Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
AMENDMENT NO. 1
---------------
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
|_| TRANSACTION REPORT UNDER SECTION 14 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from ________ to _________
TRIMFAST GROUP, INC.
--------------------
(Name of Registrant as specified in its charter)
Nevada 0-26675 88-0367136
------ ------- ----------
(State or other jurisdiction of (Commission File (IRS Employer
incorporation or organization) No.) Identification No.)
777 S. Harbour Island Boulevard #780 Tampa, FL. 33602 (813) 275-0050
--------------------------------------------------------------------
(Address and Telephone number of principal executive offices)
Check whether the issuer has (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months, (or such
shorter period that the Registrant was required to file such report(s), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the Latest practicable date: September 30, 1999
------------------
CLASS Outstanding at September 30, 1999
---------------------------- ---------------------------------
Common stock $.001 Par Value 4,540,978
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION PAGE
----
Consolidated Balance Sheet as of
September 30, 1999 (Unaudited) and
December 31, 1998 3
Consolidated Statements of Operations
for the Twelve Months Ended December 31, 1998
and for the Three and Nine Month Periods
Ended September 30, 1999 (Unaudited) 4
Consolidated Statement of Cash Flows
for the Year ended December 31, 1998
and for the Nine Months Ended
September 30, 1999 (Unaudited) 5
Consolidated Statement of Changes in Stockholders'
Equity for the one year ended December 31, 1998 and
for the Nine Months Ended September 30, 1999 (Unaudited) 6
Notes to Consolidated Financial Statements
(Unaudited) as of September 30, 1999 7-15
Management Discussion and Analysis of Financial
Condition and Results of Operations 16-17
PART II. OTHER INFORMATION AND SIGNATURES
Signatures 18
<PAGE>
<TABLE>
<CAPTION>
TRIMFAST GROUP, INC.
INTERIM CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
ASSETS
------
CURRENT ASSETS
<S> <C> <C>
SEPTEMBER 30, 1999
DECEMBER 31, 1998 (UNAUDITED)
------------------- --------------------
Cash 105,641 $ 59,092
Short-term investments 15,297 $ 41,220
Accounts Receivable- Trade 357,889 318,407
Accounts Receivable- Other 11,745 512,278
Inventory 188,737 377,270
------------------- --------------------
Total Current Assets 679,309 1,308,267
PROPERTY AND EQUIPMENT - NET 33,403 1,459,270
OTHER ASSETS
Prepaid expenses 0 50,000
Rent deposit 10,619 15,000
Cash surrender value of life insurance 8,107 12,646
Software development 0 228,705
Goodwill - Net 0 54,708
------------------- --------------------
Total Other Assets 18,726 361,060
------------------- --------------------
TOTAL ASSETS $ 731,438 $ 3,128,596
=================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 625,767 $ 926,612
Notes and loans payable 72,100 33,881
Income taxes payable 20,600 20,600
Convertible debentures 0 1,000,000
------------------- --------------------
Total Current Liabilities 718,467 1,981,093
------------------- --------------------
TOTAL LIABILITIES 718,467 1,981,093
------------------- --------------------
STOCKHOLDERS' EQUITY
Preferred Stock, Class A, $0.01 par value; 20,000,000
shares authorized; 0 and 15,000 shares issued and outstanding
as of December 31, 1998 and September 30, 1999 respectively 0 150
Preferred Stock, Class B, $0.01 par value;
20,000,000 shares authorized; none issued and outstanding 0 0
Common Stock, $0.001 par value; 100,000,000 shares
authorized, 2,260,775 and 4,540,978 shares issued and outstanding
as of December 31, 1998 and September 30, 1999 respectively 2,260 4,541
Common Stock to be issued (77,881 shares) as of December 31, 1998
and (8,478 shares) as of September 30, 1999 78 8
Additional Paid-in capital 925,987 6,936,610
Accumulated deficit (891,820) (4,370,622)
Less cost of treasury stock (5,500 as of December 31, 1998
and 32,500 as of September 30, 1999) (23,534) (139,547)
Less common stock shares advanced 0 (925,312)
Less common stock subscriptions receivable 0 (358,325)
------------------- --------------------
Total Stockholders' Equity 12,971 1,147,503
------------------- --------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 731,438 $ 3,128,596
=================== ====================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRIMFAST GROUP, INC.
