UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20529
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1999
Commission File No. 0-26675
TRIMFAST GROUP, INC.
(Exact Name of Registrant as specified in its charter)
NEVADA 88-0367136
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
777 S. Harbour Island Blvd. Suite 780, Tampa, Florida 33602
(Address of principal executive offices)
(813) 275-0050
(Registrant's telephone number)
Securities registered under Section 12(b) of the Act:
Title of each class to be registered: None
Securities registered pursuant to section 12(g) of the Act:
Title of each class to be registered: Common Stock, $.001 Par Value
Name of exchange: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes |X| No |_|
-1-
<PAGE>
____Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
The aggregate market value of the voting and non-voting common equity held
by non-affiliates as of March 31, 2000 is $13,329,000.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING PRECEDING FIVE YEARS.
Indicate by checkmark whether the Registrant has filed all documents
and reports to be filed by Section 12, 13 or 15(d) of the Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan confirmed
by a court.
YES ________ NO __________
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock , as of the latest practicable date. As of
March 31, 2000, there were 5,097,362 shares of the Company's $.001 par value
common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Form 10-SB filed July 12, 1999 and subsequently amended December 23, 1999 and
March 23, 2000
Form 8-k filed March 31, 2000
This Form 10-KSB contains "forward-looking statements" relating to the
Registrant which represent the Registrant's current expectations or beliefs
including, but not limited to, statements concerning Registrant's operations,
performance, financial condition and growth. For this purpose, any statements
contained in this Form 10-KSB that are not statements of historical fact are
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may", "anticipation", "intend", "could", "estimate", or
"continue" or the negative or other comparable terminology are intended to
identify forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, such as credit losses, dependence on
management and key personnel and variability of quarterly results, ability of
Registrant to continue its growth strategy and competition, certain of which are
beyond the Registrant's control. Should one or more of these risks or
uncertainties materialize or should the underlying assumptions prove incorrect,
actual outcomes and results could differ materially from those indicated in the
forward looking statements.
-2-
<PAGE>
PART I.
ITEM 1. DESCRIPTION OF THE BUSINESS.
(a) Business Development.
We were incorporated in the State of Nevada on February 23, 1987 as Kendrex
Systems, Inc. We engaged in several different areas of business until we began
our current operations in August 1998 with the acquisition of TrimFast, Inc.
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 merger with TrimFast, Inc. because we believed that the
nutrition and vitamin supplement field represented a business opportunity for us
and we continue to explore opportunities in this field through several wholly
owned subsidiaries.
We sell vitamins under our own product line and under licensing agreements with
various third parties. 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. In February 2000
we entered a licensing agreement with Marvel Comics which gives us the right to
market Spiderman's Children's Chewable Multi-Vitamin and Mineral Supplements.
With the growth of the Internet, we developed an Internet site,
NutritionCafe.com The website is designed to provide nutritional information,
provide links to other informative sites and to market and sell our products.
We recently acquired Nutrition Clubstores. Nutrition Clubstores are staffed
point of purchase "micro-stores" or "kiosks" located in gyms and other health
clubs, carrying popular brand sports and general nutrition supplements. The
stores range in size from 8' x 8' to 12' x 12'. The stores currently carry over
300 popular, leading brand sports nutrition products, drinks and bars. As we
begin to integrate these Clubstores with our own operations, we plan to
introduce more of our products into the product sales mix.
(b) Principal Products and their Markets.
NUTRITIONAL PRODUCTS.
-3-
<PAGE>
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 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 in Canada. 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 Item 3 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
-4-
<PAGE>
warnings concerning side effects and interactions with other substances. With
respect to product liability claims, we have $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. However, there can
be no assurance that such insurance will 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 operations and
financial conditions.
PRINCIPAL 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
-5-
<PAGE>
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
-6-
<PAGE>
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 available data of the size of our
competition. Accordingly, our competition is difficult to assess with any
preciseness.
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 in July 1999 and currently offers approximately 1,365 products
including nutritional products, 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 and
will be offered at our Nutritition Clubstores. 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 facilities and
area 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 and members 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 our Internet site 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.
When we originally launched Nutrition Cafe, anyone wishing to purchase products
from the Nutrition Cafe was required to purchase a membership at the price of
$9.95 per
-7-
<PAGE>
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. On January 19, 2000, we decided to eliminate the
monthly membership fee. 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 are 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
shipped via UPS ground transportation. Express delivery options are available at
an additional cost. We warehouse approximately 2,000 different products at our
warehouse facility located in Clearwater, Florida. 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, 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
-8-
<PAGE>
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.
GYM KIOSKS
With the acquisition of Nutrition Clubstores, management intends to open up
point of purchase "micro-stores" or "kiosks" located in gyms and other health
clubs, carrying popular brand sports and general nutrition supplements. The
stores will range in size from 8' x 8' to 12' x 12'. There are currently 10
Nutrition Clubstores operating throughout the country; 5 in New York, 2 in
Florida, 1 in California, 1 in Iowa and 1 in New Hampshire. The stores currently
operate in Gold's Gyms and our initial expansion will be targeted at various
Gold's Gym's. We will hope to expand by opening several
-9-
<PAGE>
stores in the same geographic area. We are currently targeting California and
Florida for our initial expansion. However, we may pursue opportunities in other
parts of the country and open kiosks in facilities other than Gold's gym. The
stores currently carry over 300 popular, leading brand sports nutrition
products, drinks and bars. As we begin to integrate these Clubstores with our
own operations, we hope to introduce more of our products into the product sales
mix.
BOTTLED WATER.
In May 1999, we acquired the assets of Ice Cold Water Co. Inc., a bottled water
distributor located in the Tampa, Florida area. Ice Cold Water delivers bottled
water to a base of customers in the Tampa, Florida area. We operate this
business through our wholly owned subsidiary, Cooler Group, Inc. 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
-10-
<PAGE>
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 systems.
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
-11-
<PAGE>
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.
-12-
<PAGE>
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.
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.
-13-
<PAGE>
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.
Dependence on a Few Customers.
We have no significant concentration of customers.
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 (75-029550).
The Company has applied and intends to apply for trademark protection for
several of its products. There can be no assurance that any application that the
Company may file will be approved or even if obtained, that the use of the mark
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 so 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
-14-
<PAGE>
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 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
-15-
<PAGE>
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 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
-16-
<PAGE>
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
-17-
<PAGE>
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 nonmisleading 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
-18-
<PAGE>
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.
Year 2000 Compliance.
Our systems are Year 2000 ("Y2K") compliant. The cost of such compliance on our
part was less than $5,000. 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 PROPERTIES
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 have purchased a 17,000 square foot warehouse facility in Clearwater,
Florida. The total purchase price for the property was $1.2 million. This
facility houses our Nutrition
-19-
<PAGE>
Cafe operations.
