed
above, the prior principal stockholder of HLHK received 75,000 shares of
common stock in exchange for $491,198 of amounts owed to him by HLHK.
Effective December 1998, the principal stockholder of the Company exchanged
$126,644 of loans due to him and his wholly-owned affiliates for 70,357
shares of common stock of the Company valued at a market price of $1.80 per
share based upon the trading price of the common stock at the exchange
date.
During July 1998, the Company issued 19,500 shares of common stock to an
individual related party in exchange for a loan payable of $40,000
resulting in a price paid per share of $2.05 at the exchange date.
See accompanying notes to financial statements.
6
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
-----------------------------------------------------------------------------
(A) Description of Business
------------------------------
Trimfast Group, Inc. (the Company) formerly known as HLHK World Group,
Inc.(HLHK) is a Nevada corporation that through its subsidiaries, develops,
markets and sells dietary supplements. The Company's subsidiaries Trimfast,
Inc. and Body Life Sciences, Inc. were incorporated in the State of Florida
on April 28, 1997 and September 4, 1998, respectively. Trimfast, Inc. is
considered a predecessor pursuant to the acquisition discussed below.
On August 12, 1998 HLHK World Group, Inc. acquired one hundred percent of
the issued and outstanding common stock of Trimfast, Inc. in a transaction
accounted for as a recapitalization of Trimfast, Inc. HLHK subsequently
changed its name to Trimfast Group, Inc. (See Note 12).
(B) Basis of Presentation and Principles of Consolidation
----------------------------------------------------------------
The 1998 consolidated financial statements include the accounts of Trimfast
Group, Inc. and its subsidiaries Trimfast, Inc. and Body Life Sciences,
Inc. All significant intercompany balances and transactions have been
eliminated in consolidation. The 1997 financial statements include the
accounts of Trimfast, Inc., the predecessor company.
(C) Use of Estimates
-----------------------
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reported period.
Actual results could differ from those estimates.
(D) Cash and Cash Equivalents
---------------------------------
For purposes of the cash flow statement, the Company considers all highly
liquid investments with original maturities of three months or less at time
of purchase to be cash equivalents.
(E) Short-Term Investments
----------------------------
The Company's policy is to invest in various equity or debt instruments.
The Company accounts for such investments in accordance with Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments
in Debt and Equity Securities." ("SFAS 115")
Management determines the appropriate classification of its investments at
the time of acquisition and reevaluates such determination at each balance
<PAGE>
sheet date. Trading securities are carried at fair value, with unrealized
trading gains and losses included in earnings. Available-for-sale
securities are carried at fair value, with unrealized gains and losses, net
of tax, reported as a separate component of stockholders' equity.
Investments classified as held-to-maturity are carried at amortized cost.
In determining realized gains and losses, the cost of the securities sold
is based on the specific identification method.
(F) Inventories
----------------
Inventories consist principally of consumable finished goods and raw
materials and are stated at lower of cost or market determined on the
first-in, first-out method. The Company performs an inventory review on an
annual basis and disposes of any inventory that is past its expiration
date. The related inventory value is written down accordingly.
(G) Property and Equipment
-----------------------------
Property and equipment are stated at cost, less accumulated depreciation.
Expenditures from maintenance and repairs are charged to expense as
incurred. Depreciation is provided using the double-declining balance
method over the estimated useful life of the assets from five to seven
years.
(H) Revenue Recognition
-------------------------
The Company recognizes income from sale of products at the time of
delivery.
(I) Income taxes
------------------
The Company accounts for income taxes under the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109.
"Accounting for Income Taxes" ("Statement No. 109"). Under Statement No.
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(J) Earnings Per Share Data
-------------------------------
Basic net income (loss) per common share is computed based on the weighted
average common shares outstanding and diluted net income per common share
is computed based upon the weighted average common shares and common stock
equivalents outstanding during the year as defined by Statement of
<PAGE>
Financial Accounting Standards, No. 128, "Earnings Per Share". All share
amounts have been retroactively restated to reflect the recapitalization
and the 1-for-10 reverse stock split. The 817,749 shares originally to HLHK
stockholders are considered outstanding from the acquisition date. There
were no dilutive common stock equivalents outstanding at December 31, 1998,
and 1997.
(K) Advertising Costs
-----------------------
In accordance with the Accounting Standards Executive Committee Statement
of Position 93-7, ("SOP 93-7") costs incurred for producing and
communicating advertising are expensed when incurred.
(L) New Accounting Pronouncements
------------------------------------
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements. Statement No. 133 as amended by Statement No.
137, "Accounting for Derivative Instruments and Hedging Activities"
establishes accounting and reporting standards for derivative instruments
and related contracts and hedging activities. This statement is effective
for all fiscal quarters and fiscal years beginning after June 15, 2000. The
Company believes that its future adoption of these pronouncements will not
have a material effect on the Company's financial position or results of
operations.
NOTE 2 - SHORT-TERM INVESTMENTS
-----------------------------------
The Company's short-term investments, purchased principally for the purpose
of selling them in the near future, as defined under SFAS 115, are
comprised of equity securities, all classified as trading securities, which
are carried at their fair value are based upon the quoted market prices of
those investments at December 31, 1998. Accordingly, net realized and
unrealized gains and losses on trading securities are included in net
earnings.
The composition of short-term investments at December 31, 1998 is as
follows:
Fair
Cost Value
---- -----
Common stock $14,375 $15,297
------- -------
Short-term investments $14,375 $15,297
======= =======
Investment income for the year ended December 31, 1998 consisted
of the following:
Net realized gains on the
sale of trading securities $ 1,905
Net unrealized holding gains 922
--------
$ 2,827
========
NOTE 3 - ACCOUNTS RECEIVABLE AND BAD DEBT EXPENSE
---------------------------------------------------------
During 1998 the Company wrote off 100% accounts receivable totaling
$202,112 from a customer who filed for bankruptcy and 50% of the receivable
or $267,240 from another customer relating to a voluntary recall of a
Company product. These two customers accounted for approximately 60% and
12% of revenues in 1998 (See Note 7(D)). The remaining accounts receivable
consists of another $267,240 due from the one customer discussed above, and
$90,649 due from various other customers, none of which are considered
individually significant.
NOTE 4 - PROPERTY AND EQUIPMENT
------------------------------------
Property and equipment at December 31, 1998 consisted of the following:
Automobiles $ 33,475
Furniture and fixtures 7,900
Equipment 2,756
----------
$ 44,131
Less accumulated depreciation (10,728)
----------
$ 33,403
==========
Depreciation expense for the years ended December 31, 1998 and 1997 was
$10,498 and $230, respectively.
NOTE 5 - INCOME TAXES
-------------------------
Income tax expense (benefit) for the year ended December 31, 1998 is
summarized as follows:
Current:
Federal $ 17,100
State 3,500
Deferred:
Federal 1,391
State 149
Change in valuation allowance (1,540)
-----------
Income tax expense (benefit) $ 20,600
===========
7
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
--------------------------------
The Company's tax expense differs from the "expected" tax expense for the
year ended December 31, 1998 (computed by applying the Federal Corporate
tax rate of 34 percent to income (loss) before taxes), as follows:
Computed "expected" tax expense $ (244,587)
State income tax - net of federal
tax benefit 2,312
Non-deductible expenses 262,794
Effect of non-consolidated losses
and other 4,043
Benefit of surtax exemption (3,962)
-----------
$ 20,600
===========
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1998 are as
follows:
Deferred tax liabilities:
Unrealized gains $ (346)
Total deferred tax liabilities (346)
Deferred tax assets:
Depreciation 1,886
Stock based compensation 259,080
-----------
Total gross deferred tax assets 260,966
-----------
Less valuation allowance (260,620)
-----------
Net deferred tax asset (liability) $ -
===========
There was no valuation allowance at January 1, 1998. The net change in the
valuation allowance during the year ended December 31, 1998 was an increase
of approximately $260,620.
Prior To August 12, 1998, acquisition of Trimfast, Inc. by HLHK, Trimfast,
Inc. was an "S" corporation for income tax purposes. During the
pre-acquisition period no income taxes were payable by the corporation as
the shareholders were responsible for reporting the results of the
operations on their individual income tax returns. For this reason, no
pre-acquisition losses are available to be carried forward at the corporate
level. Effective with the acquisition date, the Company's status as an "S"
corporation was terminated.
HLHK NOL's became limited to zero under the provisions of IRS code section
382 because there was an ownership change and all of the assets and former
lines of business were disposed of. Only the corporate shell was purchased
for the price of assuming certain liabilities.
NOTE 6 - NOTES AND LOANS PAYABLE
--------------------------------------
At December 31, 1998, the Company has three notes payable with individual
lenders in the amounts of $20,000, $25,125 and $25,000. The following
schedule reflects notes and loans payable to non-related parties at
December 31, 1998:
Notes payable to individual
lenders in the amounts of $20,000,
$ 25,000 and $ 25,125, currently due,
interest at 12% per annum $ 70,125
Other loans payable, currently due 1,975
--------
$ 72,100
=========
8
<PAGE>
Accrued interest of $15,923 on the notes and loans payable has been
included in accrued expenses at December 31, 1998. All principal and
accrued interest for $50,125 of the notes were exchanged for an aggregate
40,000 shares of common stock in 1999 resulting in a price per share of
$1.25.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
-------------------------------------------
(A) Year 2000 Issues
-----------------------
The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. The
"Year 2000" problem is pervasive and complex as virtually every computer
operation will be affected in some way by the rollover of the two-digit
year to 00. The issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that do
not properly recognize such information could generate erroneous data or
cause a system to fail.
The Company uses a standard off the shelf accounting software package for
all of its accounting requirements. Management has contacted the software
vendor and confirmed that the accounting software is Year 2000 compliant.
Management has contacted its primary vendors has not identified any Year
2000 compliance issues with those vendors. Costs of investigating Year 2000
compliance issues have not been material to date. As a result, management
believes that the effect of investigating and resolving Year 2000
compliance issues will not have a material effect on the Company's future
financial position or results of operations.
(B) Lease Agreements
----------------------
The Company leases a corporate office facility in Tampa, office equipment,
and two automobiles under operating leases. The leases have remaining terms
varying from the years 1999 through 2002.
Future minimum lease payments for the operating leases are as follows at
December 31, 1998:
Years
-----
Ending Amount
------ ------
1999 $ 39,393
2000 40,407
2001 26,708
2002 8,302
---------
$ 114,810
==========
Rent expense for 1998 and 1997 aggregated $31,885 and $9,263, respectively.
(C) Consulting Agreements and Stock Issued To Vendors
------------------------------------------------------------
On October 9, 1998 the Company entered into a consulting agreement with an
individual whereby the Company will be provided with advice with regard to
corporate strategy and business development and such other matters as
agreed upon between the parties from time to time.
As consideration for the consulting services provided, the Company shall
issue 20,000 shares of common stock to the consultant (See Note 8(B)).
Subsequent to October 9, 1998, the consultant did not substantially perform
the consulting services anticipated in the agreement and therefore no
shares where issued to the consultant. However, on February 9, 1999, the
consultant was issued 20,000 shares of common stock pursuant to an earlier
June 1998 common stock subscription agreement which stipulated the
subscriber may purchase up to 20,000 shares at $0.10 per share. The Company
received the $2,000 payment in June 1998.
On December 14, 1998 the Company entered into a two year consulting
agreement with an individual whereby the Company will be provided with
advice with regard to corporate strategy and business development including
targeting of acquisitions. As consideration for the services provided the
Company shall issue 50,000 free trading common shares pursuant to
Regulation D, Rule 504 and 250,000 common shares restricted under Rule 144
(See Note 8(B)). In addition, the Company shall provide the consultant with
a $1,000 per month expense account. The Company advanced the consultant
300,000 shares in January and February 1999 but a minimal amount of
services delineated by the consulting agreement were performed in 1999 and
no services were performed in 1998. Therefore on June 30, 1999 the
consulting agreement was rescinded and the Company offered the consultant
the 300,000 restricted shares at a price of $0.25 per share resulting in a
subscription receivable of $75,000. The Company expects to receive the
payment in the form of an invoice for prior services rendered under the
rescinded consulting agreement. As of the date of this report, an invoice
or payment has not been received. The amount is recorded as subscriptions
receivable until an invoice or payment is received. If an invoice is
received, the Company will recognize consulting expense for all shares
issued based upon the fair market value of the stock on the grant date.
On December 18, 1998 the Company entered into a two year consulting
agreement with a consulting organization whereby the Company will be
provided with advice with regard to corporate strategy and business
development including targeting of acquisitions. As consideration for the
services provided the Company shall issue 100,000 free trading common
shares pursuant to Regulation D, Rule 504 and 350,000 common shares
restricted under Rule 144 (See Note 8(B). In addition, the Company should
make monthly payments of $2,500 to the consulting organization. The Company
advanced the consultant 275,000 shares in January 1999 but a minimal amount
of services delineated by the consulting agreement were performed in 1999
and no services were performed in 1998. Therefore on June 30, 1999 the
consulting agreement was rescinded and the Company offered the consultant
the 300,000 restricted shares at a price of $0.25 per share resulting in a
subscription receivable of $68,750. The Company expects to receive the
payment in the form of on invoice for prior services rendered under the
rescinded consulting agreement. As of the date of this report, an invoice
or payment has not been received. The amount is recorded as subscriptions
receivable until an invoice or payment is received. If an invoice
is received the Company will recognize a consulting expense based upon the
fair market value of the stock on the grant date.
Subsequent to year-end, the Company entered into various additional
consulting agreements whereby common stock will be issued as consideration.
Services under the consulting agreements entered into in both 1998 and 1999
are being performed generally for two year periods and accordingly,
consulting expense is being recognized in 1999 and in any subsequent
service period based upon the fair market value of the common stock issued
in accordance with SFAS 123 since that value is more reliably measurable
(See Note 13 (F)). The Company also periodically issues common stock as
payment to vendors and records such issues at the fair market value of the
common stock. For the period from January 1, to November 29, 1999
(unaudited) the Company issued approximately 601,300 restricted shares of
common stock for consulting services and as payment to vendors valued for
financial accounting purposes at a fair market value of approximately
$4,194,000 based upon the quoted trading price of the stock on the grant
dates.
(D) Litigation
---------------
In 1999, the Company initiated a legal proceeding against a former major
customer to collect amounts receivable from that customer aggregating
approximately $535,000 at December 31, 1998. Such receivable related to
products sold to that customer during 1998 that were voluntarily recalled
by the Company, but never returned by the customer. It is management's
assertion with regard to this matter that since the product was never
returned to the Company, and is believed to have been resold by the
customer, a successful outcome in favor of the Company is possible. The
Company has written off $267,240 or fifty percent of the total receivable
(See Note 3).
<R>
In early 1999, pursuant to a voluntary arrangement with the Food and Drug
Administration, the Company's product, Revivarant, was recalled and removed
from sale. Since the time of the recall, the Company has been subject to
six known lawsuits and claims relating to consumer use of the product. As
of the date of this report, only one lawsuit has specified a dollar amount,
that being, $400,000 of compensatory damages and $350,000 of punitive
damages. The Company contends that it is covered for product liability of
$1,000,000 per occurrence and up to $2,000,000 in the aggregate under the
policy of its third party manufacturer. The Company did not obtain its own
policy until May 1999 and believes it would not be covered under its own
policy for these prior occurrences. All lawsuits are being referred by
management to the insurance carrier. With regard to any punitive damage
claims, the Company intends to vigorously oppose any factual basis for
imposition of punitive damages based upon research and efforts made prior
to the distribution of the Revivarant product to determine its safety.
Since the lawsuits and claims have been made fairly recently, the Company's
management and outside legal counsel are unable to evaluate and determine
the likely outcome of each cause of action. Accordingly, pursuant to the
Financial Accounting Standards Board, Statement of Financial Accounting
Standards No. 5, no liabilities have been accrued as of December 31, 1998
relating to the above matters. Any future liabilities required to be
recorded pursuant to SFAS 5 will be recorded gross of any expected
insurance recovery pursuant to SAB 5:Y.
In March 2000, the Company received notice from the insurance carrier of
its third party manufacturer that it is denying all claims. The related
litigation may have a material adverse effect on the Company's results of
operations and financial condition.
The Company is subject to various other lawsuits, investigations, and
claims which, in the opinion of management, arise in the normal course of
conducting Company business. Several cases have been settled during 1999
and appropriate amounts have been accrued at December 31, 1998. In the
opinion of the Company's management after consultation with outside legal
counsel, the ultimate disposition of such remaining proceedings will not
have a materially adverse effect on the Company's consolidated financial
position or future results of operations. All litigation may have a
material adverse effect on the Company's results of operation and financial
conditions.
</R>
NOTE 8 - STOCKHOLDERS' EQUITY
---------------------------------
(A) Authorized Shares
-----------------------
The Company has authorized 100,000,000 shares of common stock, $0.001 par
value; 20,000,000 shares of Class A Preferred Stock, $0.01 par value; and
20,000,000 shares of Class B Preferred Stock, $0.01 par value. The
preferred stock shall have such rights and preferences as determined by the
Board of Directors.
(B) Reverse Stock Split and Retroactive Restatement of Per Share Data
---------------------------------------------------------------------------
On December 8, 1998, effective for stockholders of record on December 20,
1998, the Company's Board of Directors approved a one-for-ten reverse split
of its shares of issued and outstanding common stock. All share quantities
and per share data in these financial statements for the years ended
December 31, 1998 and 1997 have been retroactively restated to reflect the
reverse stock split as well as the recapitalization discussed in Note 12.
(C) Repurchase of Outstanding Common Stock By Principal Stockholder
---------------------------------------------------------------------------
On December 8, 1998 the Company's Chairman, CEO and principal stockholder,
purchased all 508,313 shares of the Company's outstanding common stock held
beneficially by the prior principal stockholder of HLHK (See Note 12) for
$150,000. In accordance with SFAS 123, the Company recognized $762,000
compensation expense for the difference between the $1.80 quoted trading
price of the common stock and the $.30 purchase price.
(D) Acquisition and Stock Exchange
--------------------------------------
In August 1998, prior to the acquisition of Trimfast, Inc. by HLHK World
Group, Inc., Trimfast, Inc. acquired all of the issued and outstanding
common stock of Trimfast Holdings, Inc., affiliated through common control,
by issuing eleven shares of Trimfast, Inc. for every ten shares of Trimfast
Holdings, Inc. Trimfast Holdings, Inc. was an inactive company whose only
asset at that time was $177,800 in cash and whose only expense was a
$10,000 consulting expense for which common stock was issued. The
acquisition was recorded as a combination of entities under common control
similar to the pooling method of accounting and accordingly the financial
statements for the period presented have been restated to include the
accounts of Trimfast Holdings, Inc.
(E) Conversion of Debt to Equity
-------------------------------------
During July 1998, the Company issued 19,500 shares of common stock to an
individual related party in exchange for a loan payable of $40,000,
resulting in a price paid per share of $2.05 at the exchange date.
(F) Conversion of Principal Stockholder's Debt to Equity
---------------------------------------------------------------
In December 1998, $126,644 of amounts due to the principal stockholder were
converted to common stock at the fair value of the stock on December 1,
1998, which was $1.80 per share (See Note 10).
(G) Common Stock to be Issued
----------------------------------
The Company underissued 7,524 fully paid shares of common stock of the
Company to certain stockholders of Trimfast, Inc. as a result of the August
12, 1998 reorganization and has not yet issued 70,357 shares of common
stock to its principal stockholder in exchange for $126,644 of amounts due
to that stockholder. The total shares to be issued of 77,881 are shown as
common stock to be issued at December 31, 1998.
NOTE 9 - CONCENTRATIONS
--------------------------
(A) Supplier Concentration
----------------------------
The Company procures raw materials from various suppliers but contracts the
production of finished products to one primary third party manufacturing
company. Since December 31, 1998 the Company has contracted with other
production facilities for several of its products and believes that many
alternative third party production facilities are available should the need
arise.
(B) Customer Concentration
----------------------------
During 1998, approximately 60% of consolidated revenues was derived from
one customer and 12% was derived from one other customer (See Note 3).
NOTE 10 - RELATED PARTIES
-----------------------------
The Company periodically advances funds to the principal stockholder and
affiliates of the principal stockholder, pays certain expenses of the
principal stockholder, and borrows from the principal stockholder. The
advances to affiliates are shown as due from affiliate at December 31, 1998
and the net effect of transactions with the principal stockholder are shown
as due to stockholder/officer at December 31, 1997. All net amounts due to
the principal stockholder were converted to common stock in December 1998.
(See supplemental disclosure of non-cash investing and financing activities
in cash flow statement.)
The Company received an advance of $40,000 from an individual during 1997
which was recorded as due to related party at December 31, 1997 (see Note
8(E)). During 1998 the Company issued 19,500 shares of common stock to that
same individual in exchange for the $40,000 payable.