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE ONE YEAR ENDED DECEMBER 31, 1998 (AUDITED)
AND THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
FOR THE THREE FOR THE NINE
FOR THE ONE YEAR MONTHS ENDED MONTHS ENDED
ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
DECEMBER 31, 1998 (UNAUDITED) (UNAUDITED)
------------------ ------------------- -------------------
<S> <C> <C> <C>
NET SALES 1,925,332 207,201 581,337
COST OF SALES 567,472 89,925 408,495
------------------ ------------------- -------------------
GROSS PROFIT 1,357,860 117,276 172,842
------------------ ------------------- -------------------
OPERATING EXPENSES
Salaries and other compensation 983,773 208,215 505,372
Commissions 41,700 14,302 18,117
Depreciation and amortization 10,498 54,202 54,202
Professional fees 49,511 505,576 1,467,900
Bad debt expense 503,839 102,723 102,723
Selling, general and administrative expenses 423,289 249,593 623,451
Travel and entertainment 64,187 54,240 132,249
------------------ ------------------- -------------------
Total Operating Expenses 2,076,797 1,188,851 2,904,014
------------------ ------------------- -------------------
INCOME FROM OPERATIONS (718,937) (1,071,575) (2,731,172)
------------------ ------------------- -------------------
OTHER INCOME (EXPENSE)
Realized gain on sale of trading securities - net 1,905 499 499
Unrealized gain on sale of trading securities - net 922 0 (18,549)
Interest expense (3,264) (354,569) (354,569)
------------------ ------------------- -------------------
Total Other Income (Expense) (437) (354,070) (372,619)
------------------ ------------------- -------------------
LOSS BEFORE INCOME TAXES (719,374) (1,425,645) (3,103,791)
FEDERAL AND STATE INCOME TAXES 20,600 0 0
------------------ ------------------- -------------------
NET INCOME/ (LOSS) (739,974) (1,425,645) (3,103,791)
================== =================== ===================
Dividend on Preferred Stock (375,011)
------------------ ------------------- -------------------
NET INCOME/ (LOSS) APPLICABLE TO COMMON STOCK (739,974) (1,425,645) (3,478,802)
================== =================== ===================
NET INCOME (LOSS) PER COMMON SHARE-BASIC AND DILUTED (0.43) (0.31) (0.87)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -
BASIC AND DILUTED 1,710,860 4,574,887 4,028,972
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRIMFAST GROUP, INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE ONE YEAR ENDED DECEMBER 31, 1998 (AUDITED)
AND THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
FOR THE NINE MONTHS
FOR THE ONE YEAR ENDED
ENDED SEPTEMBER 30, 1999
DECEMBER 31, 1998 (UNAUDITED)
-------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) (739,974) (3,103,791)
Adjustments to reconcile net income (loss)
to net cash flows from operating activities:
Depreciation and amortization 10,498 54,202
Bad debt expense 503,839 6,498
Unrealized gain on short term investments (922) (18,459)
Stock based compensation 762,000 0
Issuance of common stock for professional services 0 1,238,505
Changes in operating assets and liabilities
(Increase) decrease in :
Accounts receivable (856,839) (472,796)
Prepaid expenses 0 (50,000)
Inventory (165,038) (188,533)
Increase (decrease) in :
Accounts payable and other liabilities 496,181 300,845
Income taxes payable 20,600 0
-------------------- -------------------
Total adjustments 770,319 870,262
-------------------- -------------------
Net cash (used in) provided by operating activities 30,345 (2,233,529)
-------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in :
Short term investments (14,375) (25,923)
Due from employees (5,800) 5,800
Property and equipment (37,821) (1,764,682)
Due from affiliate (5,945) 5,945
Rent deposit (8,119) (4,381)
Cash surrender value of life insurance (8,107) (4,529)
-------------------- -------------------
Net cash (used in) provided by investing activities (80,167) (1,787,770)
-------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 1,975 961,781
Purchase of treasury stock (23,534) (116,013)
Proceeds from issuance of common stock 177,800 1,628,942
Proceeds from issuance of preferred stock 0 1,500,040
Due to stockholder/ officer (18,436) 0
-------------------- -------------------
Net cash provided by (used in) financing activities 137,805 3,974,750
-------------------- -------------------
CHANGE IN CASH AND CASH EQUIVALENTS 87,983 (46,549)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 17,658 105,641
-------------------- -------------------
CASH AND CASH EQUIVALENTS - END OF YEAR 105,641 59,092
==================== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRIMFAST GROUP, INC.