Item 3 Legal Proceedings.
Product Liability.
Seven lawsuits and claims have been made or filed against us in connection with
the sale of Revivarant, a product containing the chemical GBL which has been
determined by the Food and Drug Administration to be unsafe for human
consumption. This substance was sold throughout the United States in health
stores. Pursuant to a voluntary agreement with the Food and Drug Administration,
we have removed this product from sale.
In an action 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 an action filed in the Circuit Court for Harrison County,
Mississippi on June 14, 1999 (Peck v. Trimfast Group, Inc.) and in a separate
action filed in the Circuit Court of Tennessee for the Thirteenth Judicial
District at Memphis on April 5, 1999 (Case No. 301672-5TD; 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. In the Jensen case, the plaintiff has requested an
unspecified amount of damages "to be proven at the time of trial, including
punitive damages." In the Peck case, the plaintiff has requested an unspecified
amount of "actual, compensatory and punitive damages." In an action filed by
Anthony Brooks against Body Life Sciences, the case is now pending in federal
court in the United States District Court for the Western District of Tennessee
as a companion case to the Clifton litigation. We estimate that the total
damages sought in these cases may be millions of dollars in aggregate. We have
retained counsel to represent our interests in these claims, but have not had a
sufficient period of time to investigate the merits of these claims.
All of the aforementioned claims have been submitted to Royal Insurance Company
who issued a product liability policy on behalf of our third party
manufacturers. At the time that the alleged causes of action arose, we had no
product liability insurance in our own name. We have since obtained a policy
with an effective date of May 27, 1999. Our product liability insurance will not
be available to cover these claims, should we be found liable. As such, our
business, results of operations and financial condition could be adversely
affected, if we are found liable for these claims.
Since our product liability insurance only became effective on May 27, 1999, we
have no insurance coverage for the above mentioned claims or for future claims
relating to the sale of Revivarant. 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 our operations.
-20-
<PAGE>
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.
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.
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.and 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; Graffitti Graphics Corporation v. Trimfast, Inc.) claiming damages in
the amount of approximately $5,500.00. 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 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 $35,000.00. Currently,
management is trying to
-21-
<PAGE>
resolve this dispute by making payments over time. The parties have not reached
any agreement and we have made no payments as of the date of this registration
statement. Should a judgment be granted against us, the amount should not exceed
the damages claimed.
An action has been commenced in the United States District Court for the
Southern District of New York against TrimFast Group, Inc. Harry Kay, its former
president, Arcobel Investment and Interwest Transfer Company, our former
transfer agent. The suit alleges, that 600,000 shares of the TrimFast stock
which was previously owned by Kay was improperly canceled by the Company 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 the Company. In addition to the allegations made by Gainsford
Ventures, Royalsea International Incorporated, a Panamaniam corporation has
alleged a breach of a consulting agreement with the Company 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. As of April 6, 2000, the Company has not
been formally served with the complaint, has not had an opportunity to retain
counsel, has not had an opportunity to review the merits of the allegations
contained therein or to discuss the facts surrounding the transactions with the
named Plaintiffs with the Company's former president, Harry Kay.
Aryeh Trading has recently filed an action in Pinellas County Circuit Court
(Case No. 00-802) against TrimFast seeking specific performance pursuant to an
agreement for the Company to purchase 155,000 shares of the Company's common
stock at $8.25 per share. The Plaintiff also seeks to foreclose on a mortgage on
real property. The Company believes that the instrument which allegedly created
the Plaintiff's interest in the real property is not in recordable form and can
not be the basis to file a mortgage foreclosure action. The Company has filed a
Motion to Dismiss with respect to both causes of action.
Francois Goela has recently 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 delivery of 22,000 shares of TrimFast shares. The
Plaintiff seeks delivery of the shares of common stock pursuant to the agreement
and seeks compensatory and punitive damages in excess of $500,000. The complaint
also seeks punitive damages totaling $293,000 under Section 772.11 Florida
Statute. The Company is currently in settlement negotiations on this matter.
Other.
-22-
<PAGE>
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 4. Submission of Maters to a Vote of Security Holders
There were no votes submitted during the fourth quarter of the fiscal year
to a vote of the Registrant's security holders, through the solicitation of
proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
(a) Market Information
Our common stock is currently traded on the National Association of Securities
Dealers Automated Quotation System Over the Counter Bulletin Board ("OTCBB")
under the symbol "TRIM." As of March 31, 2000, there were 5,097,362 common
shares and 15,000 Convertible Preferred Class A 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
-23-
<PAGE>
World Group and are not representative of the current business activities
reflected throughout this registration statement.
High Bid Low Bid
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 9.187 7.06
Quarter Ended December 31, 2000 7.31 4.00
2000
Quarter Ended March 31 2000 7.25 3.50
Such market quotations reflect the high bid and low prices as reflected by the
OTCBB 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 and Knight
Securities.
(b) Holders
As of March 31, 2000 there were approximately 196 holders of record of our
common stock.
(c) 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. Any decisions as to
future payment of dividends will depend on our earnings and financial position
and such other factors, as the Board of Directors deems relevant.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
-24-
<PAGE>
RESULTS OF OPERATIONS.
Sales for the twelve months ended December 31, 1999 were $631,388 as compared to
$1,925,332 for the year ended December 31, 1998. Cost of sales were $396,072 as
compared to $567,472 resulting in a gross profit for 1999 of $235,316 as
compared to $1,357,860 for 1998. Our Gross profit margin in 1998 was
approximately 70% of sales as compared to a gross profit margin of approximately
37.2% in 1999 The significant decline in sales 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. With the
discontinuance of Revivarant, the Company had to change its product mix. The
change in product mix resulted in a significant decline in our margins.
Management hopes to identify and concentrate on those products which generate
maximum revenues and margins.
Our salaries increased from $221,773 in 1998 to $1,094,575 in 1999. This nearly
five fold increase in compensation levels is due to several factors. Until
August 1998 we operated as a privately held company and not as a consolidated
entity., As a result, the salaries for 1998 consisted of our president/chief
executive officer Michael Muzio and our executive vice president, G. Vosler. Our
1999 salaries included a full year of salaries for Mr. Muzio, Mr. Vosler as well
as an increased number of support 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. In addition, approximately
$500,000 of compensation expense is non-cash relating to common stock issued to
employees for services. 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.
During 1999 the company acquired the IMMCEL and IMMMU product lines. 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 had to rescind this Agreement. Any profits or
losses generated from the operation on IMMMU and IMMCEL have been allocated to
its prior owners. We recorded in the "Receivable - other" to account for the
loss of approximately $88,000 from operating IMMMU and IMMCEL for the period of
time we managed those companies.