NOTE 11 - OPERATING AGREEMENTS
----------------------------------
The Company enters into wholesaler and broker agreements whereby the
wholesalers and brokers are appointed the Company's sole and exclusive
wholesaler and broker within a specified geographic territory for certain
stipulated products. In general, under the agreements, the wholesalers and
brokers have the right to purchase, sell, promote, advertise, and deliver
the stipulated products. Broker agreements allow for broker commissions
while wholesaler agreements allow for the purchase of product by
distributors at a discount. The agreements generally may be terminated by
either party with 60 days notice to the other party.
NOTE 12 - ACQUISITION AND RECAPITALIZATION
-----------------------------------------------
Under a Stock Exchange Agreement (the Agreement) consummated on August 12,
1998, HLHK World Group, Inc., a non-reporting public shell, acquired one
hundred percent of the issued and outstanding common stock of Trimfast,
Inc. in exchange for 1,370,049 shares of the $0.001 par value common stock
of HLHK. Under the terms of the Agreement, the Trimfast, Inc., shares were
exchanged at a ratio of three shares of HLHK common stock for each share of
Trimfast, Inc. common stock. As a result of the exchange, the Company
became a wholly-owned subsidiary of HLHK and the stockholders of Trimfast,
Inc. became stockholders of approximately 60.42% of HLHK which represented
1,370,049 shares of the total 2,268,298 issued and outstanding just
subsequent to the exchange (Approximately 82% after repurchase agreement
discussed in Note 8(C)). Generally Accepted Accounting Principles require
that the Company whose shareholders retain a majority interest in a
combined business be treated as the acquiror for accounting purposes.
Therefore, the exchange was treated as an acquisition of HLHK by Trimfast,
Inc. and a recapitalization of Trimfast, Inc. The Company's consolidated
financial statements immediately following the acquisition were as follows:
(1) The Balance Sheet consists of Trimfast, Inc.'s net assets at historical
cost and HLHK's net assets at historical cost and (2) the Statement of
Operations includes Trimfast, Inc.'s operations for the period presented
and HLHK's operations from the date of acquisition. On September 4, 1998
the Company filed an amendment to its articles of incorporation to (i)
change its name from HLHK to Trimfast Group, Inc. and (ii) authorize
20,000,000 shares each of Class A and Class B Preferred Stock, $0.01 par
value.
NOTE 13 - SUBSEQUENT EVENTS
-------------------------------
(A) Acquisitions
-----------------
On March 18, 1999, the Company acquired IMMMU, Inc. ("IMMMU") and IMMCEL
Pharmaceuticals, Inc. ("IMMCEL"), two companies unrelated to the Company
but related to each other through common stockholders, in a transaction
accounted for as a purchase. Under terms of the agreement, 235,000 shares
of the Company's common stock, $50,000 in cash and an option agreement for
shares of the Company's common stock exercisable based on stipulated
Company performance criteria were exchanged for all of the issued and
outstanding capital stock of IMMMU and IMMCEL. The 235,000 common shares
issued were valued at the trading price on the consummation date resulting
together with the other consideration in a purchase price of $975,312.
IMMMU and IMMCEL are manufacturers of nutritional supplements primarily
marketed to pharmacies, supermarkets, and discount stores. In connection
with the acquisitions, the Company entered into a five year employment
agreement, renewable in one year increments, with a former stockholder of
IMMMU and IMMCEL whereby the former stockholder will be employed as the
Chief Executive Officer of IMMMU and IMMCEL and serve on the Board of
Directors of the Company. The former stockholder will receive an annual
salary of $75,000 and a bonus based on stipulated performance criteria. The
employment agreement may be terminated by the Company if IMMMU and IMMCEL
have two consecutive non-profitable fiscal quarters as defined in the
agreement. On October 23, 1999, effective October 31, 1999, the Company and
former stockholders of IMMMU and IMMCEL executed a rescission agreement for
the above acquisitions to make the parties whole.
On May 24, 1999 the Company acquired certain assets of Ice Cold Water Co.,
Inc. ("ICW") including certain receivables, inventory, property and
equipment, a customer list and the name "Ice Cold Water" and all other
intellectual property rights associated with the name. Under terms of the
agreement, the Company acquired the assets for $20,000 in cash and a
$100,000 promissory note at 8.5% per annum which is due in four monthly
installments of $25,000 plus accrued interest, commencing June 10, 1999.
(B) Agreement with Investment Group
---------------------------------------
On March 18, 1999 the Company entered into an agreement (the "Agreement")
with a third party investment group (the "investment group") whereby the
investment group will purchase (i) common shares of the Company in the open
market having an aggregate value of no less than $300,000, and (ii) 300,000
common shares from the Company at a price of $4.00 per share according to a
stipulated schedule based on the average market price of the outstanding
shares. The Agreement was contingent upon the consummation of the
acquisition of IMMMU and IMMCEL, discussed above. As of October 1999 the
investment group had purchased 155,000 shares of common stock from the
Company at $4.00 per share. On October 22, 1999 the Company executed an
agreement with the investment group to repurchase the 155,000 shares at a
price of $8.25 per share on a scheduled basis through December 15, 1999 as
stipulated in the agreement. Any of the 155,000 shares purchased after
December 15, 1999 shall be increased on a basis of $0.25 every two-weeks as
stipulated in the agreement. The quoted market price on October 22, 1999
was approximately $7.00 per share. The cost of the repurchase will be
charged to treasury stock.
(C) Formation of New Division
---------------------------------
On April 21, 1999, the Company formed a new division of Trimfast Group,
Inc. doing business as NutritionCafe.com. NutritionCafe.com is an internet
web site business established to (i) provide nutrition information, (ii)
provide portal links to other information sites and (iii) market and sell
at a discount the Company's products and products of other nutrition
product companies for which the Company acts as a distributor.
(D) Lease and Purchase Option of Facility
-----------------------------------------------
In connection with the formation of its new division, NutritionCafe.com, on
April 8, 1999 the Company entered into a lease/purchase option agreement
for a facility, which will be used for the operations of NutrionCafe.com.
The lease calls for rental payments of $8,000 per month and is effective
for the period from May 15, 1999 through June 30, 2000. In addition, the
Company paid $100,000 in cash as non-refundable consideration for a
purchase option on the premises. The purchase price shall be for the sum of
$1,200,000 with full credit for the $100,000 option monies paid. The option
must be exercised by June 30, 2000. On July 30, 1999, the Company exercised
its purchase option.
(E) Issuance of Warrants
---------------------------
In May 1999, the Company issued 40,000 warrants to purchase common stock to
two unrelated parties in exchange for services performed relating to
raising debenture capital. The exercise prices and expiration dates for
exercise of the warrants are as follows:
Quantity Exercise Price Expiration Date
-------- --------------- ----------------
10,000 $4.00 May 12, 2000
10,000 $4.00 May 12, 2000
10,000 $7.00 May 13, 2000
10,000 $7.00 May 13, 2000
Pursuant to Statement of Financial Accounting Standards No. 123 "Accounting
for Stock Based Compensation" ("SFAS 123"), the fair market value of the
warrants aggregating $139,000 was charged to expense in 1999, the period
the services were performed.
For financial statement disclosure purposes the fair market value of each
option granted was estimated on the date of grant using the Black-Scholes
Option-Pricing Model in accordance with SFAS 123 using the following
weighted-average assumptions: expected dividend yield 0% risk-free interest
rate of 5.3%, volatility of 70% and expected term of one year.
(F) Private Placement
-----------------------
From January through April 5, 1999, the Company issued common stock
pursuant to Regulation D, Rule 504 of the Securities Act of 1933, as
amended. The Company issued 558,000 shares for aggregate cash proceeds of
approximately $1,009,000 and 262,950 shares for consulting services valued
for financial accounting purposes at approximately $730,000 based upon the
trading price of the common stock on the date of consulting contract. (See
Note 7 (C)).
(G) Convertible Debentures
----------------------------
On June 14, 1999, the Company issued $1,000,000 of convertible debentures
due on June 14, 2002. The debentures contain a beneficial conversion
feature whereby the holder is entitled to convert the face amount of the
debenture, plus accrued interest, as of the closing date into common stock
of the Company at the lesser of (a) 80% of the 5 day average closing bid
price for the 5 consecutive trading days prior to the conversion date or
(b) $8.50. The debentures also contain a mandatory 36-month conversion
feature at the end of which all debentures outstanding will be
automatically converted.
The Company accounts for the debentures in accordance with EITF 98-5
"Accounting for Convertible Securities with Beneficial Conversion Features
or Contingently Adjustable Conversion Ratios." Accordingly, the Company has
allocated a portion of the proceeds to additional paid-in capital equal to
the intrinsic value of the features as computed on the commitment date,
resulting in recognition on the closing date of $250,000 interest expense.
(H) Convertible Preferred Stock and Common Stock Warrants
----------------------------------------------------------------
On July 16, 1999, pursuant to a securities purchase agreement (the
"Agreement") the Company issued 15,000 shares of Series A Convertible
Preferred Stock and 223,881 warrants to purchase common stock to four
investors for a total aggregate selling price of $1,500,040. The debentures
contain a beneficial conversion feature whereby the stock is convertible
any time after the issuance date at the lesser of (a) $8.5938 or (b) 80% of
the market price of the common stock as defined in the Agreement. The
preferred stock entitles the holder to receive on each July 1, and January
1, commencing January 1, 2000 cumulative dividends at 8% per annum computed
on the basis of $100 per preferred stock. At the Company's option, the
dividends may be paid in cash or the Company's common stock. The warrants
are exercisable at $10.31 per share, vest immediately and expire on July
16, 2002. As a result of accounting for the beneficial conversion feature,
the Company charged a $375,011 dividend to retained earnings on the
issuance date.
A total of 750,000 shares of the Company's authorized common stock have
been reserved for issuance upon conversion of the preferred stock and
exercise of the warrants.
Note 14 - RESTATEMENT
------------------------
Subsequent to the issuance of the Company's 1998 consolidated financial
statements, management became aware that non-cash stock based compensation
of $762,000 resulting from a principal stockholder transaction was not
included in the statement of operations in 1998. The inclusion of this item
in the revised 1998 consolidated financial statements has the effect of
changing net income of $22,026 to a net loss of $739,974 and changing
earnings per share of $0.01 to loss per share of $0.43.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
/s/ Michael Muzio
----------------------------------------
By: Michael Muzio, President
Date: July 14, 2000
EXHIBIT INDEX
--------------------------------------------------------------------------------
Exhibit # Description
--------------------------------------------------------------------------------
2.1 Kendrex and HLHK Merger (Incorporated by
reference as filed in Form 10-SB/A filed on
12/23/99 as Exhibit 2.1)
--------------------------------------------------------------------------------
2.2 Trimfast, Inc. Acquisition (Incorporated by
reference as filed in Form 10-SB/A filed on
12/23/99 as Exhibit 2.2)
--------------------------------------------------------------------------------
2.3 Rescission of IMMMU and IMMCEL Acquisitions
(Incorporated by reference as filed in Form
10-SB/A filed on 12/23/99 as Exhibit 2.3)
--------------------------------------------------------------------------------
3.1 Articles of Incorporation (Incorporated by
reference as filed in Form 10-SB filed on
7/12/99 as Exhibit 3.1)
--------------------------------------------------------------------------------
3.2 Bylaws (Incorporated by reference as filed in
Form 10-SB filed on 7/12/99 as Exhibit 3.2)
--------------------------------------------------------------------------------
4.1 Specimen Share Certificate (Incorporated by
reference as filed in Form 10-SB/A filed on
12/23/99 as Exhibit 4.1)
--------------------------------------------------------------------------------
4.2 Debenture Agreement (Incorporated by reference
as filed in Form 10-SB filed on 7/12/99 as
Exhibit 4)
--------------------------------------------------------------------------------
4.3 Warrant Agreement (Incorporated by reference
as filed in Form 10-SB/A filed on 12/23/99 as
Exhibit 4.3)
--------------------------------------------------------------------------------
4.4 Preferred Share Agreement (Incorporated by
reference as filed in Form 10-SB/A filed on
12/23/99 as Exhibit 4.4)
--------------------------------------------------------------------------------
4.5 Series A Certificate of Designations,
Preferences and Rights (Incorporated by
reference as filed in the From 10-SB/A filed on
March 13, 2000 as Exhibit 4.5)
--------------------------------------------------------------------------------
10.1 Lease Option Agreement (Incorporated by
reference as filed in Form 10-SB filed on
7/12/99 as Exhibit 10)
--------------------------------------------------------------------------------
10.2 WCW Agreement (Incorporated by
reference as filed in Form 10-SB/A filed on
6/6/00 as Exhibit 10.2)
--------------------------------------------------------------------------------
10.3 Venture Direct Worldwide Agreement
(Incorporated by reference as filed in Form
10-SB/A filed on 12/23/99 as Exhibit 10.3)
--------------------------------------------------------------------------------
10.4 Distribution Agreement (Incorporated by
reference as filed in Form 10-SB/A filed on
12/23/99 as Exhibit 10.4)
--------------------------------------------------------------------------------
10.5 Convertible Debenture Subscription Agreement between the Company
and FAC Enterprises and Convertible Debenture Subscription
Agreement between the Company and Gibralt U.S., Inc., including Annex
A, Intercreditor Agreement, Pledge and Security Agreement, including
Exhibits thereto, and Escrow Agreement (as filed herewith)
--------------------------------------------------------------------------------
10.6 Aryeh Trading Agreement dated March 18, 1999
(Incorporated by reference as filed in Form 10-SB/A filed on
6/6/00 as Exhibit 10.6)
--------------------------------------------------------------------------------
10.7 Aryeh Trading Agreement dated March 30, 1999
(Incorporated by reference as filed in Form 10-SB/A filed on
6/6/00 as Exhibit 10.7)
--------------------------------------------------------------------------------
10.8 Aryeh Trading Agreement dated October 22, 1999
(Incorporated by reference as filed in Form 10-SB/A filed on
6/6/00 as Exhibit 10.8)
--------------------------------------------------------------------------------
10.9 Aryeh Trading Agreement dated November 10, 1999
(Incorporated by reference as filed in Form 10-SB/A filed on
6/6/00 as Exhibit 10.9)
--------------------------------------------------------------------------------
10.10 Stock Exchange Agreement- Nutrition Clubstores
(Incorporated by reference as filed in Form 8-K
filed on 5/12/00)
--------------------------------------------------------------------------------
10.11 Registration Rights Agreement entered into by and between the Company
and certain investors in its Series A Preferred Stock, dated as of
July 16, 1999 (as filed herewith)
---------------------------------------------------------------------------------
21 Subsidiaries of Registrant (Incorporated by
reference as filed in Form 10-SB/A filed on
12/23/99 as Exhibit 21)
--------------------------------------------------------------------------------
27 Financial Data Schedule (as filed herewith)
--------------------------------------------------------------------------------
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>3
<FILENAME>0003.txt
<TEXT>
CONVERTIBLE DEBENTURE SUBSCRIPTION AGREEMENT
<R>
THIS CONVERTIBLE DEBENTURE SUBSCRIPTION AGREEMENT IS EXECUTED IN RELIANCE
UPON THE EXEMPTION PROVIDED BY SECTION 4(2) ("SECTION 4(2)") FOR TRANSACTIONS
NOT INVOLVING ANY PUBLIC OFFERING UNDER THE SECURITIES ACT OF 1993, AS AMENDED
(THE "SECURITIES ACT").
</R>
THE SUBSCRIPTION AGREEMENT (this "Agreement") has been executed by the
undersigned in connection with the private placement of up to a maximum of
$3,000,000 in aggregate principal amount of 12% Convertible Debentures Due July
13, 200 1 (hereinafter referred to as the "Convertible Debentures"), of TRIM
FAST GROUP, INC., a corporation organized under the laws of the State of
Delaware, Nasdaq OTC Market Symbol "TRIM") (hereinafter referred to as the
"Company"). The Convertible Debentures being sold pursuant to this Agreement
have not been registered under the Securities Act. In addition to such other
terms as are set forth in this Agreement; (i) the terms on which the Convertible
Debentures may he converted into shares of Common Stock, $.00 1 par value, of
the Company (the "Common Stock") and the other terms of the Convertible
Debentures are set forth in the Form of Convertible Debentures attached hereto
as ANNEX I (the "Form of Convertible Debenture");(ii) the collateral provided as
additional security and as an incentive for Purchaser to purchase the
Convertible Debentures is set forth in attached ANNEX II; and, (iii) the
Security Agreement which grants Purchaser a secured interest in the Security is
attached hereto as ANNEX III The offer of the Convertible Debentures and, if
this Subscription Agreement is accepted by the Company, the sale of Convertible
Debentures is being made in reliance upon Rule 506 of Regulation D promulgated
under Section 4(2). (All dollar amounts in this Agreement are expressed in U.S.
Dollars.)
The undersigned Purchaser
Name: FAC Enterprises, Inc.
---------------------------------------------
Address: The GSB Building One Belmont Ave, Suite 417 Bala Cynwyd, PA. 19004
---------------------------------------------------------
If applicable, a corporation organized under the laws of Pennsylvania,
hereinafter referred to as "Purchaser") hereby represents and warrants to, and
agrees with the Company as follows:
<PAGE>
1. AGREEMENT TO SUBSCRIBE
------------------------
<R>
A. Subscription. The undersigned Purchaser hereby irrevocab1y
(subject to Paragraph 9 hereof) subscribes to purchase Five Hundred Thousand
($5OO,OOO) in aggregate principal amount of Convertible Debentures, having a
purchase price of 1OO%.
B. Form of Payment. Purchaser shall pay the purchase price for the
Convertible Debentures by delivering good funds in United States Dollars in
accordance with Paragraph 1(c) below, to the escrow agent (the "Escrow Agent")
identified in the Escrow Instructions attached hereto (the "Escrow Agreement")
and marked as Annex IV. The Company shall deliver one or more certificates for
the Convertible Debentures to the Escrow Agent, and upon payment by the
Purchaser of the purchase price for the Convertible Debentures, the Escrow Agent
shall cause the Convertible Debentures purchased thereby by the Purchaser to be
delivered to the Purchaser as set forth in paragraph 1(c) below. By signing this
Agreement, the Purchaser and the Company each agrees to all of the terms and
conditions of, and becomes a part to, the Escrow Instructions attached hereto,
all of the provisions of which are incorporated herein by this reference as if
set forth in full at this point.
</R>
C. Method of Payment. Payment of the purchase price for the
Convertible Debentures shall be made by wire transfer of funds to:
Account Name: Wasserman, Comden & Casselman, L.L.P. Trust Account
Bank: Manufactures Bank
Los Angeles Main Branch
l35 East 9th Street
Los Angeles, Calif. 90015
Account No: 01-257-862
Bank ABA No: 122226076
No later than five (5) calendar days after the Company accepts this
Agreement and all other subscription agreements for the Convertible Debentures
and delivers a signed counterpart of this Agreement to the Purchaser and
delivers the certificate(s) for the Convertible Debentures to the Escrow Agents,
the Purchaser shall deliver the escrow funds to the Escrow Agent and the Company
shall deliver the certificates for the Convertible Debentures to the Purchaser
(the "Closing Date"). Such delivery to the Purchaser shall be by hand delivery
or by overnight courier to such address as the Purchaser may direct.
<PAGE>
2. PURCHASER REPRESENTATIONS; ACCESS TO
---------------------------------------
INFORMATION: INDEPENDENT INVESTIGATION
---------------------------------------
A. Purchaser Representations and Warranties. Purchaser represents
and warrants to the Company as follows:
<R>
(a) Purchaser is either a "sophisticated purchaser" because
he has such knowledge and experience in financial and business matters that he
is capable of evaluating the merits and risks of the prospective investment or
an "accredited Investor" because he meets one of the following requirements:
</R>
(i) He is a natural person whose individual net worth,
or joint net worth with his spouse, exceeds $1,000,000,and either he is ab1e to
bear the economic risk of investment in the Convertible Debentures investment or
this investment does not exceed 10% of his net worth or joint net worth with his
spouse;
(ii) He is a natural person who had individual income in
excess of $200,000 in each of the two most recent years, or joint income with
that person's spouse in excess of $300,000 in each of those years and reasonably
expects to reach the same income level in the current year, and either he is
able to bear the economic risk of investment in the Convertible Debentures or
this investment does not exceed 10% of his net worth or joint net worth with his
spouse; or
(iii) It is an organization described in section 501
(c)(3) of the Internal Revenue Code of 1986, as amended (i.e., tax exempt
entities), corporation, Massachusetts or similar business trust, or partnership,
not formed for the specific purpose of acquiring Units, with total assets in
excess of $5,000,000;
(iv) It is a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring Convertible
Debentures, whose purchases are directed by a sophisticated person as described
under the first alternative under Category A above;
(v) It is bank as defined in Section 3(a)(2) of the
Securities Act, or a savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its
individual or fiduciary capacity; a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934; an insurance company as
defined in Section 2(13) of the Securities Act; or an investment company
registered under the Investment Partnership Act Of 1940 or a business
development company as defined in section 2(a)(48) of that Act;
<PAGE>
(vi) It is a Small Business Investment Partnership
licensed by the U.S. Small Business Administration under Section 301(c) or (d)
of the Small Business Investment Act of 1958; a private business development
company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;
an employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, if the investment decision is made by a
plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank,
savings and loan association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decisions made solely by
persons that are accredited investors as described above;
(vii) He is a director or executive officer of the
Company; or,
(viii) It is an entity in which all of the equity owners
are Accredited Investors.