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
FOR THE ONE YEAR ENDED DECEMBER 31, 1998 (AUDITED)
AND THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
Common Stock
and Common Additional Preferred
Stock to be Issued Paid-In Stock Issued Accumulated
SHARES Amount Capital SHARES Amount Deficit
---------- -------- ------------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1998 1,286,625 $ 1,287 (287) - - ($151,846)
Issuance of common stock for cash 63,924 64 187,736 - - -
Issuance of common stock in exchange to related
party in exchange for $40,000 debt 19,500 19 39,981 - - -
HLHK equity at August 12, 1998 817,749 818 441,083 - - (1,122,218)
Reclassification pursuant to recapitalization - - (1,122,218) - - 1,122,218
Common stock issued to employees 500 - - - - -
Common stock issued to attorney for services 5,000 5 (5) - - -
Common stock issued in exchange for debt of HLHK
principal stockholder 75,000 75 491,123 - - -
Issuance of common stock in exchange for
stockholder loans 70,358 70 126,574 - - -
Compensation to principal stockholder - - 762,000 - - -
Purchase of treasury stock at cost - - - - - -
Net income 1998 - - - - - (739,974)
---------- -------- ------------ ------ ------- ------------
Balance, December 31, 1998 2,338,656 $ 2,338 $ 925,987 - - ($891,820)
---------- -------- ------------ ------ ------- ------------
Equity financing - issuance of common stock for cash 1,058,005 1,058 1,659,817 - - -
Issuance of common stock in exchange for
consulting and other professional services 769,459 770 1,237,735 - - -
Issuance of common stock acquisition of Immmu and
Imcel. To be returned per rescission agreement. 235,000 235 925,077 - - -
Issuance of common stock to employees 150,358 150 95,247 - - -
Issuance of convertible debentures - - 250,000 - - -
Return of common stock in repayment of debt (50,000) (50) (399,950) - - -
Issuance of common stock held in escrow to
secure loan 23,000 23 199,790 - - -
Issuance of common stock for debt repayment 24,500 25 168,006 - - -
Repurchase of treasury stock at cost - - - - - -
Issuance of Preferred Stock - - 1,874,901 15,000 150 (375,011)
Net Loss, year to date as of September 30, 1999 - - - - - (3,103,791)
---------- -------- ------------ ------ ------- ------------
Balance, September 30, 1999 4,540,978 $ 4,549 $ 6,936,610 15,000 $ 150 ($4,370,622)
========== ======== ============ ====== ======= ============
Subscriptions Shares Treasury
Receivable Advanced Stock Total
----------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
BALANCE JANUARY 1, 1998 - - - ($150,846)
Issuance of common stock for cash - - - $ 187,800
Issuance of common stock in exchange to related
party in exchange for $40,000 debt - - - $ 40,000
HLHK equity at August 12, 1998 - - - ($680,317)
Reclassification pursuant to recapitalization - - - $ 0
Common stock issued to employees - - - $ 0
Common stock issued to attorney for services - - - $ 0
Common stock issued in exchange for debt of HLHK
principal stockholder - - - $ 491,198
Issuance of common stock in exchange for
stockholder loans - - - $ 126,644
Compensation to principal stockholder - - - $ 762,000
Purchase of treasury stock at cost - - (23,534) ($23,534)
Net income 1998 - - - ($739,974)
----------- ---------- ---------- -------------
Balance, December 31, 1998 - - ($23,534) $ 12,971
----------- ---------- ---------- -------------
Equity financing - issuance of common stock for cash - - - $ 1,660,875
Issuance of common stock in exchange for
consulting and other professional services (358,325) - - $ 880,180
Issuance of common stock acquisition of Immmu and
Imcel. To be returned per rescission agreement. - (925,312) - $ 0
Issuance of common stock to employees - - - $ 95,397
Issuance of convertible debentures - - - $ 250,000
Return of common stock in repayment of debt - - - ($400,000)
Issuance of common stock held in escrow to
secure loan - - - $ 199,813
Issuance of common stock for debt repayment - - - $ 168,031
Repurchase of treasury stock at cost - - (116,013) ($116,013)
Issuance of Preferred Stock - - - $ 1,500,040
Net Loss, year to date as of September 30, 1999 - - - ($3,103,791)
----------- ---------- ---------- -------------
Balance, September 30, 1999 ($358,325) ($925,312) ($139,547) $ 1,147,503
=========== ========== ========== =============
</TABLE>
<PAGE>
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
-----------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles and the rules and
regulations of the Securities and Exchange Commission for interim financial
information. Accordingly, they do not include all the information and footnotes
necessary for a comprehensive presentation of financial position and results of
operation.