Management believes that a significant boost to its revenues will be generated
from its licensing agreement with World Championship Wrestling ("WCW"). 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 and we have shipped our energy bars to
several large distributors. However,
-25-
<PAGE>
technical difficulties in producing the advertising campaign has delayed the
launch of the product. 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.
Management believes that the company will be able to generate additional
revenues through the sale of vitamins under its licensing agreement with Marvel
comics and with the growth of its point of purchase kiosks in national health
clubs and gyms. However, there can be no assurance of the market acceptance of
these products or that the company will be able to sell these products in a
profitable matter.
For the year ended December 31, 1999, we recorded $4,564,080 in professional
fees as compared to $49,511 in 1998. 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 $423,289 for the year ended
December 31, 1998 as compared to $868,810 for the year ended December 31, 1999.
Approximately $175,000 of this increase was attributable to advertising for
Nutrition Cafe.
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 income for the year ended December, 31 1998 was $22,026 and net income per
share was $.01. As compared to a net loss of $7,403,908 for 1999 and a net loss
per share of $1.79.
LIQUIDITY AND CAPITAL RESOURCES.
December 31, 1999 as compared to December 31, 1998
Total cash and cash equivalents as of December 31, 1999 were $44,264, as
compared to $120,938 as of December 31, 1998, a decline of approximately 63%.
Trade receivables declined from $357,889 to $88,281. Inventory increased from
$188,737 to $281,313. 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 decreased approximately 33%, from $679,309 to $456,715
Property and equipment increased from $33,403 to $1,417,381. This increase is
due primarily to our purchase of the facility, which houses our warehouse
operations for
-26-
<PAGE>
Nutrition Cafe, and the equipment purchased to operate this facility. The
$210,814 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 $625,757 to $718,362, and we issued a convertible debt instrument
in the amount of $1,000,000. The proceeds raised from this debt offering were
used to purchase the warehouse facility.
Despite these significant losses, Management believes that we have sufficient
revenue and reserves to finance ongoing business activities.
GENERAL.
Due to our lack of revenues and no business plan, our management sought out an
acquisition candidate and, on August 11, 1998, acquired all of the issued and
outstanding shares of common stock of Trimfast, Inc., a company engaged in the
nutraceutical business.
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.
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 closed 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. Should the Company determine additional
financing is necessary, the additional financing will be to expand current or
proposed operations.
Debentures.
-27-
<PAGE>
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.
Item 7. Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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.
-28-
<PAGE>
PART III
Item 9. Directors and Executive Officers of the Registrant.
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 35 President/Treasurer/Director
4957 Bayshore Blvd.
Tampa Florida 33611
Gregg Vosler 52 Vice President/Secretary/
851 Lantana Avenue Director
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 an oral employment agreement with the Company that
pays each an annual salary 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
-29-
<PAGE>
performance. If 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. Dr. Hee opened and operated four medical clinics in Tampin,
Malaysia. After gaining admission to practice medicine in the United States, Dr.
Hee became the Chief Medical Officer of the Tampa Military Processing Station
for the United States Department of Defense. 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 10. 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. Troy
is responsible for the
-30-
<PAGE>
accounting and financial reporting of the company and receives annual
compensation of $65,000. Mr. Muzio and Mr. Vosler exercise complete control over
employee compensation.
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(1)
<TABLE>
<CAPTION>
Name & Annual Compensation Long-Term Compensation Other
Position Year Salary Bonus Other Stock SARs LTIP Comp
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Muzio
President & 1999 $150,000 $0 $0 $0 $0 $0 $0
Treasurer 1998 $150,000 $0 $0 $240,000 $0 $0 $0
1997 $0 $0 $0 $0 $0 $0 $0
Gregg Vosler
Vice President 199 $50,000 $0 $0 $0 $0 $0 $0
& Secretary 1998 $50,000 $0 $0 $96,000 $0 $0 $0
1997 $31,000 $0 $0 $0 $0 $0 $0
John Troy
Chief 1999 $52,500 $0 $0 $0 $0 $0 $0
Financial 1998 Not employed
Officer with the company
1998 Not employed with
the company.
</TABLE>
(1) The amount used in this table were calculated using the market close price
for TRIM common stock on December 31, 1998.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth the security ownership of certain
beneficial owners of the Company as of March 31, 2000 known to own more than 5%
of the Company's common stock:.
TITLE OF NAME & ADDRESS NO. OF & NATURE OF %OWNED
CLASS OWNERSHIP
-31-
<PAGE>
Common Michael Muzio 1,033,846: Direct 20.28%
4957 Bayshore Blvd.
Tampa, Florida 33611
Common Mark Sansom 312,000: Direct 6.12%
4061 South Powers Circle
Salt Lake City, UT 84124
Common Carroll Edwards 300,000: Direct 5.8%
Box 219
Marshville, NC 28103
Common Nutrition Superstores.com Inc. 570,000: Direct 11.18%
3600 Investment Lane Suite 102
West Palm Beach, FL 33404
Security Ownership of Officers and Directors.
TITLE OF NO. OF NATURE OF
CLASS NAME & ADDRESS SHARES(1) OWNERSHIP %OWNED
Common Michael Muzio 1,033,846 Direct 20.28%
4957 Bayshore Blvd.
Tampa, Florida 33611
Common Gregg Vosler 0 Direct 00.0%
851 Lantana Avenue
Clearwater Beach, Florida 34630
Common Christopher Hee 1,749 Direct Less
3152 Fiesta Drive Than 1%
Dunedin, Florida 34689
Common John Troy 10,000 Direct Less
4014 W Waters Avenue #1508 Than 1%
Tampa, Florida 33614
- --------------------------------------------------------------------------------
All Officers and Directors as a Group
(3 Individuals) 1,045,595 Direct 20.51%
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 12. Certain Relationships and Related Transactions.
-32-
<PAGE>
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 13,705,488
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 $126,664.00 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 65,000 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.
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. Mr. Troy has
entered into an oral employment agreement with the company which pays him an
annual compensation of $65,000. It is expected that this agreement will be
renewed in 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.