(b) Purchaser is sufficiently experienced in financial and
business matters to be capable of evaluating the merits and risks of its
investments, and to make an informed decision relating thereto, and to protect
its own interests in connection with the transaction.
(c) Purchaser is purchasing the Convertible Debentures for
its own account or for the account of beneficiaries for whom the Purchaser has
full investment discretion, each of which beneficiaries is bound to all of the
terms and provisions hereof including all representations and warranties herein.
Purchaser is purchasing the Convertible Debentures for investment purposes only
and, not with an intent towards further sale or distribution thereof, and has
not prearranged any sale with any other purchaser.
(d) The Convertible Debentures have not been registered under
the Securities Act and may not be transferred, sold, assigned, hypothecated or
otherwise disposed of unless such transaction is the subject of a registration
statement filed with and declared effective by the Securities and Exchange
Commission (the "SEC") or unless an exemption from the registration requirements
under the Securities Act such as Rule 144 is available. Purchaser represents and
warrants and hereby agrees that all offers and sales of the Convertible
Debentures and the Common Stock issuable upon conversion thereof (collectively,
the "Securities") shall be made only pursuant to such registration or to such
exemption from registration which exemption the Company may require an opinion
letter from counsel which demonstrates the availability of the exemption from
registration before the Company will recognize any transfer of the Securities.
<PAGE>
(e) Purchaser acknowledges that the purchase of the
Securities involves a high degree of risk, is aware of the risks and further
acknowledges that it can bear the economic risk of the Securities, including the
total loss of its investment.
(f) Purchaser understands that the Securities are being
offered and sold to it in reliance on an exemption from the registration
requirements of the Securities Act, and that the Company is relying upon truth
and accuracy of the representations, warranties, agreements, acknowledgments and
understanding of Purchaser set forth herein in order to determine the
applicability of such safe harbor and the suitability of Purchaser to acquire
the Securities.
(g) Purchaser is purchasing the Securities for its own
account or for the account of beneficiaries for whom Purchaser has full
investment discretion and not with a view to, or for sale in connection with,
any "distribution" (as such term is used in Section 2(11) of the Securities Act)
thereof.
(h) In evaluating its investment, Purchaser has consulted its
own investment and/or legal and/or tax advisors.
(i) Purchaser is not an underwriter or dealer in, the
Securities, Purchaser is not participating, pursuant to a contractual agreement,
in the distribution of the Securities.
B. Current Public Information. Purchaser acknowledges that
Purchaser has been furnished with or has acquired copies of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999 filed with the
Securities and Exchange Commission and the Forms 1O-QSB and 8-K filled
thereafter (collectively the "SEC Fillings").
C. Independent Investigation; Access. Purchaser acknowledges that
Purchaser, in making the decision to purchase the Convertible Debentures
subscribed for, has relied upon independent investigation made by it and its
purchaser representatives, if any,
<PAGE>
and Purchaser and such representatives, if any, have prior to any sale to it,
been given access and the opportunity to examine all material contracts and
documents relating to this offering and an opportunity to ask questions of, and
to receive answers from, the Company or any person acting on its behalf
concerning the terms and conditions of this offering. Purchaser and its
advisors, if any, have been furnished with access to all publicly available
materials relating to the business, finances and operation of the Company and
materials relating to the offer and sale of the Securities which have been
requested. Purchaser and its advisors if any, have received complete and
satisfactory answers to any such inquiries.
D. No Government Recommendation or Approval. Purchaser understands
that no federal or state agency has passed on or made any recommendations or
endorsement of the Convertible Debentures.
E. Entity Purchasers. If Purchaser is a partnership, corporation
or trust, the person executing this Agreement on its behalf represents and
warrants that:
(a) He or she has made due inquiry to determine the
truthfulness of the representations and warranties made pursuant to this
Agreement.
(b) He or she is duly authorized (if the undersigned is a
trust, by the trust agreement) to make this investment and to enter into and
execute this Agreement on behalf of such entity.
(c) The entity was not formed for the purpose of investing in
the offered securities.
(d) In the case of a partnership, each person in the
partnership is an "accredited investor" or a "sophisticated purchaser" as
required for each Purchaser under Section 2(a)(i).
F. Non-Affiliate. Purchaser represents, warrants and covenants
that it is not affiliate of the Company.
<PAGE>
3. ISSUER REPRESENTATIONS
-----------------------
<R>
A. Reporting Company Status. The Company is a "Reporting Issuer"
under the Exchange Act of 1934, as amended (the "Exchange Act"). The Company is
in full compliance, to the extent applicable, with all reporting obligations
under either Section 12(b), 12(g) 13(a) or 15(d) of the Exchange Act. The
Company has registered its Common Stock pursuant to Section 12(g) of the
Exchange Act, and the Common Stock is listed on the Nasdaq OTC Market, and the
Company has received no adverse notice, either oral or written, with respect to
its continued eligibility for such listing. The Company will take all such steps
as may be necessary for the additional listing of the Common Stock issuable upon
conversion of the Convertible Debentures on the Nasdaq OTC Market. The Company
has filed all materials required to be filed by it pursuant to all applicable
reporting obligations under Section 13(a) or 15(d) of the Exchange Act.
</R>
B. Terms of Convertible Debentures. The terms of the Convertible
Debentures shall be as set forth in the Form of Convertible Debenture delivered
to Purchaser as Annex I.
<R>
C. Legality. The Company has the requisite corporate power and
authority to enter into this Agreement and to issue, sell and deliver the
Securities; this Agreement and the issuance, sale and delivery of the Securities
hereunder and the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action by the Company; this Agreement and
the Securities have duly and validly executed and delivered by and on behalf of
the Company, and are valid and binding agreements of the Company, enforceable in
accordance with their respective terms, except as enforceability may be limited
by general equitable principles, bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, or other laws affecting creditors' rights generally.
The Convertible Debentures and common stock issueable upon conversion of the
convertible debentures will not subject the holders thereof to personal
liability by reason of being such holders.
</R>
D. Proper Organization. The company is a corporation duly
organized, validly existing and in good standing under the 1aws of its
jurisdiction of incorporation and is duly qualified as a foreign corporation in
all jurisdictions where the failure to be so qualified would have a materially
adverse effect on its business, taken as whole.
<PAGE>
<R>
E. No Lega1 Proceedings. There is no action, suit or proceeding
before or by any court or any governmental agency or body, domestic or foreign,
now pending or, to the knowledge of the Company, threatened, against or
affecting the Company, or any of its properties or assets, which might result in
any material adverse change in the condition (financial or otherwise) or in the
earnings, business affairs or business prospects of the Company, or which might
materially and adverse1y affect the properties or assets thereof, except as
described in the SEC Filings.
</R>
F. Non-Default. The Company, except as described in the SEC
Filings, is not in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust or other material instrument or agreement to which it is
a party or by which it or its property may be bound.
G. No Misleading Statements. None of the SEC Filings, and as of
their respective dates, none of the Company's other filings with the SEC contain
any knowingly untrue statement of a material fact or known omission to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
<R>
H. No Adverse Change. There has been no material adverse change in
the financial condition, earnings, business affairs or business prospects of the
Company since the date of the Company's most recent Form 10-KSB or 10-QKSB filed
pursuant to the Exchange Act.
</R>
I. Absence of Non-Disclosed Facts. There is no fact known to the
Company (other than general economic conditions known to the pub1ic generally)
that has not been disclosed in writing to the Purchaser that: (i)could
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise)or in the earnings, business affairs, business
prospects, properties or assets of the Company; or (ii) could reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement and the Convertible
Debentures, except as described in the SEC Filings.
J. Registration Transfer Restrictions. The Company has provided
its Transfer Agent with irrevocab1e instructions as attached here to as Annex V
(the "Irrevocab1e Instructions"), to issue one or more certificate(s)
representing the shares of Common Stock
<PAGE>
to the holders of the Convertible Debentures upon the conversion of the
Convertible Debentures at any time after the Closing Date without any
restrictive legend or stop transfer instructions and without any further
instruction or opinion from the Company, provided that the Company is presented
with certificates representing shares of the Convertible Debentures to be
converted, together with an executed Conversion Certificate in the form of
Exhibit A attached to the Form of Convertible Debenture, and provided further
that the Common Stock is being sold pursuant to the registration statement on
Form S-2 or such other registration as set forth below. Upon compliance with the
foregoing upon issuance, such Common Stock shall be freely transferable on the
books and records of the Company.
No later than 45 days after the Closing Date, the Company shall
fi1e a registration statement on Form S-2 under the Securities Act and under all
applicab1e Blue Sky laws covering the Common Stock and shall have such
registration statement to be declared effective within 120 days of the Closing
Date, by the SEC, all at the Company's sole cost and expense. Company promptly
responding to all comments received by the SEC staff, upon written request
providing Purchaser or its counsel with contemporaneous copies of all written
communications from the SEC staff and promptly preparing and filing amendments
to such registration statement which are responsive to the comments received
from the SEC staff. Such registration statement shall name Purchaser as a
selling shareholder and shall provide for the sale of the Common Stock by
Purchaser from time to time directly to purchasers or in the over-the-counter
market through or to securities brokers or dealers that may receive compensation
in the form of discounts, concessions, or commissions. This obligation to
register the Common Stock is in addition to the Company's registration
obligation described in Section 10 hereunder. None of the foregoing shall in any
way limit Purchaser's rights to sell the Common Stuck issuable upon conversion
of the Convertible
Debentures in reliance on an exemption from the registration requirements under
the Securities Act in connection with a particular transaction.
In the event that the Company fails to register the resale of the
Common Stock issuable upon conversion of the Convertible Debentures within 120
days after the Closing Date, the Company will, upon the presentation of a
reasonably acceptable opinion of the Purchaser's counsel allow the Purchaser to
offer and sell the shares of Common Stock in reliance on the provisions of Rule
144 provided that the holding period and other requirements of such Rule 144 are
met. In the event the Company either (a) fails to file a registration statement
covering the Common Stock issuable upon conversion of the Convertible
Debentures, within 45 days of the first Closing Date or (b) fails to have such
<PAGE>
registration statement declared effective by the Securities and Exchange
Commission within 120 days of the first Closing Date, Company shall
automatically be subjected to the penalties set forth in attached Annex I.
Regardless of whether the Company registers the resale of the
Common Stock issuable upon conversion of the Convertible Debentures, the Company
will, upon the presentation of an opinion of the Purchaser's counsel, allow the
Purchaser to offer and sell the shares of Common Stock in reliance on the
provisions of Rule 144, at the option of Purchaser.
K. Non-Contravention. The execution and delivery of this Agreement
and the consummation of the issuance of the Securities and the transactions
contemplated by this Agreement do not and wi11 not conflict with or result in a
breach by the Company of any of the terms or provisions of, or constitute a
default under the Articles of Incorporation or bylaws of the Company, or any
indenture, mortgage, deed of trust, or other material agreement or instrument
to which the Company is a party or by which it or any of its properties or
assets are bound, or any existing applicable Federal or State law, rule, or
regulation or any applicable decrees, judgment or order of any court, Federal or
State regulatory body, administrative agency or other domestic governmental
body having jurisdiction over the Company or any of its properties or assets.
L. Fillings. The Company undertakes and agrees pursuant to the
sale of its Securities hereunder to make all necessary filings in connection
with the sale of its Securities as required by the laws and regulations of all
appropriate jurisdictions and securities exchanges in the United States, if any.
4. COVENANTS OF THE COMPANY. For so long as any Convertib1e
---------------------------
Debentures held by the Purchaser shall remain outstanding, the Company covenants
and agrees with the Purchaser that:
A. It will at all times fully reserve from its authorized but
unissued shares of Common Stock such sufficient number of shares of Common Stock
to permit the conversion in full of the outstanding Convertib1e Debentures.
B. Upon receipt by the Company of confirmation of effectiveness of
the Registration Statement as provided in Section 10 the Company will not issue
stop transfer
<PAGE>
instructions to its Transfer Agent with respect to, and will not place a
restrictive legend on, the certificates representing shares of Common Stock
issued or issuable upon conversion of the Convertible Debentures.
5. LEGEND
------
A. On or prior to the Closing Date, the Company will prepare and
issue one or more certificates for the Convertib1e Debentures registered in such
name or names as specified by the Purchaser and cause the same to be delivered
to the Escrow Agent. Such certificate(s) and the certificates representing the
Common Stock shall bear a legend in substantially the following form:
These securities have been issued pursuant to the Section
4(2) exemption to the registration provisions under the
Securities Act of 1933, as amended. These securities cannot
be transferred, offered, or sold unless the securities are
registered under the Securities Act or an exemption from the
registration requirements of the Securities Act is available.
The Company has provided its Transfer Agent with the Irrevocable
Instructions and pursuant thereto the Company shall issue one or more
certificates representing shares of Common Stock upon the conversion of the
Convertible Debentures in accordance with the Form of Convertible Debentures.
The Company warrants that upon registration of the Common Stock
to be provided upon any conversion of the Convertible Debentures, no restriction
or instruction other than the foregoing instructions and a corresponding "stop
transfer" restriction on the Company's stock ledger will be imposed by the
Company or given by the Company to its Transfer Agent with respect to the Common
Stock and that, subject to the foregoing, the Common Stock issued and issuable
upon conversion of the Convertible Debentures shall otherwise be freely
transferable on the books and records of the Company. Nothing in this Section
shall affect in any way the Purchaser's obligations and agreement to comply with
all applicable securities laws upon resale of the Securities.
B. The Purchaser acknowledges that the Company is under no
obligation to register the Convertible Debentures or the Common Stock issuable
upon the conversion thereof under the Securities Act other than as set forth in
Section 10 or Section 3(j) hereunder.
<PAGE>
6. EXEMPTION: RELIANCE ON SECTION 4(2). Purchaser understands that
---------------------------------------
the offer and sale of the Convertible Debentures is not being registered under
the Securities Act based on the exemption from registration provided by Rule 506
promulgated under Section 4(2) of the Securities Act. The Company is relying on
such exemption.
7. CLOSING DATE AND ESCROW AGENT. Closing shall be effected through
---------------------------------
delivery of funds to the Company by the Escrow Agent, and delivery of
certificates evidencing the Convertible Debentures to the Purchaser by the
Escrow Agent. Each of the Company and the Purchaser agrees that the Escrow Agent
has no liability as a result of any fraudulent or unlawful conduct of any other
party, and agrees to held the Escrow Agent harmless except as to any loss,
claim, damage or liability arising out of or is based upon any action not taken
in good faith, on any action or omission that constitutes gross negligence or
willful misconduct by the Escrow Agent
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. Purchaser
----------------------------------------------------
understands that the Company's obligation to sell the Convertible Debentures is
conditioned upon:
A. The receipt and acceptance by the Company of this Agreement, as
evidence by execution of this Agreement by the President or any Vice President
or the Chief Financial Officer of the Company; and
B. Delivery to the Escrow Agent by Purchaser of good funds as
payment in full for the purchase of the Convertible Debentures; and
<R>
C. The accuracy as of the Closing Date of the representations and
warranties of the Purchaser contained in this Agreement, and performance by the
Purchaser of all covenants and agreements of the Purchaser required to be
performed on or before the Closing Date.
</R>
9. CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE. The Company
-----------------------------------------------------
understands that Purchaser's obligation to purchase the Convertible Debentures
is conditioned upon:
<R>
A. Execution by Purchaser of this Agreement and the receipt of the
Company's acceptance of this Agreement as provided in Paragraph 3(a) above; and
</R>
<PAGE>
B. Delivery of certificates evidencing the Convertible Debentures
to the Escrow Agent, as heretofore set forth, and by the Escrow Agent to
Purchaser; and
C. Acceptance by the Company of subscriptions from the Purchaser
and other subscribers and the sale by the Company pursuant thereto of a maximum
of $3,000,000 in principal amount of Convertible Debentures; and
D. The accuracy as of the Closing Date of the representations and
warranties of the Company contained in this Agreement and the performance by the
Company on or before the Closing Date of all covenants and agreement of the
Company required to be performed on or before the Closing Data.
<R>
10. REGISTRATION OF THE SECURITIES. In the event that the shares of
---------------------------------
Common Stock issuable upon conversion of the Convertible Debentures are not
subject to an effective Registration Statement on Form S-2 filed under the
Securities Act, the Company shall promptly and expeditiously file within 45 days
of the Closing Date, and cause to become effective within 120 days of the
Closing Date, a registration statement on Form S-2 under the Securities Act and
all applicable Blue Sky Laws covering the sale of the Common Stock. The Company
shall promptly respond to all comments received by the SEC staff upon written
request, providing Purchaser or its counsel on request with contemporaneous
copies of all written communications from SEC staff and promptly prepare and
file amendments to such registration statement which are responsive to the
comments received from the SEC staff. Any such registration statement shall name
Purchaser as a selling shareholder and shall provide from the sale of the Common
Stock from time to time directly to purchasers in the over-the-counter market,
or through or to securities broker-dealers that may receive compensation in the
form of discounts, concessions, or commissions. Any such registration statement
shall remain effective for up to 12 months or until all of the Common Stock,
whichever is earlier. The Company shall provide the Purchaser with such number
of copies of the prospectus as shall be reasonably requested to facilitate the
sale of the Common Stock. The Company shall bear and pay all expenses incurred
in connection with any such registration, excluding discounts and commissions.
The foregoing shall not in any way limit Purchaser's rights in connection with
the Common Stock from selling such Common Stock (i) pursuant to Rule 144 or (ii)
pursuant to any other exemption from registration under the Securities Act.
11. GOVERNING LAW. This Agreement shall be governed by and construed
--------------
under the laws of the State of Pennsylvania without regard to its choice of law
provision. A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.
</R>
<PAGE>
12. SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS.
------------------------------------------------------------
Each of the Company's and Purchaser's representations, warranties, and covenants
shall survive the execution and delivery of this Agreement and the delivery of
the certificates representing the Securities.
13. SUCCESSORS AND ASSIGNS. This Agreement shall inure the benefit of and be
-------------------------
binding on the respective successors and assigns of the parties hereto.
(BALANCE OF PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
SIGNATURE PAGE FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing statements are
true and that it has caused this Subscription Agreement to be duly executed on
its behalf on this 25th day of April, 2000.
FAC ENTERPRISES, INC.
---------------------------------------------
Printed Name of Subscriber
<R>
By: /s/ Howard Appel
---------------------------------------------
(Signature of Authorized Person)
Howard Appel - President
---------------------------------------------
(Printed Name and Title)
</R>
Accepted this 25th day of April, 2000:
TRIM FAST GROUP, INC.
By: Michael Muzio
---------------
Title: C.E.O.
-------
<PAGE>
Full Name and address of Purchaser for Registration Purposes:
NAME: FAC ENTERPRISES, INC.
ADDRESS: The GSB Building One Belmont Avenue, Suite 417 Bala Cynwyd, PA. 19004
TEL. NO. (610) 660-5906
FAX NO. (610) 660-5905
CONTACT NAME: Howard Appel
Delivery Instructions (if different form Registration Name):
NAME:
ADDRESS:
TEL. NO.:
FAX NO.:
CONTACT NAME:
CONVERTIBLE DEBENTURE SUBSCRIPTION AGREEMENT
THIS CONVERTIBLE DEBENTURE SUBSCRIPTION AGREEMENT IS EXECUTED IN RELIANCE
UPON THE EXEMPTION PROVIDED BY SECTION 4(2) ("SECTION 4(2)") FOR TRANSACTIONS
NOT INVOLVING ANY PUBLIC OFFERING UNDER THE SECURITIES ACT OF 1993, AS AMENDED
(THE "SECURITIES ACT").