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
CONTENTS
PAGE 1 INDEPENDENT AUDITORS' REPORT
PAGE 2 CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999
PAGE 3 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS) FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
PAGES 4 - 5 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
PAGES 6 - 7 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
PAGES 8 - 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31,
1999 AND 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Trimfast Group, Inc.
We have audited the accompanying consolidated balance sheet of TrimFast Group,
Inc. and Subsidiaries as of December 31, 1999 and the related consolidated
statements of operations and comprehensive income (loss), changes in
stockholders' equity and cash flows for the years ended December 31, 1999 and
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TrimFast Group, Inc.
and Subsidiaries as of December 31, 1999 and the results of their operations and
their cash flows for the years ended December 31, 1999 and 1998 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 15 to the
financial statements, the Company has suffered losses from operations and has a
working capital deficiency. As discussed in Note 8 (D) to the financial
statements, the Company is subject to several legal actions with regard to a
product recall whereby uncertainties exist regarding related contingent
liabilities. These matters raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 15. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
March 10, 2000
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
CURRENT ASSETS
Cash $ 35,858
Short-term investments 8,406
Accounts receivable, net 88,281
Prepaid expenses 42,857
Inventory 281,313
-----------
Total Current Assets 456,715
-----------
PROPERTY AND EQUIPMENT - NET 1,417,381
-----------
INTANGIBLE ASSETS
Goodwill, net 52,754
Software, net 210,814
-----------
Total Intangible Assets 263,568
-----------
OTHER ASSETS
Due from affiliate 279,250
Rent deposit 15,200
Cash surrender value of life insurance 12,636
-----------
Total Other Assets 307,086
-----------
TOTAL ASSETS $ 2,444,750
- ------------ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 718,362
Notes and loans payable 76,475
Due to principal stockholder 142,200
Income taxes payable 20,600
-----------
Total Current Liabilities 957,637
-----------
Convertible Debentures 1,000,000
-----------
TOTAL LIABILITIES 1,957,637
- ----------------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, Class A, $0.01 par value; 20,000,000 shares
authorized; 15,000 Convertible issued and outstanding 150
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; 4,501,682 shares issued and outstanding 4,501
Common stock to be issued, $0.001 par value, 20,000 shares 20
Additional paid-in capital 9,005,609
Accumulated deficit (7,935,805)
Other comprehensive loss (21,737)
-----------
1,052,738
Less subscriptions receivable (90,625)
Less shares issued as a security deposit (475,000)
-----------
Total Stockholders' Equity 487,113
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,444,750
- ------------------------------------------ ===========
See accompanying notes to financial statements
2
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENT OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
------------ -----------
NET SALES $ 631,388 $ 1,925,332
COST OF SALES 396,072 567,472
------------ -----------
GROSS PROFIT 235,316 1,357,860
------------ -----------
OPERATING EXPENSES
Compensation 1,094,575 221,773
Commissions 5,235 41,700
License fees 107,143 --
Depreciation 69,808 10,498
Amortization 8,403 --
Professional and consulting fees 4,564,080 49,511
Bad debt 293,977 503,839
Selling, general and administrative 868,788 423,289
Travel and entertainment 149,908 64,187
------------ -----------
Total Operating Expenses 7,161,917 1,314,797
------------ -----------
INCOME (LOSS) FROM OPERATIONS (6,926,601) 43,063
------------ -----------
OTHER INCOME (EXPENSE)
Realized gain (loss) on sale of securities - net (1,957) 1,905
Unrealized gain on trading securities - net -- 922
Gain on sale of equipment 2,250 --
Write-off of leasehold improvements (2,476) --
Interest expense (302,408) (3,264)
------------ -----------
Total Other (Expense) (304,591) (437)
------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES (7,231,192) 42,626
FEDERAL AND STATE INCOME TAXES -- 20,600
------------ -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS (7,231,192) 22,026
EXTRAORDINARY ITEM
Loss on extinguishment of debt (150,979) --
------------ -----------
NET INCOME (LOSS) (7,382,171) 22,026
OTHER COMPREHENSIVE LOSS, NET OF TAX
Unrealized loss on available-for-sale
securities - net (21,737) --
------------ -----------
COMPREHENSIVE INCOME (LOSS) $ (7,403,908) $ 22,026
============ ===========
NET INCOME (LOSS) PER COMMON SHARE - BASIC AND
DILUTED $ (1.79) $ 0.01
============ ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC
AND DILUTED 4,119,893 1,710,860
============ ===========
See accompanying notes to financial statements.
3
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
SHARES
ACCUMULATED ISSUED
ADDITIONAL OTHER SUBSCRIP- AS A
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED COMPRENSIVE TIONS SECURITY TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT LOSS RECEIVABLE DEPOSIT STOCK TOTAL
------ ------ ------ ------ ---------- ---------- ----------- ---------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
Purchase of
treasury stock
at cost -- -- -- -- -- -- -- -- -- (23,534) (23,534)
Net Income 1998 -- -- -- -- -- 22,026 -- -- -- -- 22,026
------ ------ -------- ----- -------- ---------- --------- --------- ------ -------- --------
Balance,
December 31,
1998 -- -- 2,338,656 2,338 163,987 (129,820) -- -- -- (23,534) 12,971
</TABLE>
4
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
SHARES
ACCUMULATED ISSUED
ADDITIONAL OTHER SUBSCRIP- AS A
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED COMPRENSIVE TIONS SECURITY TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT LOSS RECEIVABLE DEPOSIT STOCK TOTAL
------ ------ ------ ------ ---------- ---------- ----------- ---------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock
for cash -- -- 1,058,005 1,058 1,659,817 -- -- (90,625) -- -- 1,570,250
Stock issued for
consulting
and other
professional
services -- -- 918,300 918 3,795,143 -- -- -- -- -- 3,796,061
Issuance of
common stock
to employees -- -- 104,900 105 500,075 -- -- -- -- -- 500,180
Issuance of
convertible
debentures -- -- -- -- 250,000 -- -- -- -- -- 250,000
Issuance of
preferred
stock 15,000 150 -- -- 1,874,901 (375,011) -- -- -- -- 1,500,040
Issuance of
common stock
option -- -- -- -- 413,780 -- -- -- -- -- 413,780
Return of
stock in
repayment
of debt -- -- (50,000) (50) (399,950) -- -- -- -- -- (400,000)
Issuance of
common stock
as a security
deposit for
inventory line
of credit -- -- 100,000 100 474,900 -- -- -- (475,000) -- 0
Issuance of
common stock
in exchange for
a loan -- -- 7,321 7 30,875 -- -- -- -- -- 30,882
Issuance of
common stock
in exchange
for loans -- -- 44,500 45 242,081 -- -- -- -- -- 242,126
Purchase and
sale of
treasury
stock, net -- -- -- -- -- (48,803) -- -- -- 23,534 (25,269)
Unrealized
losses on
available-
for-sale
securities -- -- -- -- -- -- (21,737) -- -- -- (21,737)
Net loss 1999 -- -- -- -- -- (7,382,171) -- -- -- -- (7,382,171)
------- ------ --------- ------- ---------- ----------- --------- ---------- --------- -------- ---------
BALANCE
DECEMBER 31,
1999 15,000 $ 150 4,521,682 $ 4,521 $9,005,609 $(7,935,805) $ (21,737) $ (90,625)$(475,000) $ -- $ 487,113
======= ====== ========= ======= ========== =========== ========= ========== ========= ======== =========
</TABLE>
See accompanying notes to financial statement
5
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (7,382,171) $ 22,026
Adjustments to reconcile net income (loss) to
net cash provided
by (used in) operating activities:
Depreciation 69,808 10,498
Amortization 8,403 --
Bad debt expense 293,977 503,839
Unrealized gain on short-term investments -- (922)
Professional fees incurred in exchange for
common stock 3,670,461 --
Compensation expense incurred in exchange
for common stock 500,180 --
Consulting fees incurred in exchange for
stock options 413,780 --
Beneficial conversion feature of convertible
debentures 250,000 --
Loss on extinguishment of debt 150,979 --
Realized loss on short-term investment 1,957 --
Gain on sale of equipment (2,250) --
Write-off of leasehold improvements 2,476 --
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable (17,136) (856,839)
Prepaid expenses (42,857) --
Inventory (91,782) (165,038)
Deposit (4,581) (8,119)
Increase (Decrease) in:
Accounts payable and accrued expenses 94,499 496,181
Income taxes payable -- 20,600
------------- -----------
Total adjustments 5,297,914 200
------------- -----------
Net cash provided by (used in) operating
activities (2,084,257) 22,226
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Short-term investments (16,803) (14,375)
Purchases of property and equipment (1,400,655) (37,821)
Purchase of software (87,755) --
Due from affiliates (673,305) --
Advances to affiliate -- (5,945)
Advances to employees 5,800 (5,800)
Cash surrender value of life insurance (4,529) (8,107)
------------- -----------
Net cash used in investing activities (2,177,247) (72,048)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to stockholder/officer 142,200 (18,436)
Proceeds from convertible debentures 1,000,000 --
Proceeds from loans payable 74,500 1,975
Proceeds from issuance of common stock 1,570,250 177,800
Proceeds from issuance of preferred stock 1,500,040 --
Payments of loans payable (70,000) --
Purchase and Sale of treasury stock, net (25,269) (23,534)
------------- -----------
Net cash provided by financing activities 4,191,721 137,805
------------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS (69,783) 87,983
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 105,641 17,658
------------- -----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 35,858 $ 105,641
============= =============
See accompanying notes to financial statements.
6
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
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 14 (A))
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.
During 1999, the Company issued 44,500 shares of common stock to unrelated
parties in exchange for loans payable of $70,125 plus accrued interest
resulting in a loss on extinguishment of debt of $150,979.
During 1999, the Company issued 7,321 shares of common stock to an
unrelated party in exchange for the remaining unpaid balance of a loan
payable plus accrued interest of a total of $30,882.
During 1999, the Company issued 20,000 shares of common stock to an
unrelated party in exchange for the purchase of software of $126,000.
During 1999, a related party returned 50,000 shares of the Company's
common stock to settle $400,000 of liabilities owed to the Company.
During 1999, the Company issued 100,000 shares of common stock to an
escrow account as a security deposit for an inventory line of credit.
These shares were valued at $4.75 at the grant date resulting in a total
value of $475,000.
7
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
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 and other health oriented
consumable products. 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 and its subsidiaries, The Cooler
Group, Inc. and Nutrition Cafe, Inc. were incorporated during 1999.
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 14 (A)).
(B) Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of Trimfast
Group, Inc. and its subsidiaries Trimfast, Inc., Body Life Sciences, Inc.,
The Cooler Group, Inc and Nutrition Cafe, Inc. All significant
intercompany balances and transactions have been eliminated in
consolidation.
(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
8
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
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
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 three to thirty
years.
(H) Software Obtained For Internal Use
The Company accounts for software obtained for internal use in accordance
with the Accounting Standards Executive Committee Statement of Position
No. 98-1 "Accounting For the Costs of Computer Software Developed or
Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 generally requires the
capitalization of all internal or external direct costs incurred in
developing or obtaining internal use software and expensing all internal
or external costs incurred during the preliminary project stage and the
post-implementation stage. The Company generally amortizes software
developed or obtained for internal use over an estimated life of three
years.
(I) Goodwill
Goodwill arising from the acquisition of certain assets of Ice Cold Water
Co., Inc. (see Note 14 (C)) is being amortized on a straight-line basis
over five years.
9
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
(J) Revenue Recognition
The Company recognizes income from sale of products at the time of
delivery.
(K) 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.
(L) 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
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 issued
to HLHK stockholders are considered outstanding from the acquisition date.
There were no dilutive common stock equivalents outstanding at December
31, 1998. In 1999, the assumed exercise of common stock equivalents was
not utilized since the effect was antidilutive.
(M) 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.
(N) Stock Options
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting For Stock Based Compensation" ("SFAS 123"), the Company has
elected to account for
10
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
Stock Options issued to employees under Accounting Principles Board
Opinion No. 25 "(APB Opinion No. 25)" and related interpretations, and
accounts for stock options issued to consultants and for other services or
goods in accordance with SFAS 123.
(O) Comprehensive Income (Loss)
The Company accounts for Comprehensive Income (Loss) under the Financial
Accounting Standards Board Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("Statement No. 130"). Statement No.
130 establishes standards for reporting and display of comprehensive
income and its components, and is effective for fiscal years beginning
after December 15, 1997.
The unrealized gains and losses, net of tax, resulting from the valuation
of available-for-sale securities at their fair market value at year end
(see Note 1 (E)) are reported as Other Comprehensive Income (Loss) in the
Statement of Operations and as Accumulated Other Comprehensive Income
(Loss) in Stockholders' Equity and in the Statement of Stockholders'
Equity.
(P) 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 available-for-sale
securities, which are reported at their fair value based upon the quoted
market prices of those investments at December 31, 1999, with unrealized
losses reported in a separate component of stockholders' equity until they
are sold. Any realized gains or losses are included in net earnings at the
time of sale.
The composition of short-term investments at December 31, 1999 is as
follows:
Cost Fair Value
------------ -------------
11
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
Common stock $ 30,143 $ 8,406
============ =============
Investment expenses for the year ended December 31, 1999 consisted of the
following:
Net realized losses on the sale of
available-for-sale securities $ (1,957)
=================
Unrealized losses included in other
comprehensive loss for the year ended
December 31, 1999 consisted of the following:
Net unrealized losses on available-for-sale
securities $ (21,737)
=================
NOTE 3 - ACCOUNTS RECEIVABLE AND BAD DEBT EXPENSE
Accounts receivable were as follows at December 31, 1999:
Accounts receivable $ 89,011
Allowance for doubtful accounts (730)
------------
$ 88,281
============
At December 31, 1999, approximately 7%, 8% and 13% of gross accounts
receivable were due from three customers, respectively.