THE SUBSCRIPTION AGREEMENT (this "Agreement") has been executed by the
undersigned in connection with the private placement of up to a maximum of
$3,000,000 in aggregate principal amount of 12% Convertible Debentures Due July
13, 200 1 (hereinafter referred to as the "Convertible Debentures"), of TRIM
FAST GROUP, INC., a corporation organized under the laws of the State of
Delaware, Nasdaq OTC Market Symbol "TRIM") (hereinafter referred to as the
"Company"). The Convertible Debentures being sold pursuant to this Agreement
have not been registered under the Securities Act. In addition to such other
terms as are set forth in this Agreement; (i) the terms on which the Convertible
Debentures may he converted into shares of Common Stock, $.00 1 par value, of
the Company (the "Common Stock") and the other terms of the Convertible
Debentures are set forth in the Form of Convertible Debentures attached hereto
as ANNEX I (the "Form of Convertible Debenture");(ii) the collateral provided as
additional security and as an incentive for Purchaser to purchase the
Convertible Debentures is set forth in attached ANNEX II; and, (iii) the
Security Agreement which grants Purchaser a secured interest in the Security is
attached hereto as ANNEX III The offer of the Convertible Debentures and, if
this Subscription Agreement is accepted by the Company, the sale of Convertible
Debentures is being made in reliance upon Rule 506 of Regulation D promulgated
under Section 4(2). (All dollar amounts in this Agreement are expressed in U.S.
Dollars.)
The undersigned Purchaser
Name: GRIBALT U.S., INC., a Colorado corporation
---------------------------------------------
Address: 1177 W. Hastings, Ste. 2000, Vancouver B.C. V6E2K3
---------------------------------------------------------
If applicable, a corporation organized under the laws of Pennsylvania,
hereinafter referred to as "Purchaser") hereby represents and warrants to, and
agrees with the Company as follows:
1. AGREEMENT TO SUBSCRIBE
------------------------
A. Subscription. The undersigned Purchaser hereby irrevocab1y
(subject to Paragraph 9 hereof) subscribes to purchase Five Hundred Thousand
($5OO,OOO) in aggregate principal amount of Convertible Debentures, having a
purchase price of 1OO%.
B. Form of Payment. Purchaser shall pay the purchase price for the
Convertible Debentures by delivering good funds in United States Dollars in
accordance with Paragraph 1(c) below, to the escrow agent (the "Escrow Agent")
identified in the Escrow Instructions attached hereto (the "Escrow Agreement")
and marked as Annex IV. The Company shall deliver one or more certificates for
the Convertible Debentures to the Escrow Agent, and upon payment by the
Purchaser of the purchase price for the Convertible Debentures, the Escrow Agent
shall cause the Convertible Debentures purchased thereby by the Purchaser to be
delivered to the Purchaser as set forth in paragraph 1(c) below. By signing this
Agreement, the Purchaser and the Company each agrees to all of the terms and
conditions of, and becomes a part to, the Escrow Instructions attached hereto,
all of the provisions of which are incorporated herein by this reference as if
set forth in full at this point.
C. Method of Payment. Payment of the purchase price for the
Convertible Debentures shall be made by wire transfer of funds to:
Account Name: Wasserman, Comden & Casselman, L.L.P. Trust Account
Bank: Manufactures Bank
Los Angeles Main Branch
l35 East 9th Street
Los Angeles, Calif. 90015
Account No: 01-257-862
Bank ABA No: 122226076
No later than five (5) calendar days after the Company accepts this
Agreement and all other subscription agreements for the Convertible Debentures
and delivers a signed counterpart of this Agreement to the Purchaser and
delivers the certificate(s) for the Convertible Debentures to the Escrow Agents,
the Purchaser shall deliver the escrow funds to the Escrow Agent and the Company
shall deliver the certificates for the Convertible Debentures to the Purchaser
(the "Closing Date"). Such delivery to the Purchaser shall be by hand delivery
or by overnight courier to such address as the Purchaser may direct.
2. PURCHASER REPRESENTATIONS; ACCESS TO
---------------------------------------
INFORMATION: INDEPENDENT INVESTIGATION
---------------------------------------
A. Purchaser Representations and Warranties. Purchaser represents
and warrants to the Company as follows:
(a) Purchaser is either a "sophisticated purchaser" because
he has such knowledge and experience in financial and business matters that he
is capable of evaluating the merits and risks of the prospective investment or
an "accredited Investor" because he meets one of the following requirements:
(i) He is a natural person whose individual net worth,
or joint net worth with his spouse, exceeds $1,000,000,and either he is ab1e to
bear the economic risk of investment in the Convertible Debentures investment or
this investment does not exceed 10% of his net worth or joint net worth with his
spouse;
(ii) He is a natural person who had individual income in
excess of $200,000 in each of the two most recent years, or joint income with
that person's spouse in excess of $300,000 in each of those years and reasonably
expects to reach the same income level in the current year, and either he is
able to bear the economic risk of investment in the Convertible Debentures or
this investment does not exceed 10% of his net worth or joint net worth with his
spouse; or
(iii) It is an organization described in section 501
(c)(3) of the Internal Revenue Code of 1986, as amended (i.e., tax exempt
entities), corporation, Massachusetts or similar business trust, or partnership,
not formed for the specific purpose of acquiring Units, with total assets in
excess of $5,000,000;
(iv) It is a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring Convertible
Debentures, whose purchases are directed by a sophisticated person as described
under the first alternative under Category A above;
(v) It is bank as defined in Section 3(a)(2) of the
Securities Act, or a savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its
individual or fiduciary capacity; a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934; an insurance company as
defined in Section 2(13) of the Securities Act; or an investment company
registered under the Investment Partnership Act Of 1940 or a business
development company as defined in section 2(a)(48) of that Act;
(vi) It is a Small Business Investment Partnership
licensed by the U.S. Small Business Administration under Section 301(c) or (d)
of the Small Business Investment Act of 1958; a private business development
company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;
an employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, if the investment decision is made by a
plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank,
savings and loan association, insurance company, or registered investment
adviser, or if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decisions made solely by
persons that are accredited investors as described above;
(vii) He is a director or executive officer of the
Company; or,
(viii) It is an entity in which all of the equity owners
are Accredited Investors.
(b) Purchaser is sufficiently experienced in financial and
business matters to be capable of evaluating the merits and risks of its
investments, and to make an informed decision relating thereto, and to protect
its own interests in connection with the transaction.
(c) Purchaser is purchasing the Convertible Debentures for
its own account or for the account of beneficiaries for whom the Purchaser has
full investment discretion, each of which beneficiaries is bound to all of the
terms and provisions hereof including all representations and warranties herein.
Purchaser is purchasing the Convertible Debentures for investment purposes only
and, not with an intent towards further sale or distribution thereof, and has
not prearranged any sale with any other purchaser.
(d) The Convertible Debentures have not been registered under
the Securities Act and may not be transferred, sold, assigned, hypothecated or
otherwise disposed of unless such transaction is the subject of a registration
statement filed with and declared effective by the Securities and Exchange
Commission (the "SEC") or unless an exemption from the registration requirements
under the Securities Act such as Rule 144 is available. Purchaser represents and
warrants and hereby agrees that all offers and sales of the Convertible
Debentures and the Common Stock issuable upon conversion thereof (collectively,
the "Securities") shall be made only pursuant to such registration or to such
exemption from registration which exemption the Company may require an opinion
letter from counsel which demonstrates the availability of the exemption from
registration before the Company will recognize any transfer of the Securities.
(e) Purchaser acknowledges that the purchase of the
Securities involves a high degree of risk, is aware of the risks and further
acknowledges that it can bear the economic risk of the Securities, including the
total loss of its investment.
(f) Purchaser understands that the Securities are being
offered and sold to it in reliance on an exemption from the registration
requirements of the Securities Act, and that the Company is relying upon truth
and accuracy of the representations, warranties, agreements, acknowledgments and
understanding of Purchaser set forth herein in order to determine the
applicability of such safe harbor and the suitability of Purchaser to acquire
the Securities.
(g) Purchaser is purchasing the Securities for its own
account or for the account of beneficiaries for whom Purchaser has full
investment discretion and not with a view to, or for sale in connection with,
any "distribution" (as such term is used in Section 2(11) of the Securities Act)
thereof.
(h) In evaluating its investment, Purchaser has consulted its
own investment and/or legal and/or tax advisors.
(i) Purchaser is not an underwriter or dealer in, the
Securities, Purchaser is not participating, pursuant to a contractual agreement,
in the distribution of the Securities.
B. Current Public Information. Purchaser acknowledges that
Purchaser has been furnished with or has acquired copies of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1999 filed with the
Securities and Exchange Commission and the Forms 1O-QSB and 8-K filled
thereafter (collectively the "SEC Fillings").
C. Independent Investigation; Access. Purchaser acknowledges that
Purchaser, in making the decision to purchase the Convertible Debentures
subscribed for, has relied upon independent investigation made by it and its
purchaser representatives, if any,
and Purchaser and such representatives, if any, have prior to any sale to it,
been given access and the opportunity to examine all material contracts and
documents relating to this offering and an opportunity to ask questions of, and
to receive answers from, the Company or any person acting on its behalf
concerning the terms and conditions of this offering. Purchaser and its
advisors, if any, have been furnished with access to all publicly available
materials relating to the business, finances and operation of the Company and
materials relating to the offer and sale of the Securities which have been
requested. Purchaser and its advisors if any, have received complete and
satisfactory answers to any such inquiries.
D. No Government Recommendation or Approval. Purchaser understands
that no federal or state agency has passed on or made any recommendations or
endorsement of the Convertible Debentures.
E. Entity Purchasers. If Purchaser is a partnership, corporation
or trust, the person executing this Agreement on its behalf represents and
warrants that:
(a) He or she has made due inquiry to determine the
truthfulness of the representations and warranties made pursuant to this
Agreement.
(b) He or she is duly authorized (if the undersigned is a
trust, by the trust agreement) to make this investment and to enter into and
execute this Agreement on behalf of such entity.
(c) The entity was not formed for the purpose of investing in
the offered securities.
(d) In the case of a partnership, each person in the
partnership is an "accredited investor" or a "sophisticated purchaser" as
required for each Purchaser under Section 2(a)(i).
F. Non-Affiliate. Purchaser represents, warrants and covenants
that it is not affiliate of the Company.
3. ISSUER REPRESENTATIONS
-----------------------
A. Reporting Company Status. The Company is a "Reporting Issuer"
under the Exchange Act of 1934, as amended (the "Exchange Act"). The Company is
in full compliance, to the extent applicable, with all reporting obligations
under either Section 12(b), 12(g) 13(a) or 15(d) of the Exchange Act. The
Company has registered its Common Stock pursuant to Section 12(g) of the
Exchange Act, and the Common Stock is listed on the Nasdaq OTC Market, and the
Company has received no adverse notice, either oral or written, with respect to
its continued eligibility for such listing. The Company will take all such steps
as may be necessary for the additional listing of the Common Stock issuable upon
conversion of the Convertible Debentures on the Nasdaq OTC Market. The Company
has filed all materials required to be filed by it pursuant to all applicable
reporting obligations under Section 13(a) or 15(d) of the Exchange Act.
B. Terms of Convertible Debentures. The terms of the Convertible
Debentures shall be as set forth in the Form of Convertible Debenture delivered
to Purchaser as Annex I.
C. Legality. The Company has the requisite corporate power and
authority to enter into this Agreement and to issue, sell and deliver the
Securities; this Agreement and the issuance, sale and delivery of the Securities
hereunder and the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action by the Company; this Agreement and
the Securities have duly and validly executed and delivered by and on behalf of
the Company, and are valid and binding agreements of the Company, enforceable in
accordance with their respective terms, except as enforceability may be limited
by general equitable principles, bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium, or other laws affecting creditors' rights generally.
The Convertible Debentures and common stock issueable upon conversion of the
convertible debentures will not subject the holders thereof to personal
liability by reason of being such holders.
D. Proper Organization. The company is a corporation duly
organized, validly existing and in good standing under the 1aws of its
jurisdiction of incorporation and is duly qualified as a foreign corporation in
all jurisdictions where the failure to be so qualified would have a materially
adverse effect on its business, taken as whole.
E. No Lega1 Proceedings. There is no action, suit or proceeding
before or by any court or any governmental agency or body, domestic or foreign,
now pending or, to the knowledge of the Company, threatened, against or
affecting the Company, or any of its properties or assets, which might result in
any material adverse change in the condition (financial or otherwise) or in the
earnings, business affairs or business prospects of the Company, or which might
materially and adverse1y affect the properties or assets thereof, except as
described in the SEC Filings.
F. Non-Default. The Company, except as described in the SEC
Filings, is not in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust or other material instrument or agreement to which it is
a party or by which it or its property may be bound.
G. No Misleading Statements. None of the SEC Filings, and as of
their respective dates, none of the Company's other filings with the SEC contain
any knowingly untrue statement of a material fact or known omission to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
H. No Adverse Change. There has been no material adverse change in
the financial condition, earnings, business affairs or business prospects of the
Company since the date of the Company's most recent Form 10-KSB or 10-QKSB filed
pursuant to the Exchange Act.
I. Absence of Non-Disclosed Facts. There is no fact known to the
Company (other than general economic conditions known to the pub1ic generally)
that has not been disclosed in writing to the Purchaser that: (i)could
reasonably be expected to have a material adverse effect on the condition
(financial or otherwise)or in the earnings, business affairs, business
prospects, properties or assets of the Company; or (ii) could reasonably be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to this Agreement and the Convertible
Debentures, except as described in the SEC Filings.
J. Registration Transfer Restrictions. The Company has provided
its Transfer Agent with irrevocab1e instructions as attached here to as Annex V
(the "Irrevocab1e Instructions"), to issue one or more certificate(s)
representing the shares of Common Stock
to the holders of the Convertible Debentures upon the conversion of the
Convertible Debentures at any time after the Closing Date without any
restrictive legend or stop transfer instructions and without any further
instruction or opinion from the Company, provided that the Company is presented
with certificates representing shares of the Convertible Debentures to be
converted, together with an executed Conversion Certificate in the form of
Exhibit A attached to the Form of Convertible Debenture, and provided further
that the Common Stock is being sold pursuant to the registration statement on
Form S-2 or such other registration as set forth below. Upon compliance with the
foregoing upon issuance, such Common Stock shall be freely transferable on the
books and records of the Company.
No later than 45 days after the Closing Date, the Company shall
fi1e a registration statement on Form S-2 under the Securities Act and under all
applicab1e Blue Sky laws covering the Common Stock and shall have such
registration statement to be declared effective within 120 days of the Closing
Date, by the SEC, all at the Company's sole cost and expense. Company promptly
responding to all comments received by the SEC staff, upon written request
providing Purchaser or its counsel with contemporaneous copies of all written
communications from the SEC staff and promptly preparing and filing amendments
to such registration statement which are responsive to the comments received
from the SEC staff. Such registration statement shall name Purchaser as a
selling shareholder and shall provide for the sale of the Common Stock by
Purchaser from time to time directly to purchasers or in the over-the-counter
market through or to securities brokers or dealers that may receive compensation
in the form of discounts, concessions, or commissions. This obligation to
register the Common Stock is in addition to the Company's registration
obligation described in Section 10 hereunder. None of the foregoing shall in any
way limit Purchaser's rights to sell the Common Stuck issuable upon conversion
of the Convertible
Debentures in reliance on an exemption from the registration requirements under
the Securities Act in connection with a particular transaction.
In the event that the Company fails to register the resale of the
Common Stock issuable upon conversion of the Convertible Debentures within 120
days after the Closing Date, the Company will, upon the presentation of a
reasonably acceptable opinion of the Purchaser's counsel allow the Purchaser to
offer and sell the shares of Common Stock in reliance on the provisions of Rule
144 provided that the holding period and other requirements of such Rule 144 are
met. In the event the Company either (a) fails to file a registration statement
covering the Common Stock issuable upon conversion of the Convertible
Debentures, within 45 days of the first Closing Date or (b) fails to have such
registration statement declared effective by the Securities and Exchange
Commission within 120 days of the first Closing Date, Company shall
automatically be subjected to the penalties set forth in attached Annex I.
Regardless of whether the Company registers the resale of the
Common Stock issuable upon conversion of the Convertible Debentures, the Company
will, upon the presentation of an opinion of the Purchaser's counsel, allow the
Purchaser to offer and sell the shares of Common Stock in reliance on the
provisions of Rule 144, at the option of Purchaser.
K. Non-Contravention. The execution and delivery of this Agreement
and the consummation of the issuance of the Securities and the transactions
contemplated by this Agreement do not and wi11 not conflict with or result in a
breach by the Company of any of the terms or provisions of, or constitute a
default under the Articles of Incorporation or bylaws of the Company, or any
indenture, mortgage, deed of trust, or other material agreement or instrument
to which the Company is a party or by which it or any of its properties or
assets are bound, or any existing applicable Federal or State law, rule, or
regulation or any applicable decrees, judgment or order of any court, Federal or
State regulatory body, administrative agency or other domestic governmental
body having jurisdiction over the Company or any of its properties or assets.
L. Fillings. The Company undertakes and agrees pursuant to the
sale of its Securities hereunder to make all necessary filings in connection
with the sale of its Securities as required by the laws and regulations of all
appropriate jurisdictions and securities exchanges in the United States, if any.
4. COVENANTS OF THE COMPANY. For so long as any Convertib1e
---------------------------
Debentures held by the Purchaser shall remain outstanding, the Company covenants
and agrees with the Purchaser that:
A. It will at all times fully reserve from its authorized but
unissued shares of Common Stock such sufficient number of shares of Common Stock
to permit the conversion in full of the outstanding Convertib1e Debentures.
B. Upon receipt by the Company of confirmation of effectiveness of
the Registration Statement as provided in Section 10 the Company will not issue
stop transfer
instructions to its Transfer Agent with respect to, and will not place a
restrictive legend on, the certificates representing shares of Common Stock
issued or issuable upon conversion of the Convertible Debentures.
5. LEGEND
------
A. On or prior to the Closing Date, the Company will prepare and
issue one or more certificates for the Convertib1e Debentures registered in such
name or names as specified by the Purchaser and cause the same to be delivered
to the Escrow Agent. Such certificate(s) and the certificates representing the
Common Stock shall bear a legend in substantially the following form:
These securities have been issued pursuant to the Section
4(2) exemption to the registration provisions under the
Securities Act of 1933, as amended. These securities cannot
be transferred, offered, or sold unless the securities are
registered under the Securities Act or an exemption from the
registration requirements of the Securities Act is available.
The Company has provided its Transfer Agent with the Irrevocable
Instructions and pursuant thereto the Company shall issue one or more
certificates representing shares of Common Stock upon the conversion of the
Convertible Debentures in accordance with the Form of Convertible Debentures.
The Company warrants that upon registration of the Common Stock
to be provided upon any conversion of the Convertible Debentures, no restriction
or instruction other than the foregoing instructions and a corresponding "stop
transfer" restriction on the Company's stock ledger will be imposed by the
Company or given by the Company to its Transfer Agent with respect to the Common
Stock and that, subject to the foregoing, the Common Stock issued and issuable
upon conversion of the Convertible Debentures shall otherwise be freely
transferable on the books and records of the Company. Nothing in this Section
shall affect in any way the Purchaser's obligations and agreement to comply with
all applicable securities laws upon resale of the Securities.
B. The Purchaser acknowledges that the Company is under no
obligation to register the Convertible Debentures or the Common Stock issuable
upon the conversion thereof under the Securities Act other than as set forth in
Section 10 or Section 3(j) hereunder.
6. EXEMPTION: RELIANCE ON SECTION 4(2). Purchaser understands that
---------------------------------------
the offer and sale of the Convertible Debentures is not being registered under
the Securities Act based on the exemption from registration provided by Rule 506
promulgated under Section 4(2) of the Securities Act. The Company is relying on
such exemption.
7. CLOSING DATE AND ESCROW AGENT. Closing shall be effected through
---------------------------------
delivery of funds to the Company by the Escrow Agent, and delivery of
certificates evidencing the Convertible Debentures to the Purchaser by the
Escrow Agent. Each of the Company and the Purchaser agrees that the Escrow Agent
has no liability as a result of any fraudulent or unlawful conduct of any other
party, and agrees to held the Escrow Agent harmless except as to any loss,
claim, damage or liability arising out of or is based upon any action not taken
in good faith, on any action or omission that constitutes gross negligence or
willful misconduct by the Escrow Agent
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. Purchaser
----------------------------------------------------
understands that the Company's obligation to sell the Convertible Debentures is
conditioned upon:
A. The receipt and acceptance by the Company of this Agreement, as
evidence by execution of this Agreement by the President or any Vice President
or the Chief Financial Officer of the Company; and
B. Delivery to the Escrow Agent by Purchaser of good funds as
payment in full for the purchase of the Convertible Debentures; and
C. The accuracy as of the Closing Date of the representations and
warranties of the Purchaser contained in this Agreement, and performance by the
Purchaser of all covenants and agreements of the Purchaser required to be
performed on or before the Closing Date.
9. CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE. The Company
-----------------------------------------------------
understands that Purchaser's obligation to purchase the Convertible Debentures
is conditioned upon:
A. Execution by Purchaser of this Agreement and the receipt of the
Company's acceptance of this Agreement as provided in Paragraph 3(a) above; and
B. Delivery of certificates evidencing the Convertible Debentures
to the Escrow Agent, as heretofore set forth, and by the Escrow Agent to
Purchaser; and
C. Acceptance by the Company of subscriptions from the Purchaser
and other subscribers and the sale by the Company pursuant thereto of a maximum
of $3,000,000 in principal amount of Convertible Debentures; and
D. The accuracy as of the Closing Date of the representations and
warranties of the Company contained in this Agreement and the performance by the
Company on or before the Closing Date of all covenants and agreement of the
Company required to be performed on or before the Closing Data.
10. REGISTRATION OF THE SECURITIES. In the event that the shares of
---------------------------------
Common Stock issuable upon conversion of the Convertible Debentures are not
subject to an effective Registration Statement on Form S-2 filed under the
Securities Act, the Company shall promptly and expeditiously file within 45 days
of the Closing Date, and cause to become effective within 120 days of the
Closing Date, a registration statement on Form S-2 under the Securities Act and
all applicable Blue Sky Laws covering the sale of the Common Stock. The Company
shall promptly respond to all comments received by the SEC staff upon written
request, providing Purchaser or its counsel on request with contemporaneous
copies of all written communications from SEC staff and promptly prepare and
file amendments to such registration statement which are responsive to the
comments received from the SEC staff. Any such registration statement shall name
Purchaser as a selling shareholder and shall provide from the sale of the Common
Stock from time to time directly to purchasers in the over-the-counter market,
or through or to securities broker-dealers that may receive compensation in the
form of discounts, concessions, or commissions. Any such registration statement
shall remain effective for up to 12 months or until all of the Common Stock,
whichever is earlier. The Company shall provide the Purchaser with such number
of copies of the prospectus as shall be reasonably requested to facilitate the
sale of the Common Stock. The Company shall bear and pay all expenses incurred
in connection with any such registration, excluding discounts and commissions.
The foregoing shall not in any way limit Purchaser's rights in connection with
the Common Stock from selling such Common Stock (i) pursuant to Rule 144 or (ii)
pursuant to any other exemption from registration under the Securities Act.
11. GOVERNING LAW. This Agreement shall be governed by and construed
--------------
under the laws of the State of Pennsylvania without regard to its choice of law
provision. A facsimile transmission of this signed Agreement shall be legal and
binding on all parties hereto.
12. SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS.
------------------------------------------------------------
Each of the Company's and Purchaser's representations, warranties, and covenants
shall survive the execution and delivery of this Agreement and the delivery of
the certificates representing the Securities.
13. SUCCESSORS AND ASSIGNS. This Agreement shall inure the benefit of and be
-------------------------
binding on the respective successors and assigns of the parties hereto.
(BALANCE OF PAGE INTENTIONALLY LEFT BLANK)
SIGNATURE PAGE FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing statements are
true and that it has caused this Subscription Agreement to be duly executed on
its behalf on this 25th day of April, 2000.
GIBRALT U.S., INC., a Colorado corp.
---------------------------------------------
Printed Name of Subscriber
By: /s/ J Ciampi
---------------------------------------------
(Signature of Authorized Person)
John Ciampi - Treasurer
---------------------------------------------
(Printed Name and Title)
Accepted this 25th day of April, 2000:
TRIM FAST GROUP, INC.
By: Michael Muzio
---------------
Title: C.E.O.
-------
Full Name and address of Purchaser for Registration Purposes:
NAME: GIBRALT U.S., INC. a Colorado corporation
ADDRESS: 1177 W. Hastings Street, Suite 2000 Vancouver, B.C. V6E2K3
TEL. NO. (610) 661-3707
FAX NO. (610) 661-4873
CONTACT NAME: John Ciampi
Delivery Instructions (if different form Registration Name):
NAME:
ADDRESS:
TEL. NO.:
FAX NO.:
CONTACT NAME:
ANNEX I
FORM OF CONVERTIBLE DEBENTURE
WITH TERMS
Debenture:
Purchaser shall purchase up to Three Million Dollars ($3,000,000)in Convertible
Debentures from Company provided that Purchaser shall purchase no less than One
Million Dollars ($1,000,000) of Convertible Debentures ("Initial Purchase"),
provided further, that Purchaser may, at Purchaser's sole option, purchase
additional Convertible Debentures of up to Two Million Dollars($2,000,000)within
Ten (10) days of the Closing Date (the "Additional Purchase").The purchase price
for the Convertible Debentures shall release such funds, less legal fees and
other agreed costs, to the Company within five (5) days of the Closing Date.
Interest:
The Convertible Debentures issued by the Company shall bear interest at the rate
of twelve percent (12%) per annum, with the first interest payment due on the
ninety (90) day anniversary of the Closing Date. Thereafter, interest payments
shall be due every Ninety (90) days until July 21, 2001, at which time all
outstanding principal and interest shall be due and payable in full. Should
Purchaser make an Additional Purchase, the interest payment dates and the due
date shall be the same as for the Initial Purchase,the only difference being the
total amount of interest(based upon actual number of days) which accrues between
the date upon which the Additional Purchase is made and the first payment date
described above.
The Company shall not have the option or right to pre-pay any or all of the
interest or principal due under the Convertible Debentures. Further, in the
event Purchaser elects to convert the Convertible Debentures into Common Stock,
Purchaser shall not have the option or right to payoff the debt evidenced by the
Convertible Debentures, either in whole or in part.
Unless otherwise noted herein, all capitalized terms shall have the same meaning
as set forth in the Convertible Debenture Subscription Agreement.
Conversion:
Except for the Company's option to call for conversion of the Convertible
Debentures into Common Stock as described below, Purchaser may, at Purchaser's
sole discretion and option, elect to convert the Convertible Debentures into
Common Stock of the Company. The conversion rate shall be the lower of: (i) Two
and 50/100 Dollars ($2.50) per share; or, (ii) seventy-five percent (75%) of the
closing bid price of the Company's publicly traded common stock on the Closing
Date.
In the event that: (I) the Common Stock underlying the Convertible Debentures has
been registered with the Securities and Exchange Commission; and, (ii) the
publicly traded common stock of the Company has been trading at two hundred
percent (200%) of the "conversion price" described above for twenty (20)
consecutive days,then Company, at its sole discretion and option, may demand that
Purchaser convert the Convertible Debentures into Common Stock, which conversion
shall be at the conversion price/ rate set forth above.
Regardless of who elects to convert the Convertible Securities into Common Stock,
such election shall be made in writing and submitted to the non-electing party in
accordance with the notice provisions set forth in the Agreement.
The Company shall not have the right to pre-pay or re-pay the principal and
interest due under the Convertible Debentures except with the express written
consent of the Purchaser.
Registration:
Purchaser's registration rights are set forth in the Agreement.
Security:
Real Property: As further incentive to induce Purchaser to purchase the Convertible
Debentures, the Company is pledging a parcel of real property as collateral and
security for the performance of the obligations under the Agreement. Said security/
collateral shall be free and clear of all encumbrances, except for taxes and
assessments which are not yet due, and the lien given by Company to Purchaser shall
be a first priority lien. The property is common known as 2555 Blackburn Street,
Clearwater, Florida. The legal description of the security- collateral is set forth
in Exhibit "A" to Annex II to the Agreement and subject to the Security Agreement
which is attached to the Agreement in Annex III.
Personal Property: As further incentive to induce Purchaser to purchase the
Convertible Debentures, the Company is pledging personal property as collateral and
security for the performance of the obligations under the Agreement. Said security/
collateral shall consist of Five Hundred Thousand Shares (500,000) of the common
stock of InsiderStreet.com, Inc., an OTC publicly listed company, traded on the
Nasdaq OTC under the symbol NSDR. Said shares shall be free and clear of all
encumbrances, non-assessable, non-redeemable and fully paid, but shall not be
freely tradeable on the OTC market until registered with the SEC or such further
transfer is exempt from registration. The shares shall be in the name of TrimFast
Group, Inc. who shall also be a party to the Security Agreement which is attached
to the Agreement in Annex III.
Grant of Security Interest:
As provided in the Security Agreement attached to the Agreement as Annex III, the
Company grants Purchaser a secured interest in the security/ collateral.
Penalty Provisions:
Late Filing: In the event that Company fails to file an S-2 Registration Statement
with the Securities and Exchange Commission within forty-five (45) days of the
Closing Date, as provided in the Agreement, then the following penalty shall be
automatically imposed on the Company. For each thirty (30) day period that passes
without the Company filing an S-2, the Company shall either: (a) make a payment of
.Fifty Thousand Dollars ($50,000) to the Purchaser; or (b) deliver Twenty Thousand
(20,000) shares of the Company's common stock to the Purchaser, whichever Purchaser
elects.
Late Effectiveness. In the event that the Company's S-2 Registration Statement filed
with the Securities and Exchange Commission is not declared "effective" by the
Securities and Exchange Commission on or before the 120th day following the Closing
Date, then the Company shall either: (a) make a payment of Fifty Thousand Dollars
($50,000) to the Purchaser; or (b) deliver Twenty Thousand (20,000) shares of the
Company's common stock to the Purchaser, whichever Purchaser elects.
Penalty Interest. In the event the Company fails to comply with the filing and
effectiveness provisions of the Agreement, this Annex, or is otherwise in breach of
or default under the Agreement or any its obligations or duties under the Annex
agreements, then the interest due on the Convertible Debenture shall accrue at a
penalty rate of eighteen percent (18%) per annum, effective retroactively from the
Closing Date. Said penalty interest shall also become due in the event: (i) the
closing bid price for the Company's publicly traded common stock is below Two and
25/100 Dollars ($2.25) a share for a total of five (5) trading days (any five (5)
days, not five (5) consecutive days) during the ninety (90) day period described in
paragraph 8 below; or, (ii) the Common Stock underlying the Convertible Debentures
are not registered within six (6) months of the Closing Date.
Reset Provision:
During the first ninety (90) days following the effective date upon which the Common
Stock underlying the Convertible Debentures is registered, there shall be one (1)
reset of the conversion price of the Convertible Debentures. The conversion price
shall be adjusted to seventy-five percent (75%) of the lowest closing bid price
during said ninety (90) day period, with a minimum of One Dollar ($1.50) per share.
Warrants:
The Company shall also grant to the Purchaser warrants to purchase up to Four Hundred
Fifty Thousand (450,000) shares of the Company's common stock at an exercise price
equal to the lower of either the conversion price at the Closing Date or the reset
price described in paragraph 8 above.
INTERCREDITOR AGREEMENT
This Intercreditor Agreement is entered into by and between FAC
ENTERPRISES, INC. a Pennsylvania corporation ("FAC") and GRIBALT U.S., INC., a
Colorado corporation, ("GRIBALT") (collectively the "Purchasers"), with respect
to the following.
RECITALS
A. Purchasers have individually entered into a Convertible Debenture
Subscription Agreement (the "Convertible Debenture") of even date
herewith with TRIMFAST GROUP, INC., a Delaware corporation
(hereinafter the "Company").
B. As part of the Convertible Debenture, the Company granted the
PURCHASERS a security interest in certain real property and in
Five Hundred Thousand Shares (500,000) of common stock in Insider
Street.com (collectively the "Security"), pursuant to a Security
Agreement of even date herewith (the Security Agreement").
C. Purchases wish to provide for their joint and equal protection,
in pari parsu, amongst each other with regard to the Security in
the event of a breach of or default under the Security Agreement,
or other related agreements, by the Company.
D. If, and only, the Company commits a breach of or a default under
the Convertible Debenture, the Security Agreement, or any other
contract or agreement executed by the Company with regard to the
transactions contemplated by the Convertible Debenture, each of
the Purchasers will have a mutual interest in the Security
granted to them pursuant to the Convertible Debenture and the
Security Agreement and they wish to enter into this agreement to
clarify their rights and obligation in the event of a such a
default.
NOW THEREFORE, in consideration of the mutual promises contained
herein, the parties agree as follows:
1. The Recitals are incorporated herein the same as if set
forth at this point.
2. If the Company fails to perform all of its obligation under
the Convertible Debenture, including all related contract
and agreements (all of which are collectively referred to as
the "Convertible Debenture"), or is otherwise in breach of
or default under the Convertible Debenture, then and one of
the Purchasers may declare that the Company is in breach and
/or default and shell immediately advise other party of said
default pursuant to the notice provision of this
Intercreditor Agreement.
3. Thereafter, any Purchaser may foreclose on the Security, the
proceeds of which shall be divided among the Purchasers in
direct proportion to their respective percentage ownership
of, /investment in purchase of the Convertible Debenture,
broken down to the nearest one hundredth of a point
percentage rate regardless of which of them may be in first
position pursuant to a any UCC filing, deed of trust or
other instrument which may provide one of the Purchasers a
priority over the others with respect to the Security. The
foreclosing party(ies) shall be a trustee on behalf of the
nonforeclosing party(ies) for the purpose of holding the
nonforeclosing party's(ies) interest in the collateral in
trust and thereafter distributing the property together with
an accounting to the nonforeclosing party.
4. If any Purchaser brings any legal action regarding any
provision of this Agreement, the prevailing party in the
litigation or arbitration shall be entitled to recover
reasonable attorney's fees and costs from the other party,
in addition to any other relief that may be granted.
5. Any notice required or permitted to be given under this
agreement shall be written, and may be given by personal
delivery or by registered or certified mail, first-class
postage prepaid, return receipt requested. Notice shall be
deemed given upon actual receipt in the case of personal
delivery, or if mailed upon mailing. Mailed notices shall be
addressed as follows, but each part may change his address
by written notice in accordance with paragraph:
If to FAC:
FAC ENTERPRISES, INC., a Pennsylvania corporation
GSB Building
1 Belmont Avenue, Suite 518
Bala Cynwyd, Pennsylvania 19004
Telephone (610) 660-5906
Fax No.: (610) 660-5905
With a copy to:
L. Stephen Albright, Esq.
WASSERMAN COMDEN & CASSELMAN
5567 Reseda Blvd. Ste. 330
Tarzana, CA. 91356
Telephone No.: (818) 705-6800
Fax No.: (818) 345-0162
If to GIBRALT:
GIBRALT U.S., INC., a Colorado corporation
Suite 2000
1177 W. Hastings
Vancouver, British Columbia V6E2K3
Attention: John Ciampi
Phone No.: (604) 687-3707
Fax No.: (604) 661-4873
6. Neither party assign this Agreement without the prior
written consent of all the other parties.
7. This agreement shall be binding on and shall inure to the
benefit of the heirs, executors, administrators, successors,
and assigns of each of the parties hereto.
8. This agreement shall be governed by and construes in
accordance with the laws of California.
Dated:_________, 2000 FAC ENTERPRISES, INC., a corporation
By: /s/ Howard Appel
----------------------------------------
Name: Howard Appel
--------------------------------------
Title: President
-------------------------------------
And
By:_____________________________
Name:__________________________
Title:____________________________
Dated: April_____, 2000 GIBRALT U.S., INC., a Colorado corporation
By: /s/ J. Ciampi
----------------------------------------
Name: John Ciampi
--------------------------------------
Title: Treasurer
-------------------------------------
And By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT ("Security Agreement") is made this____ day
of April, 2000, by, between and among TRIM FAST GROUP, INC., a Nevada
corporation(the "Company", "Debtor" or "Pledgor"), on the one hand, and FAC
ENTERPRISES, INC. a corporation ("FAC") and GIBRALT U.S., INC., a Colorado
corporation ("GIBRALT") (FAC and GIBRALT are collectively hereinafter referred
to as "Secured Party" or "Secured Parties"), on the other hand, with respect to
the following.
RECITALS
A. concurrently herewith, Company sold and issued to the Secured Parties,
and the Secured Parties, as Purchaser, purchased from the Company
twelve percent (12%) Convertible Debentures ("Convertible
Debentures").
B. In order to induce the Secured Parties to purchase the convertible
Debentures, the Company desires and wishes to grant to the Purchasers
a secures interest in the real property described in Exhibit "A" and
the personal property described in attached Exhibit "B", both of which
are attached hereto and incorporated herein by this reference.
C. Debtor and Secures Parties now mutually desire Debtor to secure the
obligations under the Convertible Debenture to Secured Parties, which
obligation are evidence by the Convertible Debenture and this Security
Agreement (the "Obligation") in a principal amount of up to Three
Million Dollars ($3,000,000) and for Debtor to pledge the personal
property listed on attached Exhibits "A" and "B" as
security/collateral for the payments due under the Convertible
Debenture and to secure the performance of the Company under the
Convertible Debenture (the "Security") on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of and reliance on the mutual convenants,
conditions, promises and representations contained herein, the parties hereto
agree as
follows:
1. Recitals. The recitals stated above are incorporated herein by this
--------
reference as if set forth in full.
2. Definitions. As used in this Security Agreement, the following terms
-----------
shall have the following meanings:
2.1 "Collateral" and "Security" mean the personal property set forth
and fully described on Exhibit "A" attached hereto.
2.2 "Debtor" or "Pledgor" shall mean the Company.
2.3 "Convertible Debenture" shall mean the Company's obligation
represented by the Convertible Debenture Subscription Agreement
and all documents and agreement related thereto and executed as a
part thereof.
2.4 "Lien" means any security interest, mortgage, pledge, lien,
attachment, claim, charge, encumbrance, agreement retaining
title, or other interests in, to or covering the Security.
2.5 "Obligation" mean any and all existing and future duties,
obligation, indebtedness and liabilities of the Company to
Secured Parties, including attorneys' fees, incurred in enforcing
this Security Agreement or collection payment due under the
Convertible Debenture.
2.6 "Breach" and "Default" mean an event or omission that is or would
be a breach or default under this Security Agreement or any other
document evidencing, creating or relating to the security for and
performance of the Obligations.
2.7 Terms defined in the California Uniform Commercial Code not
otherwise defined in this Security Agreement are used in this
Security Agreement as defined in that Code on the date of this
Security Agreement.
3. Grant of Security Interest and Pledge of Collateral. For the purpose
----------------------------------------------------
of providing Secured Parties with security for the Company's
performance under the Convertible Debenture, then the Company hereby
grants to Secured Parties a security interest in and to the Security,
which is more specifically described and set forth in attached
Exhibits "A" and "B" and which are incorporated herein by this
reference, and pledges one hundred percent (100%) of their interests
in and to Security to Secured Parties. Further, Debtor shall execute
any and all other documents necessary to grant, perfect and otherwise
effect notice that Secured Parties have a security interest also grant
Secured Parties the full power of attorney to sign such documents on
behalf of the Debtor in the event any of the Debtor is unable to or
refuse to sign such documents.
With regard to the stock pledged as Security, the Debtor pledges
all its right, title and interest in and to the stock to Secured
Parties, without any exception, qualification or reservation.
Debtor acknowledges that it is pledging the stock as security for
the Convertible Debenture and that upon any default or breach by
the Company of the Convertible Debenture or any of the related
agreements, the Secured Parties shall have the right and option
to foreclose upon the stock and assume ownership and control of
same.
Debtor also grants the Secured Parties the right and power to
endorse to stock certificates on behalf of and in their
respective names and to transfer ownership there of in the event
of a default which is not cured as provide herein.
4. Debtor's Convenants.
---------------------
Debtor shall"
4.1 Perform all promises and obligations owed by them to the Secured
Parties;
4.2 Pay all expenses, including attorney's fees, incurred by Secured
Parties in the perfection, preservation, realization, enforcement and
exercise of its rights under this Security Agreement;
4.3 Indemnify Secured parties against loss of any kind, including
reasonable attorney's fees, caused to Secured Parties by reason of its
interest in the Security;
4.4 Not sell, lease, transfer, or otherwise dispose of or hypothecate the
Security, without the express prior written consent of the Secured
Parties, which consent may be withheld or granted by Secured Parties
at their sole discretion;
4.5 Not permit any liens on the Security, except the lien by this Security
Agreement;
4.6 Not use the Security for any purpose or in any way that would void any
effective insurance;
4.7 Perform all acts necessary to maintain, preserve, and protect the
Security;
4.8 Notify Secured Parties promptly in writing of any default, potential
default, or any development that might have a material adverse effect
on the Security: and ,
4.9 Not issue any stock, stock rights, options , or other interest in the
Security which would have the effect of diluting the shares of common
stock pledged to Secured Parties as part of the Security.
5. Debtor's Representations and Warranties. Debtor covenants,
---------------------------------------------
warrants and represents as follows"
5.1 Debtor has the full capacity to understand and enter into this
Security Agreement and posses all the necessary authority and
power to conduct its business in the fashion now conducted and as
contemplated herein, wherever conducted;
5.2 The Security Agreement is a valid and binding obligation of
Debtor. This Security Agreement creates a perfected, first
priority security interest enforceable against the Security in
which Debtor's rights will be effected as this Security
Agreement, and creates a perfected, first priority interest for
the benefit of Secured Parties, which is enforceable against the
Security;
5.3 No default or potential default exists; and,
5.4 Debtor owns the Security, subject only to real property tax liens
placed against the real property for taxes which are not yet due.