During 1998, the Company wrote off 100% of 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.
During 1999, the Company received payments of $98,238 on the $267,240
balance discussed above. The remaining balance of $169,002 was written off
as a bad debt expense.
During 1999, the Company wrote off a receivable which was related to the
loss incurred for operating Immmu/Immcel during the period between the
acquisition of Immmu/Immcel and the rescission of the same acquisition
agreement (See Note 14(B)).
During 1999, the Company also wrote off $35,890 of accounts receivable
originating in 1998 due from various customers.
NOTE 4 - PROPERTY AND EQUIPMENT
12
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
Property and equipment at December 31, 1999 consisted of the following:
Land $ 637,100
Building 658,863
Automobiles 68,242
Furniture and fixtures 24,737
Equipment 108,973
-----------
$ 1,497,915
Less accumulated depreciation (80,534)
-----------
$ 1,417,381
===========
Depreciation expense for the years ended December 31, 1999 and 1998 was
$69,808 and $10,498, respectively.
NOTE 5 - INTANGIBLE ASSETS
(A) Goodwill
Goodwill arising from the acquisition of certain assets of Ice Cold Water
Co., Inc. (see Note 14 (C)) is being amortized on a straight-line basis
over five years.
Goodwill at December 31, 1999 was as follows:
Goodwill $ 58,616
Less accumulated amortization (5,862)
---------
$ 52,754
=========
Amortization expense for the year ended December 31, 1999 was $5,862.
(B) Software
During 1999, the Company's subsidiary, Nutrition Cafe, Inc. developed an
Internet web site and related software to use in the sales and marketing
of its products. Pursuant to SOP 98-1 certain of these costs were recorded
as a software asset and are being amortized on a straight-line basis over
three years.
Software at December 31, 1999 was as follows:
Software $ 213,355
Less accumulated amortization (2,541)
-------------
$ 210,814
=============
13
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
NOTE 6 - INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1999 and
1998 is summarized as follows:
1999 1998
------------ ----------
Current:
Federal $ -- $ 17,100
State -- 3,500
Deferred:
Federal and State 2,814,316 1,540
Change in valuation allowance (2,814,316) (1,540)
------------ ----------
Income tax expense (benefit) $ -- $ 20,600
============ ==========
The Company's tax expense differs from the "expected" tax expense for the
years ended December 31, 1999 and 1998 (computed by applying the Federal
Corporate tax rate of 34 percent to income (loss) before taxes), as
follows:
1999 1998
------------ ----------
Computed "expected" tax expense
(benefit) $ (2,509,938) $ 14,493
State income tax - net of federal tax
benefit (267,973) 2,312
Non-deductible expenses 60,760 3,714
Effect of non-consolidated losses and
other -- 4,043
Benefit of surtax exemption -- (3,962)
Effect of net operating losses 2,717,151 --
------------ ----------
$ -- $ 20,600
============ ==========
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1999 and
1998 are as follows:
1999 1998
------------ ----------
Deferred tax liabilities:
Unrealized gains $ -- $ (346)
------------ ----------
Total deferred tax liabilities -- (346)
------------ ----------
Deferred tax assets:
14
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
Depreciation -- 1,886
Stock based compensation 155,705 --
Net operating loss carryforwards 2,717,151
------------ ----------
Total gross deferred tax assets 2,872,856 1,886
------------ ----------
Less valuation allowance (2,872,856) (1,540)
------------ ----------
Net deferred tax asset (liability) $ -- $ --
============ ==========
At December 31, 1999 the Company had net operating loss carryforwards of
approximately $7,221,000 available to offset future taxable income
expiring in 2019.
The valuation allowance at January 1, 1999 was $1,540. The net change in
the valuation allowance during the year ended December 31, 1999 was an
increase of approximately $2,871,000.
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 pre-merger 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 7 - DEBT
(A) Notes and Loans Payable
The following schedule reflects notes and loans payable to non-related
parties at December 31, 1999:
Note payable, due on March 11, 2000, interest at
prime, unsecured $ 75,000
Other loans payable, currently due 1,475
-------------
$ 76,475
=============
15
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
Accrued interest of $5,055 on the notes payable has been included in
accrued expenses at December 31, 1999.
(B) Convertible Debentures
On June 14, 1999 the Company issued $1,000,000 of convertible debentures
due on June 14, 2002 with interest at 7% per annum. 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.
At December 31, 1999, accrued interest of $38,111 has been included in
accrued expenses.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
(A) Year 2000 Issues
The Company is aware of the issues associated with the programming code in
existing computer systems resulting from the arrival of the millennium
(Year 2000). 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 changed 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
16
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
compliance issues will not have a material effect on the Company's future
financial position or results of operations. As of the date of this
report, the Company has not been significantly affected by Year 2000
issues.
(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 2000 through 2003. In addition, the Company
has some storage and appliance leases that run on a month-to-month basis.
In connection with the formation of its subsidiary, NutritionCafe.com,
Inc. in April 1999 the Company entered into a lease/purchase option
agreement for a facility, which is used for the operations of
NutrionCafe.com. The lease called for rental payments of $8,000 per month
and was 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, and purchased the
building.
Future minimum lease payments under operating leases are as follows at
December 31, 1999:
Years Ending Amount
------------ ------------
2000 $ 75,189
2001 75,532
2002 71,673
2003 66,759
2004 56,590
-------------
$ 345,743
============
Rent expense for 1999 and 1998 aggregated $69,976 and $31,885,
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 was to
17
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
issue 20,000 shares of common stock to the consultant. 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 a payment of $2,000 in the form of services performed
during 1999.
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 was to issue 50,000 free trading common shares
pursuant to Regulation D, Rule 504 and 250,000 common shares restricted
under Rule 144. In addition, the Company was to 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 minimal
services as anticipated in 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. If an invoice is received, the Company
will recognize consulting expense for all shares issued based on 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 was to issue 100,000 free trading common
shares pursuant to Regulation D, Rule 504 and 350,000 common shares
restricted under Rule 144. 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 minimal services as
anticipated in 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 275,000
restricted shares at a price of $0.25 per share resulting in a
subscription receivable of $68,750. Subsequent to the execution of the
rescission agreement further disputes between the parties resulted in a
settlement agreement which became null and void due to non-performance by
the parties. As the consultant did not recognize the rescission agreement,
it is the Company's opinion that all agreements subsequent to the original
agreement have to be considered null and void and therefore the original
consulting agreement entered into on December 18, 1998 was the prevailing
agreement.