No delinquent taxes or assessments are due. The shares of stock
are free and clear of any and all liens and encumbrances and are
not subject to any other agreement or arrangement effecting them,
they are fully paid, non-assessable and non-redeemable.
6. Termination. This Security Agreement shall continue in effect even
-----------
though from time-to-time there may be no outstanding obligation or
commitments under this Security Agreement and/or the NOTE. This
Security Agreement shall terminate when (a) Debtor completes
performance of all obligations to Secured Parties, including without
limitation the satisfaction of the Convertible Debenture.
7. Default. Debtor shall be in default under this Security Agreement
--------
("Event of Default") if:
7.1 The Company fails to perform under the Convertible Debenture;
7.2 The Company commits any breach of this Security Agreement, or any
future amendment to this Security Agreement, or any other
agreement between Debtor and Secured Parties: or,
7.3 Any warranty, representation or statement made by or on behalf of
Debtor in or with respect to the Security Agreement, is false.
8. Remedies.
---------
8.1 Upon an Event of Default, Secured Parties may, at its sole
option:
(a) Declare the Obligations immediately due and payable without
demand, presentment, protest or notice to Debtor;
(b) Terminate any obligations or to make advances, if any;
(c) Exercise all rights and remedies available to a secured creditor
after default, including but not limited to the rights of secured
creditors under the Uniform Commercial Code (the "UCC");
(d) Perform any of Debtor's Obligations under this Security Agreement
for Debtor's account; or,
(e) Take possession of the Security in satisfaction of the
Obligations and sell same in accordance with the public sale
provisions of the UCC.
8.2 upon notice of an Event of Default by the Secured Parties, Debtor
shall:
(a) Assemble the Security and make it and all records relating to it
available to Secured Parties as Secured Parties directs: and,
(b) Allow Secured parties, its representatives, and its agents to
enter the premises where all or any part of the Security, the
records, or both may be, and remove any or all of it.
9. Assignment. This Security Agreement shall bind and enure to the
-----------
benefit of the parties successors, heirs and assigns. However, Debtor
may not assign its rights, duties and obligation under this Security
Agreement or the Convertible Debenture without Secured Parties' prior
written consent. However, the Secured Parties has the unrestricted
right to assign its rights in and to the Convertible Debenture and
this Security Agreement, in whole and in part, at any time.
10. Notices. Any communication to be given to any party to this Security
--------
Agreement shall be in writing and delivered as provided in the
AGREEMENT.
11. Binding Effect. The parties hereto hereby represent and warrant, each
---------------
for themselves, that they have the capacity to and are authorized to
enter into this Security Agreement on behalf of their respective party
and that this Security Agreement, when duly executed, will constitute
a legal, valid, and binding agreement, enforceable against each of the
parties in accordance with the terms hereof.
12. Severability. In the event that any covenant, condition or other
------------
provision herein contained is held to be invalid, void, or illegal by
any court of competent jurisdiction, the same shall b deemed severable
from the remainder of this Security Agreement and shall in no way
affect, impair or invalidate any other covenant, condition or other
provision herein contained. If such condition, covenant or other
provision shall be deemed invalid due to its scope or breadth, such
covenant, condition, or other provision shall be deemed valid to the
extent of the scope or breadth permitted by law.
13. Waiver, Amendment and Modification, No breach of any provision hereof
------------------------------------
can be waived unless in writing. Waiver of any one breach of any
provision hereof shall not be deemed to be a waiver of any other
breach of the same or any other provision hereof. This Security
Agreement may only be amended or modified by an instrument in writing
executed by each of the parties hereto.
14. Construction. This Security Agreement shall not be construed against
-------------
the party preparing it, and shall be construes without regard to the
identity of the person who drafted it or the party who caused it to be
drafted and shall be construed as if all parties had jointly prepared
this Security Agreement and it shall be deemed their joint work
produce, and each and every provision of this Security Agreement shall
be construed as though all of the parties hereto participated equally
in the drafting hereto, and any uncertainty or ambiguity shall not be
interpreted against any one party. As a result of the foregoing, any
rule of construction that a document is to be construed against the
drafting party shall not be applicable.
15. Mandatory Arbitration, The parties will attempt through good faith
-----------------------
negotiation to resolve their disputes. The term "disputes" includes,
without limitation, any disagreements between the parties concerning
the existence, formation and interpretation of disputes by
negotiation, any controversy or claim between or among the parties
relating to this Security Agreement and any claim based on or arising
from an alleged or shall be, determined by arbitration, Either party
may commence the arbitration by sending a written notice of
arbitration to the other party. The arbitration shall be held in
Philadelphia, Pennsylvania, by the American Arbitration Association,
pursuant to the Commercial Arbitration Rules of the American
Arbitration Association then in effect. The Arbitrator shall be an
attorney or judge knowledgeable in the parties and judgment may be
entered upon such decision in accordance with applicable law in any
court having jurisdiction hereof. Notwithstanding anything contained
herein, the parties reserve the right to seek a judicial temporary
restraining order, preliminary injunction or other similar short term
equitable relief prior to the appointment of the arbitrator. The
Arbitral Tribunal will have the right to make a final determination of
the parties rights, including whether to make permanent, modify or
dissolve any such judicial order.
16. Attorneys' Fees, Subsequent Litigation. If any party to this Security
-----------------------------------------
Agreement shall institute an arbitration or any other action or
proceeding to interpret or enforce this Security Agreement, or to
obtain damages by reason of any alleged breach of this Security
Agreement, the prevailing party shall be entitled to recover costs of
suit or arbitration and a reasonable sum for attorneys fees, all of
which shall be deemed to have accrued upon the commencement of such
action and shall be paid whether or not such action is prosecuted to
award/judgment. The award/judgment costs incurred in enforcing such
award/judgment or order. For the purpose of this section, attorneys
fees shall include, without limitation, fees incurred in the
following: (a) Postjudgment motions; (b) Contempt proceedings; (c)
Garnishment levy and Debtor and third-party examinations; (d)
Discovery; and (e) Bankruptcy litigation.
17. Governing Law. This Security Agreement shall be governed in all
--------------
respects, including validity, interpretation, effect and enforcement,
by the laws of the State of Pennsylvania.
18. Counterparts. This Security Agreement may be executed in counterparts,
------------
each of which, when so executed and delivered, shall be an original;
however, such counterparts together shall constitute but one and the
same agreement.
(BALANCE OF PAGE INTENTIONALLY LEFT BLANK)
19. Headings. The headings used herein are for convenience of reference
---------
only and do not constitute a part of this Security Agreement and shall
not be deemed to limit or effect any of the provisions hereof.
IN WITNESS WHEROF, the parties hereto have executed this Security Agreement
effective as of the day and year above first written.
TRIM FAST GROUP, INC., a Nevada corporation
By:/s/ Michael Muzio
--------------------
Name: Michael Muzio
-----------------
Title: C.E.O.
---------
And
By:________________
Name:______________
Title:_____________
FAC ENTERPRISES, INC. a Pennsylvania corporation
By: /s/ Howard Appel
------------------
Name: Howard Appel
------------------
Title: President
---------------
And
By:________________
Name:______________
Title:_____________
GIBRALT U.S., INC., a Colorado corporation
By: /s/ J. Ciampi
-----------------
Name: John Ciampi
-----------------
Title: Treasurer
-----------------
And
By:________________
Name:______________
Title:_____________
Exhibit A to the Pledge and Security Agreement
RECORDING REQUESTED BY
Trimfast Group, Inc.
AND WHEN RECORDED MAIL TO
NAME Trimfast Group, Inc.
ADDRESS 777 S. Harbour Island Blvd.
Ste. 780
CITY & Tampa, FL 33602
STATE
ZIP
Title Order No. Escrow No.
SPACE ABOVE THIS LINE FOR RECORDER'S USE
DEED OF TRUST WITH ASSIGNMENTS OF RENTS
This DEED OF TRUST, made April 14, 2000
Trimfast Group, Inc.
whose address is 777 S. Harbour Island Blvd., Ste. 780, Tampa, FL 33602
(Number and Street) (City) (State) (Zip Code)
CHICAGO TITLE COMPANY, a California Corporation, herein called TRUSTEE, and
FAC Enterprises Inc., a Nevada Corporation, address: the JSB Building, One
Belmont Ave., Ste. 417, BalaCynwyd, PA 19004, herein called BENEFICIARY,
Trustor irrevocably grants, transfers and assigns to Trustee in Trust, with
Power of Sale that property in County of Pinellas, State of Florida
described as: West 360', MOL, of Lot 5, BLACKBURNS SUBDIVISION, according
to the map or plat thereof, as recorded in Plat Book 24, page 62, public
records of Pinellas County, Florida.
Parcel I.D. No. 06-29-16-09072-000-0501
06-29-16-09072-000-0502
Grantee's Tax I.D. No. _____________________/ ________________
Together with the rents, issues and profits thereof, subject, however, to
the right, power and authority hereinafter given to and conferred upon
Beneficiary to collect and apply such rents, issues and profits. For the
Purpose of Securing (1) payment of the sum of $ per agreement with interest
thereon according to the terms of a promissory note or notes of even date
herewith made by Trustor, payable to order of the Beneficiary, and
extensions or renewals thereof; (2) the performance of each agreement of
Trustor incorporated by reference or contained herein or reciting it is so
secured; (3) Payment of additional sums and interest thereon which may
hereafter be loaned to Trustor, or his or her successors or assigns, when
evidenced by a promissory note or notes reciting that they are secured by
this Deed of Trust.
A. To protect the security of this Deed of Trust, and with respect to the
property above described, Trustor agrees:
(1) To keep said property in good condition and repair; not to remove or
demolish any building thereon; to complete or restore promptly and in good
and workmanlike manner any building which may be constructed, damaged or
destroyed thereon and to pay when due all claims for labor performed and
materials furnished therefor; to comply with all laws affecting said
property or requiring any alterations or improvements to be made thereon;
not to commit or permit waste thereof; not to commit, suffer or permit any
act upon said property in violation of law; to cultivate, irrigate,
fertilize, fumigate, prune and do all other acts which from the character
or use of said property may be reasonably necessary, the specific
enumerations herein not excluding the general.
(2) To provide, maintain and deliver to Beneficiary fire insurance
satisfactory to and with loss payable to Beneficiary. The amount collected
under any fire or other insurance policy may be applied by Beneficiary upon
any indebtedness secured hereby and in such order as beneficiary may
determine, or at option of Beneficiary the entire amount so collected or
any part thereof may be released to Trustor. Such application or release
shall not cure or waive any default or notice of default hereunder or
invalidate any act done pursuant to such notice.
(3) To appear in and defend any action or proceeding purporting to affect
the security hereof or the rights or powers of Beneficiary or Trustee; and
to pay all costs and expenses, including the cost of evidence of title and
attorney's fees in a reasonable sum, in any action or proceeding in which
Beneficiary or Trustee may appear, and in any suit brought by Beneficiary
to foreclose this Deed of Trust.
(4) To pay: at least ten days before delinquency all taxes and assessments
affecting said property, including assessments on appurtenant water stock;
when due, all encumbrances, charges and liens, with interest, on said
property or any part thereof, which appear to be prior or superior hereto;
all costs, fees and expenses of this Trust.
Should Trustor fail to make any payment or to do any act as herein provided,
then Beneficiary or Trustee, but without obligation so to do and without
notice to or demand upon Trustor, and without releasing Trustor from any
obligation hereof, may: make or do the same in such manner and to such
extent as either may deem necessary to protect the security hereof,
Beneficiary or Trustee being authorized to enter upon said property for
such purposes; appear in and defend any action or proceeding purporting to
affect the security hereof or the rights or powers of Beneficiary or
Trustee; pay, purchase, contest or compromise any encumbrance, charge, or
lien which in the judgment of either appears to be prior or superior hereto;
and, in exercising any such powers, pay necessary expenses, employ counsel
and pay his reasonable fees.
(5) To pay immediately and without demand all sums so expended by
Beneficiary or Trustee, with interest from date of expenditure at the amount
allowed by law in effect at the date hereof, and to pay for any statement
provided for by law in effect at the date hereof regarding the obligation
secured hereby, any amount demanded by the Beneficiary not to exceed the
maximum allowed by law at the time when said statement is demanded.
B. It is mutually agreed:
(1) That any award of damages in connection with any condemnation for public
use of or injury to said property or any part thereof is hereby assigned
and shall be paid to Beneficiary who may apply or release such moneys
received by him or her in the same manner and with the same effect as above
provided for disposition of proceeds of fire or other insurance.
(2) That by accepting payment of any sum secured hereby after its due date,
Beneficiary does not waive his or her right either to require prompt payment
when due of all other sums so secured or to declare default for failure so
to pay.
(3) That at any time or from time to time, without liability therefor and
without notice, upon written request of Beneficiary and presentation of this
Deed and said note for endorsement, and without affecting the personal
liability of any person for payment of the indebtedness secured hereby,
Trustee may:reconvey any part of said property; consent to the making of any
map or plat thereof; join in granting any easement thereon; or join in any
extension agreement or any agreement subordinating the lien or charge hereof.
(4) That upon written request of beneficiary stating that all sums secured
hereby have been paid, and upon surrender of this Deed and said note to
Trustee for cancellation and retention or other disposition as Trustee in
its sole discretion may choose and upon payment of its fees, Trustees shall
reconvey, without warranty, the property then held hereunder. The recitals in
such reconveyance of any matters or facts shall be conclusive proof of the
truthfulness thereof. The Grantee in such reconveyance may be described as
"the person or persons legally entitled thereto.
(5) That as additional security, Trustor hereby gives to and confers upon
Beneficiary the right, power and authority, during the continuance of these
Trusts, to collect the rents, issues and profits of said property, reserving
unto Trustor the right, prior to any default by Trustor in payment of any
indebtedness secured hereby or in performance of any agreement hereunder, to
collect and retain such rents, issues and profits as they become due and
payable. Upon any such default, Beneficiary may at any time without notice,
either in person, by agent, or by a receiver to be appointed by a court, and
without regard to the adequacy of any security for the indebtedness hereby
secured, enter upon and take possession of said property or any part thereof,
in his or her own name sue for or otherwise collect such rents, issues and
profits, including those past due and unpaid, and apply the same, less costs
and expenses of operation and collection,including reasonable attorney's fees,
upon any indebtedness secured hereby, and in such order as Beneficiary may
determine. The entering upon and taking possession of said property, the
collection of such rents, issues and profits and the application thereof as
aforesaid, shall not cure or waive any default or notice of default hereunder
or invalidate any act done pursuant to such notice.
(6) That upon default by Trustor in payment of any indebtedness secured
hereby or in performance of any agreement hereunder, Beneficiary may declare
all sums secured hereby immediately due and payable by delivery to Trustee of
written declaration of default and demand for sale and of written notice of
default and of election to cause to be sold said property, which notice
Trustee shall cause to be filed for record. Beneficiary also shall deposit
with Trustee this Deed, said note and all documents evidencing expenditures
secured hereby.
After the lapse of such time as may then be required by law following the
recordation of said notice of default, and notice of sale having been given
as then required by law, Trustee, without demand on Trustor, shall sell said
property at the time and place fixed by it in said notice of sale, either as
a whole or in separate parcels, and in such order as it may determine, at
public auction to the highest bidder for cash in lawful money of the United
States, payable at time of sale. Trustee may postpone sale of all or any
portion of said property by public announcement at such time and place of
sale, and from tim e to time thereafter may postpone such sale by public
announcement at the time fixed by the preceding postponement. Trustee shall
deliver to such purchaser its deed conveying the property so sold, but
without any covenant or warranty, express or implied. The recitals in such
deed of any matters or facts shall be conclusive proof of the truthfulness
thereof. Any person, including Trustor, Trustee, or Beneficiary as
hereinafter defined, may purchase at such sale.
After deducting all costs, fees and expenses of Trustee and of this Trust
including cost of evidence of title in connection with sale, Trustee shall
apply the proceeds of sale to payment of: all sums expended under the terms
hereof, not then repaid, with accrued interest at the amount allowed by law
in effect at the date hereof; all other sums then secured hereby; and the
remainder, if any, to the person or persons legally entitled thereto.
(7) Beneficiary, or any successor in ownership of any indebtedness secured
hereby, may from time to time, by instrument in writing, substitute a
successor or successors to any Trustee named herein or acting hereunder,
which instrument, executed by the Beneficiary and duly acknowledged and
recorded in the office of the recorder of the county or counties where said
property is situated, shall be conclusive proof of proper substitution of
such successor Trustee or Trustees, who shall, without conveyance from the
Trustee predecessor, succeed to all its title, estate, rights, powers and
duties. Said instrument must contain the name of the original Trustor,
Trustee and Beneficiary hereunder, the book and page where this Deed is
recorded and the name and address of the new Trustee.
(8) That this Deed applies to, inures to the benefit of, and binds all
parties hereto, their heirs, legatees, devisees, administrators, executors,
successors, and assigns. The term Beneficiary shall mean the owner and
holder, including pledgees, of the note secured hereby, whether or not named
as Beneficiary herein. In this Deed, whenever the context so requires, the
masculine gender includes the feminine and/or the neuter, and the singular
number includes the plural.
(9) That Trustee accepts this Trust when this Deed, duly e xecuted and
acknowledged, is made a public record as provided by law. Trustee is not
obligated to notify any party hereto of pending sale under any other Deed of
Trust or of any action or proceeding in which Trustor,Beneficiary or Trustee
shall be a party unless brought by Trustee.
Beneficiary may charge for a statement regarding the obligation secured
hereby, provided the charge thereof does note exceed the maximum allowed by
laws.
The undersigned Trustor, requests that a copy of any notice of default and
any notice of sale hereunder shall be mailed to him or her at his or her
address hereinbefore set forth.
STATE OF Florida
COUNTY OF Pinellas } S.S.
On April 14, 2000 before me,
Denise R. Huddleston
a Notary Public in and for said County and State, personally appeared
Michael Muzio
Personally known to me (or proved to me on the basis of satisfactory evidence)
to the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand official seal.
Signature
Signature of Trustor
Michael Muzio, as President of
Trimfast Group, Inc.
Exhibit B to the Pledge and Security Agreement
Description of the securities pledged.
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF
NEVADA
NUMBER INSIDERSTREET.COM, INC. SHARES
4358 500,000
AUTHORIZED COMMON STOCK 100,000,000
SHARES PAR VALUE $.001
CUSIP NO. 45769E 10 5
THIS
CERTIFIES
THAT TRIMFAST GROUP, INC.
IS THE RECORD HOLDER OF
FIVE HUNDRED THOUSAND
Shares of INSIDERSTREET.COM, INC. Common Stock
Transferable on the books of the Corporation in person or by duly
Authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
Signatures of its duly authorized officers.
Dated: February 01, 2000
/s/ Raymond Miller
PRESIDENT
/s/ Merle Steele
SECRETARY INSIDERSTREET.COM, INC.
CORPORATE SEAL
NEVADA
INTERWEST TRANSFER CO. INC. P.O. BOX 17136/ SALT LAKE CITY UTAH, 84117
COUNTERSIGNED & REGISTERED /S/ illegible
COUNTERSIGNED Transfer Agent-Authorized Signature
ESCROW INSTRUCTIONS
Dated as of April 25, 2000
Wasserman, Comden & Casselman L.L.P.
5567 Reseda Boulevard, Suite 330
Tarzana, California 91356
Attention: L. Stephen Albright, Esq.