18
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
Thus, during 1999, the Company recognized compensation expense of $154,687
based on the fair market value of the stock on the grant date.
During 1999, the Company entered into various additional consulting
agreements whereby common stock was 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. The Company
also periodically issues common stock as payment to vendors and records
such issues at the fair market value of the common stock. During the year
ended December 31, 1999, the Company issued approximately 918,300 shares
of common stock for consulting services and as payment to vendors valued
for financial accounting purposes at a fair market value of approximately
$3,795,000 based upon a 20% discount from the quoted trading price of the
stock.
(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. 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. As of December
31, 1999, management does not expect to receive any further payments of
this customer and therefore decided to write off the balance as of
December 31, 1999 reduced by payments received during January 1999 (See
Note 3).
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 seven 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. All lawsuits have been referred by management to the
insurance carrier of it's third party manufacturer, however, the Company
has received notice from the insurance carrier denying all claims.
Management intends to contest the claim denials. 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
19
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
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, 1999 relating to the above matters.
The Company is subject to a course of action premised on a Letter of
Agreement between the two parties whereby the Plaintiff alleges the
Company committed to purchase 155,000 shares of the Company's common stock
at a stipulated price (See Note 9E). The second count of the action is a
mortgage foreclosure action, which is based upon an alleged lien upon real
property that is to have collateralized the Agreement. The Company has
filed a motion to dismiss the complaint because the Agreement sued upon
call for arbitration in the event of dispute. The Company also filed a
motion to dismiss the mortgage foreclosure action since the cause of
action is premised upon documents that cannot be recorded. Discovery is
beginning and no opinion is available as to the likely result.
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 cancelled by the Company while still validly owned by the
Plaintiff. 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.
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 December 31, 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 - STOCKHOLDERS' EQUITY
(A) Authorized Shares
20
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
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 the accompanying financial statements
have been retroactively restated to reflect the reverse stock split as
well as the recapitalization discussed in Note 14.
(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 for $150,000.
In accordance with SFAS 123, the transaction is considered a secondary
market transaction entered into to resolve a disagreement with management
and accordingly, had no effect on the Company's financial position or
results of operations.
(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) 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
21
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
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 at
$8.50 per share. As of the date of this report, no shares have been
repurchased by the Company. (See Note 8(D))
(F) Conversion of Debt to Equity and Shares Held in Escrow
During 1999, the Company issued 24,500 shares and agreed to issue 20,000
shares of common stock to unrelated parties in exchange for loans payable
of $70,125 plus accrued interest resulting in a loss on extinguishment of
debt of $150,979. The 20,000 shares are shown as common stock to be issued
in the balance sheet.
During 1999, the Company issued 23,000 shares of common stock to be held
in escrow as a security for the repayment of a loan to an unrelated party.
These shares were to be issued to this party in case the Company defaulted
on the loan payments in proportion to the outstanding loan balance. In
December 1999, the Company issued 7,321 shares of common stock to this
party in exchange for the remaining unpaid balance of the loan payable
plus accrued interest of a total of $30,882. As of the date of this
report, the remaining 15,679 shares are still held in escrow and are to be
returned to the Company.
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.
(G) 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 12).
(H) 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 403,000 shares for aggregate cash proceeds of
$934,500.
(I) Convertible Preferred Stock and Common Stock Warrants
22
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
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 10 - STOCK OPTIONS
During the year ended December 31, 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 $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 December 31, 1999 is
presented below:
Number of Weighted Average
Options Exercise Price
-------------- --------------
Stock Options
Balance at beginning of period -- $ --
Granted 108,000 $ 4.55
23
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
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 December 31, 1999:
Options Outstanding Options Exercisable
-------------------------------------- ---------------------------------
Number Weighted
Outstanding Average Weighted Number Weighted
Range Of At Remaining Average Exercisable Average
Exercise December 31, Contractual Exercise At December, Exercise
Price 1999 Life Price 31, 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 11 - CONCENTRATIONS
(A) Supplier Concentration
During 1998, the Company procured raw materials from various suppliers but
contracted the production of finished products to one primary third party
manufacturing company. During 1999, the Company 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 were derived from
one
24
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
customer and 13% were derived from two other customers.
During 1999 there was no significant customer concentration.
NOTE 12 - 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,
1999 and the net effect of transactions with the principal stockholder are
shown as due to stockholder at December 31, 1999. All net amounts due to
the principal stockholder at December 31, 1998 were converted to common
stock. (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
9(F)). During 1998 the Company issued 19,500 shares of common stock to
that same individual in exchange for the $40,000 payable.
NOTE 13 - OPERATING AND LICENSE AGREEMENTS
(A) 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.
(B) License Agreement
On June 24, 1999, the Company entered into a license agreement (the
"Agreement") with a licensor whereby the Company was granted the
nonexclusive license for certain Trimfast Energy Bars ("WCW Bars"). The
agreement terminates on December 31, 2002. As consideration for the
license rights, the Company paid an advance of $50,000 on the date of the
agreement and agreed to pay the higher of 6% of the net sales under the
license agreement or $100,000 on December 31, 1999, and $100,000 on each
of June 30, 2000, September 30, 1999,December 31, 2000 and June 30, 2001.
The advance of $50,000 was recorded as prepaid expenses and amortized over
the term of the agreement. As of
25
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
December 31, 1999, 6% of the net sales did not exceed the agreed amount of
$100,000. Thus, the Company accrued an amount of $100,000 to be paid to
the licensor, which is included in Accounts Payable as of December 31,
1999.
NOTE 14 - ACQUISITIONS AND FORMATIONS OF SUBSIDIARY
(A) 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 3 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 9(D)). 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. As a result, 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.
(B) Acquisition and Rescission
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.
26
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
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 would be employed as the
Chief Executive Officer of IMMMU and IMMCEL and serve on the Board of
Directors of the Company. The former stockholder was to receive an annual
salary of $75,000 and a bonus based on stipulated performance criteria.
The employment agreement could have been terminated by the Company if
IMMMU and IMMCEL had 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.
The $50,000 cash and all common stock issued to the seller were returned
to the Company. The Company recorded a receivable of $88,830 for the net
cash expenditures of IMMU and IMMCEL for the period from the acquisition
date to the rescission date of October 31, 1999. The receivable was
written off as of December 31, 1999. (See Note 3)
(C) Acquisition of Certain Assets
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, Inc. and
transferred these assets into it. During the month of December, the 23,000
shares of the Company's common stock were released in exchange for the
remaining outstanding balance of principal and interest of the promissory
note. The shares were valued for financial accounting purposes at the
quoted market price of $8.7 at May 26, 1999 resulting in a $168,908 loss
on extinguishment of debt.