Dear Mr. Albright:
As escrow agent for Trim Fast Group, INC., a Nevada corporation (the
"Company"), and the purchaser (the "Purchaser") of its twelve percent (12%)
Convertible Debentures due July 13, 2001 (the "Debentures") of the Company, who
are named in the Subscription Agreements between the Company and each Purchaser
to which a copy of these Escrow Instructions is attached (the "Agreement"), you
(hereafter the "Escrow Agent") are hereby authorized and directed to hold the
documents and the funds from the Purchaser in payment for the purchase of the
Debentures (together with interest, if any, thereon), (the "Escrow Funds")
delivered to the Escrow Agent pursuant to the terms of paragraph 1 of the
Agreement and in accordance with the following instructions:
1. The Escrow Agent shall, as promptly as feasible, notify the Company
of receipt of the funds from the Purchaser in payment for the Debentures
subscribed for and notify the Purchaser (or such agent as the Purchaser may
designate in writing) of receipt of certificates for the Debentures (each a
"Certificate") and collectively the ("Certificates"). As promptly as feasible
upon receipt of notice (whether oral or in written form) from the Company and
the Purchaser that the respective conditions precedent to the purchase and sale
of the Debentures have been satisfied (which notice shall not be unreasonably
withheld and shall be deemed given if no notice to the contrary is received by
the Escrow Agent within two (2) business days after notice from the Escrow
Agent is sent to the Company and Purchaser, as discussed above), the Escrow
Agent shall, after reduction of the amounts referred to in the next succeeding
sentence of this paragraph, release the Escrow Funds to the Company and shall
release the Certificates to the Purchaser by hand or overnight courier. After
receipt of such notice, the Escrow Funds shall be released by the Escrow Agent
as follows: One percent (1%) of the Escrow Funds shall be paid to Escrow Agent
as its fee hereunder, and the remainder shall be released to the Company. If
such Certificates are not deposited with the Escrow Agent within five (5) days
after receipt by the Company of notice of receipt by the Escrow Agent of the
funds for the Purchaser, Escrow Agent shall notify the Purchaser and Purchaser
shall be entitled to cancel the subscription by written notice to the Escrow
Agent and demand repayment of funds. If the Company or the Purchaser notifies
the Escrow Agent in writing that on the Closing Date (as defined in the
Agreement) the conditions precedent to the obligations of the Company or the
Purchaser, as the case may be, under the Agreement were not satisfied or waived,
then the Escrow Agent shall return the Escrow Funds to the Purchaser and shall
return the Certificates to the Company. Prior to return of the Escrow Funds to
the Purchaser, the Purchaser shall furnish such tax reporting or other
information as shall be appropriate for the Escrow Agent to comply with
applicable United States laws. The Escrow Agent shall deposit all funds received
hereunder in the Escrow Agent's attorney/client trust account at Manufacturers
Bank. Any interest on the Escrow Funds shall be paid to the Company regardless
of whether the Purchaser's subscription funds are returned to the Purchaser.
2. The Escrow Agent's duties hereunder may be altered, amended,
modified, or revoked only by a single writing by the Company, the Purchaser, and
the Escrow Agent. The Escrow Agent shall be obligated only for the performance
of such duties as are specifically set forth and may rely and shall be protected
in relying or refraining from acting on any instrument whether a copy or an
original or a fax of an instrument reasonably believed by the Escrow Agent to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be personally liable for any act done or omitted by the
Escrow Agent and any such act shall be conclusive evidence of such good faith.
3. The Escrow Agent is expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and is hereby
expressly authorized to comply with and obey orders, judgments, or decrees of
any court. In case the Escrow Agent obeys or complies with any such order,
judgment, or decree, the Escrow Agent shall not be liable to any of the parties
hereto or to any other person, firm or corporation by reason of such decree
subsequently reversed, modified, annulled, set aside, vacated, or found to have
been entered without jurisdiction.
4. The Escrow Agent shall not be liable in any respect on account of
the identity, authorities, or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any document or papers
deposited or called for hereunder.
5. The Escrow Agent shall be entitled to employ such legal counsel and
other experts as the Escrow Agent may deem necessary properly to advise the
Escrow Agent in connection with the Escrow Agent's duties hereunder, and rely
upon the advice of such counsel, and may pay such counsel reasonable
compensation therefore.
6. The Escrow Agent's responsibilities as Escrow Agent hereunder shall
terminate if the Escrow Agent shall resign by written notice to the Company and
the Purchaser's. In the event of any such resignation, the Purchaser and the
Company shall appoint a successor Escrow Agent.
7. If the Escrow Agent reasonably requires other or further instruments
in connection with these Escrow Instructions or obligations in respect hereto,
the necessary parties hereto shall join in furnishing such instruments.
8. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
documents, Certificates, or Escrow Funds held by the Escrow Agent hereunder, the
Escrow Agent is authorized and directed in the Escrow Agent's sole discretion
(a) to retain in the Escrow Agent's possession without liability to anyone all
or any part of said documents, certificates, or Escrow Funds until such disputes
shall have been settled either by mutual written agreement of the parties
concerned or by a final order, decree, or judgment of a court of competent
jurisdiction after the time for appeal has expired and no appeal has been
perfected, but the Escrow Agent shall be under no duty whatsoever to institute
or defend any such proceedings or (b) to deliver the Escrow Funds and any other
property, Certificates and documents held by the Escrow Agent hereunder to a
state or federal court having competent subject matter jurisdiction and located
in the state of Pennsylvania in accordance with the applicable procedure
therefore.
9. The Company and the Purchaser agree jointly and severally to
indemnify and hold harmless the Escrow Agent from any and all claims,
liabilities, costs or expenses in any way arising from or relating to the duties
or performance of the Escrow Agent hereunder other than any such claim,
liability, cost, or expense to the extent to the extent that shall have been
determined by final, unappealable judgment of a court of competent jurisdiction
to have resulted from the gross negligence or willful misconduct of the Escrow
Agent.
10. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given upon personal delivery on three (3) business days after deposit in the
United States mail, by registered or certified mail with postage and fees
prepaid, addressed to each of the other parties thereto entitled at the
following addresses, or at such addresses as a party may designate by ten (10)
days advance written notice to each of the other parties hereto.
If to the Company: TRIM FAST GROUP, INC.
777 S. Harbour Island Blvd., Suite 780
Tampa, Florida 33602
Telephone (813) 275-0050
Facsimile (813) 275-0051
If to the Purchaser: At the addresses set forth on the last page of
the Subscription Agreements and below with signatures
If to the Escrow Agent:
Wasserman, Comden & Casselman, L.L.P.
5567 Reseda Boulevard, Suite 330
Tarzana, California 91356
Attn.: L. Stephen Albright, Esq.
Facsimile (818) 345-0162
11. By signing these Escrow Instructions, the Escrow Agent becomes a
party hereto only for the purpose of these Escrow Instructions; the Escrow Agent
does not become a party to the Agreement. The Company and the Purchasers have
become parties by their execution and delivery of the agreement, as provided
therein.
12. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns and
shall be governed by the laws of the State of Pennsylvania without giving effect
to principles governing the conflicts of laws. A facsimile transmission of these
instructions signed by the Escrow Agent shall be legal and binding on all
parties hereto.
13. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings provided in the Agreement.
TRIM FAST GROUP, INC.
By: /S/ Michael Muzio
-------------------
Name: Michael Muzio
---------------
Title: C.E.O.
-------
and
By: __________________________
Name: __________________________
Title: __________________________
ACCEPTED BY ESCROW AGENT:
WASSERMAN, COMDEN & CASSELMAN, L.L.P.
By: _____________________________, authorized representative
(SIGNATURES OF PURCHASERS FOLLOW)
AGREED THIS 25TH DAY OF APRIL, 2000 BY:
PURCHASER:
FAC ENTERPRISES, INC., a corporation
GSB Building
1 Belmont Avenue, Suite 518
Bala Cynwyd, Pennsylvania 19004
Telephone: (610) 660-5906
Fax No.: (610) 660-5905
By: /s/ Howard Appel
--------------------
Name: Howard Appel
------------------
Title: President
-----------------
and
By:_________________________________
Name:_______________________________
Title:______________________________
(SIGNATURES CONTINUE)
AGREED THIS 25TH DAY OF APRIL, 2000 BY:
PURCHASER:
GIBRALT U.S.,INC., a Colorado corporation
Suite 2000
1177 W. Hastings
Vancouver, British Columbia V6E2K3
Phone No.: (604) 687-3707
Fax No.: (604) 661-4873
By: /S/ JOHN CIAMPI
------------------
Name: JOHN CIAMPI
--------------
Title: Treasurer
----------
and
By: /S/ JOHN CIAMPI
------------------
Name: JOHN CIAMPI
--------------
Title: Assistant Vice President
---------------------------
</TEXT>
</DOCUMENT>
Exhibit 10.11
REGISTRATION RIGHTS AGREEMENT
This REGISTATION RIGHTS AGREEMENT (this "Agreement"),dated as of
July 16, 1999, is entered into by and among TrimFast Group, Inc.,
a Nevada corporation, with headquarters located at 777 South Harbour
Island Blvd., Suite 260, Tampa, Florida 33602 (the "Company"), and
the undersigned buyers (each, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by a among the
parties dated as of July 16, 1999 (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions of
the Securities Purchase Agreement, (i) to issue and sell to the Buyers
15,000 shares of the Company's Series A Preferred Stock, par value $.01
per share (the "Preferred Shares"), which will be convertible into shares
of the Company's common stock, par value $.001 per share (the "Common
Stock") (as converted, the "Conversion Shares") in accordance with the
terms of the Company's Certificate of Designations, Preferences and Rights
of the Series A Preferred Stock (the "Certificate of Designation") and (ii)
to issue Warrants (the "Warrants") which will be exercisable to purchase
Company Common Stock (the "Warrant Shares"); and
B. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute
(collectively, the "1933 Act"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. DEFINITIONS:
As used in this Agreement, the following terms shall have the following meanings:
a. "Investor" means a Buyer, any transferee or assignee thereof to whom a Buyer
assigns its rights under this Agreement and who agrees to become bound by
the provisions of this Agreement in accordance with Section 9 and any
transferee or assignee assigns its rights under this Agreement and who
agrees to become bound by the provisions of this Agreement in accordance
with Section 9.
b. "Person" means a corporation, a limited liability company, an association,
a partnership, an organization, a business, an individual, a governmental
or political subdivision thereof or a governmental agency.
c. "Register," "registered," and "registration" refer to a registration
effected by preparing and filing one or more Registration Statements (as
defined below) in compliance with the 1933 Act and pursuant to Rule 415
under the 1933 Act or any successor rule providing for offering securities
on a continuous basis ("Rule 415"), and the declaration or ordering of
effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
d. "Registrable Securities" means the Conversion Share issued or issuable
upon conversion of the Preferred Shares and the Warrant Shares issued
or issuable upon exercise of the Warrants and any shares of capital
stock issued or issuable with respect to the Conversion Shares, Preferred
Shares, Warrants or Warrant Shares as a result of any stock split, stock
dividend, recapitalization, exchange, anti-dilution rights, liquidated
damages payment or similar event or otherwise, without regard to any
limitation on the conversion of the Preferred Shares or exercise of the Warrants.
e. "Registration Statement" means a registration statement of the Company
filed under the 1933 Act and pursuant to Rule 415.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, as soon as
practicable after the date of issuance of the relevant Preferred
Shares, file with the SEC a Registration Statement or Registration
Statements (as is necessary) on Form SB-2 (or if such form is
unavailable, such other form as is available for registration)
covering the resale of all of the Registrable Securities. The
initial Registration Statement prepared pursuant hereto shall
register for resale at least that number of shares of Company
Common Stock equal to the product of (x)2.0 and (y) the number
of Registrable Securities as of the date immediately preceding
the date the Registration Statement is initially filed with the
SEC as soon as practicable, but in no event later than one-hundred
twenty (120) calendar days after the issuance of the relevant
Preferred Shares.
b. Piggy-Back Registration. If at any time prior to the expiration
of the Registration Period (as defined in Section 3(a)) the Company
proposes to file with the SEC a Registration Statement relating to
an offering for its own account or the account of others under the
1933 Act of any of its securities (other than on Form S-4 or Form S-8
(or their equivalents at such time) relating to securities to be issued
solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other
employee benefit plans) the Company shall promptly send to each
Investor's rights under this Section 2(b) and, if within twenty (20)
days after receipt of such notice, such Investor shall so request in
writing, the Company shall include in such Registration Statement all
or any part of the Registrable Securities such Investor requests to be
registered, subject to the priorities set forth in Section 2(b) below.
No right to registration of Registrable Securities under this Section
2(b) shall be construed to limit any registration required under Section
2(a). The obligations of the Company under this Section 2(b) may be
waived by the Buyers. If an offering in connection with which an Investor
is entitled to registration under this Section 2(b) is an underwritten
offering, then each Investor whose Registrable Securities are included
in such Registration Statement shall, unless otherwise agreed by the
Company, offer and sell such Registrable Securities in an underwritten
offering using the same underwriter or underwriters and, subject to the
provisions of this Agreement, on the same terms and conditions as other
shares of Company common stock included in such underwritten offering.
If a registration pursuant to this Section 2(b) is to be an underwritten
public offering and the managing underwriter(s) advise the Company in
writing, that in their reasonable good faith opinion, marketing or other
factors dictate that a limitation on the number of shares of Company common
stock which may be included in the Registration Statement is necessary to
facilitate and not adversely affect the proposed offering, then the Company
shall include in such registration: (1) first, all securities the Company
proposes to sell for its own account, (2) second, up to the full number of
securities proposed to be registered for the account of the holders of
securities entitled to inclusion of their securities in the Registration
Statement by reason of demand registration rights, and (3) third, the
securities requested to be registered by the Investors and other holders
of securities entitled to participate in the registration, as of the date
hereof, drawn from them pro rata based on the number each has requested
to be included in such registration.
c. Allocation of Registrable Securities. The initial number of Registrable
Securities included in any Registration Statement and each increase in
the number of Registrable Securities included therein shall be allocated
pro rata among the Investors based on the number of Registrable Securities
held, or which could be held, by each Investor at the time the Registration
Statement covering such initial number of Registrable Securities or increase
thereof is declared effective by the SEC. In the event that an Investor sells
or otherwise transfers any of such Person's Registrable Securities, each
transferee shall be allocated a pro rata portion of the then remaining number
of Registrable Securities included in such Registration Statement for such
transferor. Any shares of Common Stock included in a Registration Statement
and which remain allocated to any Person which ceases to hold any Registrable
Securities shall be allocated to the remaining Investors, pro rata based on
the number of Registrable Securities then held by such Investors.
d. Legal Counsel. Subject to Section 5 hereof, the Buyers shall have the
right to select one legal counsel to review and oversee any offering
pursuant to this Section 2 ("Legal Counsel"), which shall be Katten
Muchin & Zavis or such other counsel as thereafter designated by the
holders of a majority of Registrable Securities. The Company shall
reasonably cooperate with Legal Counsel in performing the Company's
obligations under this Agreement.
e. (Reserved.)
f. Rule 416. The Company and the Investors each acknowledge that each
Registration Statement prepared in accordance hereunder shall include
an indeterminate number of Registrable Securities pursuant to Rule 416
under the 1933 Act so as to cover any and all Registrable Securities
which may become issuable (i) to prevent dilution resulting from stock
splits, stock dividends or similar transactions and (ii) if permitted by
law, by reason of the anti-dilution provisions contained in the Certificate
of Designations and the Warrants in accordance with the terms thereof
(collectively, the "Rule 416 Securities"). In this regard, the Company
agrees to use all reasonable efforts to ensure that the maximum number of
Registrable Securities which may be registered pursuant to Rule 416 under
the 1933 Act are covered by each Registration Statement and, absent guidance
from the SEC or other definitive authority to the contrary, the Company shall
use all reasonable efforts to affirmatively support and to not take any
position adverse to the position that each Registration Statement filed
hereunder covers all of the Rule 416 Securities. If the Company determines
that the Registration Statement filed hereunder does not cover all of the
Rule 416 Securities, the Company shall immediately (i) provided to each
Investor written evidence setting forth the basis for the Company's position
and the authority therefor and (ii) prepare and file an amendment to such
Registration Statement or a new Registration Statement in accordance with
Section 2(g).
g. Sufficient Number of Shares Registered. In the event the number of shares
available under a Registration Statement filed pursuant to Section 2(a)
is insufficient to cover all of the Registrable Securities or an Investor's
allocated portion of the Registrable Securities pursuant to Section 2(c)
(a "Deficit Failure"), the Company shall amend the Registration Statement,
or file a new Registration Statement (on the short form available therefor,
if applicable), or both, so as to cover at least two hundred percent (200%)
of such Registrable Securities in each case, as soon as practicable, but in
any event not later than fifteen (15) days after the necessity therefor
arises. The Company shall use it best efforts to cause such amendment
and/or new Registration Statement to become effective as soon as practicable
following the filing thereof. For purposes of the foregoing provision, the
number of shares available under a Registration Statement shall be deemed
"insufficient to cover all of the Registrable Securities" if at any time
the number of Registrable Securities issued or issuable upon conversion
of the Preferred Shares and upon exercise of the Warrants is greater than
the quotient determined by dividing (i) the number of shares of Common
Stock available for resale under such Registration Statement by (ii) 2.
For purposes of the calculation set forth in the foregoing sentence, any
restrictions on the convertibility of the Preferred Shares shall be
disregarded and such calculation shall assume that the Preferred Shares
are then convertible into shares of Common Stock at the then prevailing
Conversion Raye (as defined in the Company's Certificate of Designations).
3. RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be registered
pursuant to Section 2(b) or at such time as the Company is obligated to
file a Registration Statement with the SEC pursuant to Section 2(a) or 2(g),
the Company will use its best efforts to effect the registration of the
Registrable Securities in accordance with the intended method of disposition
thereof and, pursuant thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a Registration
Statement with respect to the Registrable Securities after the date of
issuance of any Preferred Shares for the registration of Registrable
Securities pursuant to Section 2(a) and use its best efforts to cause
such Registration Statement relating to the Registrable Securities to
become effective as soon as possible after such filing (but in no event
later than one-hundred twenty (120) calendar days after the issuance of
any Preferred Shares for the registration of Registrable Securities pursuant
to Section 2(a)), and keep such Registration Statement effective pursuant
to Rule 415 at all times until the earlier of (i) the date as of which the
Investors may sell all of the Registrable Securities without restriction
pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto)
or (ii) the date on which (A) the Investors shall have sold all the
Registrable Securities and (B) none of the Preferred Shares and Warrants is
outstanding (the "Registration Period"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein, or necessary to make
the statements therein, in light of the circumstances in which they were
made, not misleading.
b. The Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to a Registration Statement and
the prospectus used in connection with such Registration Statement, which
prospectus is to be filed pursuant to Rule 424 promulgated under the 1933
Act, as may be necessary to keep such Registration Statement effective at
all times during the Registration Periods, and, during such period, comply
with the provisions of the 1933 Act with respect to the disposition of all
Registrable Securities of the Company covered by such Registration Statement
until such time as all of such Registrable Securities shall have been
disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof as set forth in such Registration Statement.
c. The Company shall permit Legal Counsel to review and comment upon a
Registration Statement and all amendments and supplements thereto at least
seven (7) days prior to their filing with the SEC, and not file any document
in a form to which Legal Counsel reasonably objects. The Company shall not
submit a request for acceleration of the effectiveness of a Registration
Statement or any amendment or supplement thereto without the prior approval
of Legal Counsel, which consent shall not be unreasonably withheld. The
Company shall furnish to Legal Counsel, without charge, (i) any correspondence
from the SEC or the staff of the SEC to the Company or its representatives
relating to any Registration Statement, (ii) promptly after the same is prepared
and filed with the SEC, one copy of any Registration Statement and any amendment(s)
thereto, including financial statements and schedules, all documents incorporated
therein by reference and all exhibits and (iii) upon the effectiveness of any
Registration Statement, one copy of the prospectus included in such Registration
Statement and all amendments and supplements thereto.
d. The Company shall furnish to each Investor whose Registrable Securities are
included in any Registration Statement, without charge, (i) promptly after
the same is prepared and filed with the SEC, at least one copy of such Registration
Statement and any amendments(s) thereto, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits, (ii)
upon the effectiveness of any Registration Statement, ten (10) copies of the
prospectus included in such Registration Statement and all amendments and
supplements thereto ( or such other number of copies as such Investor may
reasonably request) and (iii) such other documents, including copies of any
preliminary or final prospectus, as such Investor may reasonably request from
time to time in order to facilitate the disposition of the Registrable
Securities owned by such Investor.
e. The Company shall use reasonable efforts to (i) register and qualify the
Registrable Securities covered by a Registration Statement under such other
securities or "blue sky" laws of such jurisdictions in the United States as
Legal Counsel or any Investor reasonably requests, (ii) prepare and file in
those jurisdictions, such amendments (including post-effective amendments)
and supplements to such registrations and qualifications as may be necessary
to maintain the effectiveness thereof during the Registration Period, (iii)
take such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the Registrable
Securities for sale in such jurisdictions; provided, however, that the Company
shall not be required in connection therewith or as a condition thereto to (x)
qualify to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(e), (y) subject itself to general
taxation in any such jurisdiction, or (z) file a general consent to service
of process in any such jurisdiction. The Company shall promptly notify Legal
Counsel and each Investor who holds Registrable Securities of the receipt by
the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United
States or its receipt of actual notice of the initiation or threatening of
any proceeding for such purpose.
f. In the event Investors who hold a majority of the Registrable Securities being
offered in the offering select underwriters for the offering, the Company
shall enter into and perform its obligations under an underwriting agreement,
in usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters of such
offering.