(D) Formation of New Subsidiary
On April 21, 1999 the Company formed a new subsidiary, Nutrition Cafe,
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.
27
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
NOTE 15 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company incurred a net loss
of $7,382,171 during 1999, negative cash flows from operating activities
of $2,084,257 and had a working capital deficiency and accumulated deficit
of $500,922 and $7,935,805, respectively, at December 31, 1999. In
addition, the Company is subject to several legal actions with regard to a
product whereby uncertainties exist regarding related contingent
liabilities (See Note 8(D)). These conditions raise substantial doubt
about the Company's ability to continue as a going concern, and if
substantial additional funding is not acquired or alternative financing
sources developed to meet the Company's working capital and contingent
liabilities needs, management will be required to curtail its operations.
The Company's President and Principal Stockholder has contributed
marketable securities and cash capital to the Company during 2000 to fund
continued operations and expansion and intends to continue to contribute
equity capital to the Company in exchange for capital stock. In addition,
the Company is attempting to secure a mortgage on their building, has been
seeking additional equity capital and has recently acquired a health
products company (See Note 16 (C)). Management believes that actions
presently being taken provide the opportunity for the Company to continue
as a going concern.
NOTE 16 - SUBSEQUENT EVENTS
(A) Consulting Agreement
On March 7, 2000 (the "Effective Date"), the Company entered into a
consulting agreement with a business consultant (the "Consultant"). The
services provided by the Consultant primarily consist of the preparation
of a Private Placement Memorandum. In addition, the Consultant will
provide general investment banking consulting services to help the Company
to implement its business objectives. As consideration for the services
provided, the Company agreed to pay the Consultant a monthly service fee
of $2,500 and 15% of all investment capital raised for the Private
Placement, including a negotiable finders fee. Furthermore, the Company
agreed to issue to the Consultant 5% of the quantity of shares of the
Company's common stock sold through the Private Placement.
(B) License Agreement
On February 25, 2000, effective March 1, 2000 (the "Commencement Date"),
the Company entered into a license agreement (the "Agreement") whereby the
Company was granted the nonexclusive license for a children's chewable
multi-vitamin and mineral supplement. The agreement is for nineteen months
from the Commencement
28
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
Date. As consideration, the Company agreed to pay a minimum royalty of
$150,000, of which $100,000 was paid as an advance on the date of the
agreement and the remaining balance of $50,000 is payable on March 1,
2001. The agreed royalty rate is 9% of the net sales.
(C) Acquisition and Stock Exchange Agreement
On March 20, 2000 (the "Closing Date"), the Company consumated a stock
exchange agreement (the "Agreement") with Nutrition Superstores.com, Inc.
("Nutrition Superstores") to acquire one hundred percent of the issued and
outstanding common stock of Nutrition Clubstores, Inc. ("Nutrition
Clubstores") in exchange for $150,000 and 570,000 shares of the Company's
common stock valued at $5.00 per share based on the fair market value at
the Closing Date. As a result of the exchange, Nutrition Clubstores became
a wholly-owned subsidiary of the Company. In case, the net worth of
Nutrition Clubstores as reflected on its audited financial statements - to
be provided to the Company within 60 days of the Closing Date - 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
the Company's common stock for every $5.00 reduction or portion thereof in
net worth. Under the terms of the Agreement, the Company 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 and continuing for a period of twelve months thereafter. As
of the date of this report, the Company issued the 570,000 shares and paid
the $150,000.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Registrant:
TrimFast Group, Inc.
/s/ Michael Muzio
- ----------------------------
By: Michael Muzio, president
Pursuant to the requirements of the Securities Exchange Act of 1934, the
report has bee signed below by the following persons on behalf of the registrant
and in the capacities and on the darted indicated:
BY /s/ Michael Muzio DATE: April 8, 2000
---------------------------------------
Michael Muzio, president/Director
BY: /s/ Gregg Vosler DATE: April 8, 2000
---------------------------------------
Vice President, Secretary, director
BY: /s/ John Troy DATE: April 8, 2000
---------------------------------------
30
<PAGE>
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-k.
2.1 Kendrex and HLHK Merger **
2.2 TrimFast Inc. Acquisition Agreement **
2.3 Rescission Of Immu and Immcel Acquisitions **
3.1 Articles of Incorporation Kendrex Systems, Inc *
3.2 Amendment to Kendrex Articles of Incorporation *
3.3 Certificate of Incorporation for HLHK World Group, Inc.*
3.4 Certificate of Amendment to Articles of Incorporation
for HLHK World Group, Inc.*
31
<PAGE>
3.5. Bylaws*
4.1 Specimen Share Certificate
4.2 Debenture Agreement *
4.3 Warrant Agreement **
4.4 Preferred Share Agreement **
10.1 Lease Option Agreement *
10.2 WCW Agreement **
10.3 MSN Agreement **
10.4 Distribution Agreement **
21 Subsidiaries of Registrant
27 Financial Data Schedule
* Filed as an exhibit to the Company's Form 10-SB on July 12, 1999 and
incorporated herein by reference.
** Filed as an exhibit to the Company's Form 10-SB on December 23, 1999
and incorporated herein by reference.
32
Exhibit 21
Subsidiaries of Registrant
Ice Cold Water, Inc.
Nutrition Cafe, Inc.
Nutrition Clubstores, Inc.
TrimFast, Inc.
Cooler Group, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 35,858
<SECURITIES> 8,406
<RECEIVABLES> 491,708
<ALLOWANCES> (730)
<INVENTORY> 281,313
<CURRENT-ASSETS> 816,555
<PP&E> 1,708,501
<DEPRECIATION> (80,306)
<TOTAL-ASSETS> 2,444,750
<CURRENT-LIABILITIES> 957,637
<BONDS> 1,000,000
0
150
<COMMON> 4,521
<OTHER-SE> 482,442
<TOTAL-LIABILITY-AND-EQUITY> 2,444,750
<SALES> 631,388
<TOTAL-REVENUES> 631,388
<CGS> 396,072
<TOTAL-COSTS> 6,867,940
<OTHER-EXPENSES> 2,183
<LOSS-PROVISION> 293,977
<INTEREST-EXPENSE> 302,408
<INCOME-PRETAX> (7,231,192)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,231,192)
<DISCONTINUED> 0
<EXTRAORDINARY> (172,716)
<CHANGES> 0
<NET-INCOME> (7,403,908)
<EPS-BASIC> (1.79)
<EPS-DILUTED> (1.79)
</TABLE>