g. As promptly as practicable after becoming aware of such event, the Company
shall notify Legal Counsel and each Investor in writing of the happening of
any event as a result of which the prospectus included in a Registration
Statement, as then in effect, includes an untrue statement of a material fact
or omission to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, and promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and deliver
ten (10) copies of such supplement or amendment to Legal Counsel and each Investor
(or such other number of copies as Legal Counsel or such Investor may reasonably
request). The Company shall also promptly notify Legal Counsel and each Investor
in writing (i) when a prospectus or any prospectus supplement or post-effective
amendment has been filed, and when a Registration Statement or any post-effective
amendment has become effective (notification of such effectiveness shall be
delivered to Legal Counsel and each Investor by facsimile on the same day of
such effectiveness and by overnight mail), (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, and (iii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
h. The Company shall use its best efforts to prevent the issuance of Any stop order
or other suspension of effectiveness of a Registration Statement, or the suspension
of the qualification of any of the Registrable Securities for sale in any jurisdiction
and, if such an order or suspension is issued, to obtain the withdrawal of such order
or suspension at the earliest possible moment and to notify Legal Counsel and each
Investor who holds Registrable Securities being sold (and, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof or its receipt of actual notice of the initiation or
threat of any proceeding for such purpose.
i. At the request of any Investor, the Company shall furnish to such Investor,
on the date of the effectiveness of the Registration Statement and thereafter
from time to time on such dates as an Investor may reasonable request (i) if
required by an underwriter, a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, and (ii) an opinion, dated as of
such date, of counsel representing the Company for purposes of such Registration Statement,
in form, scope and substance as is customarily given in an underwritten public offering,
addressed to the underwriters and the Investors.
j. The Company shall make available for inspection by (i) any Investor, (ii) Legal
Counsel, (iii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iv) one firm of accountants or other agents retained
by the Investors, and (v) one firm of attorneys retained by such underwriters
(collectively, the "Inspectors") all pertinent financial and other records, and
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably deemed necessary by each Inspector, and cause
the Company's officers, directors and employees to supply all information which
any Inspector may reasonably request; provided, however, that each Inspector shall
hold in strict confidence and shall not make any disclosure (except to an Investor)
or use of any Record or other information which the Company determines in good faith
to be confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a misstatement or
omission in any Registration Statement or is otherwise required under the 1933 Act,
(b) the release of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public other
than by disclosure in violation of this or any agreement of which the Inspector has
knowledge. Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to the Company and allow the Company, at its
expense, to undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential.
k. The Company shall hold in confidence and not make any disclosure of information
concerning an Investor provided to the Company unless (i) disclosure of such
information is necessary to comply with federal or state securities laws, (ii) the
disclosure of such information is necessary to avoid or correct a misstatement or
omission in any Registration Statement, (iii) the release of such information is
ordered pursuant to a subpoena or other final, non-appealable order from a court
or governmental body of competent jurisdiction, or (iv) such information has been
made generally available to the public other than by disclosure in violation of
this Agreement or any other agreement. The Company agrees that it shall, upon
learning that disclosure of such information concerning an Investor is sought in
or by a court or governmental body of competent jurisdiction or through other means,
give prompt written notice to such Investor and allow such Investor, at the
Investor's expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, such information.
l. The Company shall use its best efforts either to (i) cause all the Registrable
Securities covered by a Registration Statement to be listed on each securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure designation and quotation
of all the Registrable Securities covered by the Registration Statement on the Nasdaq
National Market System or, if, despite the Company's best efforts to satisfy the
preceding clause (i) or (ii), the Company is unsuccessful in satisfying the preceding
clause (i) or (ii), the Company is unsuccessful in satisfying the preceding clause
(i) or (ii), to secure the inclusion for quotation on The Nasdaq SmallCap Market or
the Nasdaq Bulletin Board System for such Registrable Securities and, without limiting
the generality of the foregoing, to arrange for at least two market makers to register
with the National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities. The Company shall pay all fees and expenses in connection
with satisfying its obligation under this Section 3(1).
m. (Reserved.)
n. The Company shall provided a transfer agent and registrar of all such Registrable
Securities not later than the effective date of such Registration Statement.
o. If requested by the managing underwriters or an Investor, the Company shall (i)
immediately incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriters and the Investors agree should be included
therein relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of Registrable Securities
being sold to such underwriters, the purchase price being paid therefore by such
underwriters and any other terms of the underwritten (or best efforts underwritten)
offering of the Registrable Securities to be sold in such offering; (ii) make all
required filings of such prospectus supplement or post-effective amendment as soon
as notified of the matters to be incorporated in such prospectus supplement or post
-effective amendment; and (iii) supplement or make amendments to any Registration
Statement if requested by a shareholder or any underwriter of such Registrable Securities.
p. The Company shall use its best efforts to cause the Registrable Securities covered by
the applicable Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to consummate the disposition of
such Registrable Securities.
q. (Reserved.)
r. The Company shall otherwise use its best efforts to comply with all Applicable rules and
regulations of the SEC in connection with any registration hereunder and the Company
shall use its best efforts to file with the SEC in a timely manner all reports and
documents required of the Company under the 1933 Act and the 1934 Act (as defined in Section 6(a)).
s. Within two (2) business days after the Registration Statement which includes the
Registrable Securities is ordered effective by the SEC, the Company shall deliver, and
shall cause legal counsel for the Company to deliver, to the transfer agent for such
Registrable Securities (with copies to the Investors whose Registrable Securities are
included in such Registration Statement) confirmation that the Registration Statement
has been declared effective by the SEC in the form attached hereto as Exhibit A.
t. (Reserved.)
u. The Company shall take all other reasonable actions necessary to Expedite and facilitate
disposition by the Investors of Registrable Securities pursuant to a Registration Statement.
v. Notwithstanding anything to the contrary contained in this Agreement, the Registration
Statement shall register only the Registrable Securities.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor in writing of the information the Company
requires from each such Investor if such Investor elects to have any of such Investor's
Registrable Securities included in such Registration Statement. It shall be a condition
precedent to the obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor that such
Investor shall furnish to the Company such information regarding itself and the Registrable
Securities held by it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such registration
as the Company may reasonably request.
b. Each Investor by such Investor's acceptance of the Registrable Securities agrees to
cooperate with the Company as reasonably requested by the Company in connection with
the preparation and filing of any Registration Statement hereunder, unless such Investor
has notified the Company in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from such Registration Statement.
c. In the event any Investor elects to participate in an underwritten public offering
pursuant to Section 2, each such Investor agrees to enter into and perform such
Investor's obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution obligations,
with the managing underwriter of such offering and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of Registrable Securities.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and commissions, incurred in
connection with registrations, filings or qualifications pursuant to Section 2 and 3,
including, without limitation, all registration, listing and qualifications fees,
printers and accounting fees and disbursements of counsel for the Company and fees
and disbursements of Legal Counsel (if Company counsel fails to comply with the
reasonable requests of Legal Counsel), shall be paid by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and hereby does,
indemnify, hold harmless and defend each Investor who holds such Registrable Securities,
the directors, officers, partners, employees, agents, representatives of, and each Person,
if any, who controls any Investor within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the"1934 Act"), and any underwriter (as defined in the
1933 Act) for the Investors, and the directors and officers of, and each Person, if any,
who controls, any such underwriter within the meaning of the 1933 Act or the 1934 Act
(each, an "Indemnified Person"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in settlement
or expenses, joint or several, (collectively, "Claims") incurred in investigating,
preparing or defending any action, claim, suit, inquiry, proceeding, investigation or
appeal taken from the foregoing by or before any court or governmental, administrative
or other regulatory agency, body or the SEC, whether pending or threatened, whether or
not an indemnified party is or may be a party thereto ("Indemnified Damages"), to which
any of them may become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration Statement or any
post-effective amendment thereto or in any filing made in connection with the qualification
of the offering under the securities or other "blue sky" laws of any jurisdiction in which
Registrable Securities are offered ("Blue Sky Filing"), or the omission or alleged omission
to state a material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or supplement,
if the Company files any amendment thereof or supplement thereto with the SEC) or the
omission or alleged omission to state therein any material fact necessary to make the
statements made therein, in light of the circumstances under which the statements
therein were made, not misleading, (ii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state
securities law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement or (iv) any material violation
of this Agreement (the matters in the forgoing clauses (I) through (iv) being, collectively,
"Violations"). The Company shall reimburse the Investors and each such underwriter or
controlling person, promptly as such expenses are incurred and are due and payable, or any
legal fees or other reasonable expenses incurred by them in connection with investigating
or defending any such Claim. Notwithstanding anything to the contrary contained herein,
the indemnification agreement contained in this Section 6 (a): (I) shall not apply to a
Claim by an Indemnified Person arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the Company by
such Indemnified Person or underwriter for such Indemnified Person or underwriter for such
Indemnified Person expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such prospectus was timely
made available by the Company pursuant to Section 3(d); (ii) with respect to any preliminary
prospectus, shall not inure to the benefit of any such person from whom the person asserting
any such Claim purchased the Registrable Securities that are subject thereof (or to the benefit
of any person controlling such person) if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected in the prospectus, as then amended or supplemented,
if such prospectus was timely made available by the Company pursuant to Section 3 (d), and the
Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to
the use giving rise to a violation and such Indemnified Person, notwithstanding such advice,
used it; (iii) shall not be available to the extent such Claim is based on failure of the Investor
to deliver or to cause to be delivered the prospectus made available by the Company, if such
prospectus was timely made available by the Company pursuant to Section (d); and (iv) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected with out the prior
written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity
shall remain in full force and effect regardless of any investigation made by or on the behalf of
the indemnified Person and shall survive the transfer of the registrable Securities by the Investor
pursuant to Section 9.
b. In connection with any Registration Statement in which an investor is participating, each such
investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same
extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors,
each of its officers who signs the Registration Statement, each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act (collectively and together with an
Indemnified Person, an "Indemnified Party"), against an Claim or Indemnified Damages to which any
Indemnified Party may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such
Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent,
and only to the extent, that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in connection with such
Registration Statement; and, subject to Section 6(d), such Investor will reimburse any legal or
other expenses reasonably incurred by them in connection with investigating or defending any such
Claim; provided, however, that the indemnity agreement contained in this Section 6 (b) and the
agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified
Damages as does not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of such Indemnified
Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9. Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section6(b) with respect to any preliminary prospectus shall not
inure to the benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in any distribution, to
the same extent as provided above, with respect to information such persons so furnished in
writing expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 notice
of the commencement of any commencement of any action or proceeding (including any governmental
action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a
Claim is respect thereof is to be made against any indemnifying party under this Section 6, deliver
to the indemnifying party a written notice of the commencement thereof, and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party and the Indemnified Person or the Indemnified Party, as the case
may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the
reasonable opinion of counsel retained by the indemnified party, the representation by such counsel
of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due
to actual or potential differing interests between such indemnified Person or Indemnified Party and
any other party represented by such counsel in such proceeding. The Company shall pay reasonable
fees for only one separate legal counsel for the Investors, and such legal counsel shall be selected
by the Investors holding a majority in interest of the Registrable Securities included in the
Registration Statement to which the Claim relates. The Indemnified Party or Indemnified Person
shall cooperate full with the indemnifying party in connection with any negotiation or defense of
any such action or claim by the indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party or Indemnified Person which relates to
such action or claim. The Indemnifying party shall keep the Indemnified Party or Indemnified
Person full apprised at all times as to the status of the defense or any settlement negotiations
with respect thereto. No indemnifying party shall be liable for any settlement of any action,
claim or proceeding effected without its written consent, provided, however, that the indemnifying
party shall not unreasonably withhold, delay or condition its consent. No Indemnifying party shall,
without the consent of the Indemnified Party or Indemnified Person, consent to entry of any judgement
or enter into any settlement or other compromise which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release
from all liability in respect to such claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of Indemnified Party or Indemnified
Person with respect to all third parties, firms or corporations relating to the matter for which
indemnification has been made. The failure to deliver written notice to the indemnifying party within
a reasonable time of the commencement of any such action shall not relieve such indemnifying party of
liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent
that the indemnifying party is prejudice in its ability to defend such action.
e. The indemnification required by this Section 6 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are received or
Indemnified Damages are incurred.
f. The indemnity agreements contained herein shall be in addition to (I) any cause of action or
similar right of the Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited or limited by law, the
indemnifying party agrees to make the maximum contribution with respect to any amounts for which
it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided,
however, that: (I) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from an
seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii)
contribution by an seller of Registrable Securities shall be limited in amount to the net amount
of proceeds received by such seller from the sale of such Registrable Securities.
8. LIQUIDATED DAMAGES.
The Company agrees that the Buyer will suffer damages of the Company violates any provision of or
fails to fulfill its obligations pursuant to the Agreement (a "Registration Default") and that it
would not be possible to ascertain the extent of such damages. Accordingly, in the event of such
Registration Default, the Company hereby agrees to pay liquidated damages ("Liquidated Damages")
to each Buyer following the occurrence of such Registration Default in an amount determined by
multiplying (i) $2.00 per Preferred Share initially purchased by such Buyer by (ii) the percentage
derived by dividing (A) the actual number of days elapsed from the last day of the date of the
Registration Default or the prior 30-day period, as applicable, to the day such Registration
Default has been completely cured by (B) 30, in cash or at the Buyer's option, provided that the
Company consents to such election (and such consent may not be unreasonably withheld), in the
number of shares of Company common stock equal to the quotient of (v) the dollar amount of the
Liquidated Damages on the Payment Date (as defined below) by (w) the closing bud price of the
Company's common stock as of the date of the Registration Default (as quoted in the Principal
Market or the market or exchange where the Company's common stock is then traded). The
Liquidated Damages payable pursuant hereto shall be payable within five (5) business days
from the end of the calendar month commencing on the first calendar month in which the
Registration Default occurs (each, a "Payment Date"). In the event the Buyer elects to
receive the Liquidated Damages amount in shares of Company's common stock, such shares also be
considered Registrable Securities and shall have the registration rights set forth in this Agreement.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by the Investors to any transferee
of all or any portion of Registrable Securities of: (i) the Investor agrees in writing with
the transferee or assignee to assign such rights, and copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the name and address
of such transferee or assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned; (iii) immediately following such transfer or assignment the further
disposition of such securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws; provided, however, that the transferee or assignee may subsequently
transfer or assign all or any portion of the Registrable Securities if an exemption from registration
under the 1933 Act is applicable to such transfer or assignment; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the transferee or assignee
agrees in writing with the Company to be bound by all of the provisions contained herein; and (v)
such transfer shall have been made in accordance with the applicable requirements of the Securities
Purchase Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of the Agreement may be amended and the observance thereof may be waived (either generally or
in particular instance and either retroactively or prospectively), only with the written consent of the
Company and Investors who then hold two-thirds (2/3) of the Registrable Securities. Any amendment or
waiver effected in accordance wit this Section 10 shall be binding upon each Investor and the Company.
No such amendment shall be effective to the extent that it applies to less that all of the holders of
the Registrable Securities. No consideration shall be offered or paid to any Person to amend or consent
to a waiver or modification of any provision of any of this Agreement unless the same consideration also
is offered to all of the parties to this Agreement.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to
own of such Registrable Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable Securities, the Company shall
act upon the basis of instructions, notice or election received from the registered owner of such
Registrable Securities.
b. Any notices, consents, waivers or other communications required or permitted to be given under the
terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation
of transmission is mechanically or electronically generated and kept on file by the sending party);
or (iii) one business day after deposit with a nationally recognized overnight delivery service, in
each case properly addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:
If to the Company:
TrimFast Group, Inc.
777 South Harbour Island Blvd.
Suite 280
Tampa, Florida 33602
Telephone: (813) 275-0040
Facsimile: (813) 275-0051
Attention: Michael Muzio
With copy to:
Jeffery G. Klein, P.A.
23123 State Road 7, Suite 350B
Boca Raton, Florida 33428
Telephone: (561) 470-9010
Facsimile: (561) 470-9078
If to Legal Counsel:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, Illinois 60661-3693
Telephone: (312) 902-5521
Facsimile: (312) 577-8763
Attention: Anthony J. Ribaudo, Esq.
If to a Buyer, to it at the address and facsimile number set forth on the Schedule of Buyers attached
hereto, with copies to such Buyer's representatives as set forth on the Schedule of Buyers, or at such
other address and/or facsimile number and/or to the attention of such other persons as the recipient
party has specified by written notice given to each other party five days prior to the effectiveness
of such change.
c. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a
party in exercising such right or remedy, shall not operate as a waiver thereof.
d. The Agreement shall be governed by all construed in all respects by the internal laws of the State of
Illinois (except for the proper application of the United States federal securities laws), without giving
effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any
other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State
of Illinois. Each party hereby irrevocably submits the non-exclusive jurisdiction of the state and federal
courts sitting the City of Chicago, for the adjudication of any dispute hereunder. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other jurisdiction.
e. This Agreement, the Securities Purchase Agreement, the Certificate of Designations and the Warrants
constitute the entire agreement among the parties hereto with respect to the subject matter hereof and
thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or
referred to herein and therein. This Agreement, the Securities Purchase Agreement, the Certificate of
Designations and the Warrants supersede all prior agreements and understandings among the parties hereto
with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding
upon the permitted successors and assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise
affect the meaning hereof.
h. This Agreement may be executed in identical counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same agreement. This Agreement, once executed by a
party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
j. All consents and other determinations to be made by the Investors pursuant to this Agreement shall be
made, unless otherwise specified in this Agreement, by Investors holding a majority of the Registrable
Securities, determined as it all of the Preferred Shares and Warrants then outstanding have been converted
into Registrable Securities without regard to any limitation on conversions of Preferred Shares.
k. The language used in this Agreement will be deemed to be the language chosen by the parties to express
their mutual intent and no rules of strict construction will be applied against any party.
l. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as
of day and year first above written.
COMPANY: BUYERS:
TRIMFAST GROUP, INC. CRANSHIRE CAPITAL, L.P.
By Downsview Capital, Incorporated,
the General Partner
By: /s/ Michael J. Muzio
Name; Michael J. Muzio By: /s/ Mitchell Kopin
Title: President Name: Mitchell Kopin
Title: President
S. ROBERT PRODUCTIONS, LLC
By: /s/ Mitchell Kopin
Name: Mitchell Kopin
Title: President
KEYWAY INVESTMENTS, LTD
By: /s/ A. Nickerson
Name: A. Nickerson
Title: Director
THE DOTCOM FUND, LLC
By: /s/ Mark Rice
Name: Mark Rice
Title: Manager of Minamax, LLC
The Managing Member
1. SCHEDULE OF BUYERS
Investor's Address
Investor Name and Facsimile Number
Cranshire Capital, L.P. 666 Dundee Rd., Ste, 1801
Northbrook, Illinois 60062
Attn: Mitchell Kopin
(p) 847/562-9030
(f) 847/562-9031
S. Roberts Productions, LLC 666 Dundee Rd., Ste, 1801
Northbrook, Illinois 60062
Attn: Mitchell Kopin
(p) 847/562-9030
(f) 847/562-9031
Keyway Investments, Ltd. 19 Mount Havelock
Douglas, Isle of Man
United Kingdom
1M1 2Q6
Attn: Martin Peters
(p) 011-44-171-323-2131
(f) 011-44-171-323-0773
The dotCom Fund, LLC 666 Dundee Rd.
Northbrook, Illinois 60062
Attn: Mark Rice
(p) 847/509-2290
(f) 847/509-2295
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATIOIN STATEMENT
[TRANSFER AGENT]
Attn:
Re: TRIMFAST GROUP, INC.
Ladies and Gentleman:
We are counsel to TrimFast Group, Inc., a Nevada corporation (the "Company"), and have represented
the Company in connection with that certain Securities Purchase Agreement (the "Purchase Agreement")
entered into by and among the Company and the buyers named therein (collectively, the "Holders")
pursuant to which the Company issued to the Holders shares of its Series A Preferred Stock, par
value $.01 per share (the "Preferred Shares") convertible into shares of the Company's common stock,
par value $.001 per share (the "Conversion Shares") and Warrants exercisable into its Common Stock
(the "Warrant Shares"). Pursuant to the Purchase Agreement, the Company also has entered into a
Registration Rights Agreement with the Holders (the "Registration Rights Agreement") pursuant to
which the Company agreed, among other things, to register the Registrable Securities (as defined in
the Registration Rights Agreement), including the Conversion Shares and Warrants Shares, under the
Securities Act of 1933, as amended (the "1933 Act"). In connection with the Company's obligation
under the Registration Rights Agreement, on _______, 1999 the Company filed a Registration Statement
on Form SB-2 (File No. _______) (the "Registration Statement") with the Securities and Exchange
Commission (the "SEC") relating to the Registrable Securities which names each of the Holders as
a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by
telephone that the SEC has entered an order declaring the Registration Statement effective under the
1933 Act at [ENTER TIME OF EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,
after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its
effectiveness has been issued or that any proceedings for that purpose are pending before, or
threatened by, the SEC and the Registrable Securities are available for resale under the 1933 Act
pursuant to the Registration Statement.
Very truly yours,
[ISSUER'S COUNSEL]
By:
cc: [LIST NAMES OF HOLDERS]
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