It is management's opinion, however that all material adjustments (consisting of
normal recurring adjustments) have been made which are necessary for a fair
financial statements presentation. The results for the interim period are not
necessarily indicative of the results to be expected for the year.
For further information, refer to the consolidated financial statements and
footnotes included in the company's Form 10-SB, as amended for the year ended
December 31, 1998.
The financial statements are presented without comparable 1998 quarterly
information. The Company was not publicly traded in 1998 and systems, though
adequate to address annual audit needs, were not in place to allow for
extracting reliable quarterly information.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
-----------------------------------------------------------------------------
(A) Revenue Recognition
--------------------
Nutrition Cafe charges a monthly membership fee for access to order products at
discounted prices. Memberships are sold on a pay-as-you-go basis in one month
increments. Members choose whether or not to continue their membership each
month; no long term agreements are required. The membership fees are recognized
as revenue in the month they are paid. Effective January, 2000, the monthly
membership fees have been eliminated. Management believes the increased revenues
from allowing everyone who visits the site to place orders will offset the
decrease in revenue from membership fees.
Revenue for products ordered is recognized and an accrual for returns is posted
when the product is shipped. To date returns of products sold has been
immaterial. We believe the products we sell are of a high quality and our
customers are knowledgeable enough about the products they purchase to ensure
returns will continue to be immaterial. Therefore no accrual for estimated
returns has been made for these financial statements.
<PAGE>
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
Sales of our products offered through TrimFast, Inc. (weight loss bars, WCW
bars, and Max Impact supplements) are sold utilizing food brokers, distributors
and directly to vendors. We use brokers and distributors to identify new
vendors, all sales are made directly to the vendor with the distributor or
broker informed of any sales through their efforts. Because of this, we ship to,
invoice and receive payments directly from the end user our policy is to record
any returns against current sales. Due to the nature of the products offered,
and customers ordering product conservatively, we have experienced no material
product returns therefore no accrual for returns have been made in these
financial statements.
Revenue for the Cooler Group is earned through rental of water coolers and
delivery of water. A contract is signed for cooler rental and/or water delivery
service, and is invoiced monthly. Revenue is recognized for cooler rental each
month when invoiced and for water service based on usage when delivered.
(B) Accounts Receivable - Other
------------------------------
Components of A/R - Other is as follows:
Millennium - related party $259,558
Cash from rescission of IMMMU purchase 50,000
Stock held in escrow securing loan 199,790
Other 2,930
--------
$512,278
========
(B) Accounts Receivable - Other (Cont'd)
----------------------------------------
On May 26, 1999 the company placed in an escrow account 23,000 shares of its'
common stock valued at $199,790 to secure the loan to acquire Ice Cold Water,
Inc. (See note 7B) The shares will be returned to authorized when the loan is
satisfied.
The receivable from Millennium represents cash advances to an affiliated company
during the year. The balance at December 31, 1999 is $156,212.
(C) Inventory
---------
Components of inventory are as follows:
Finished Goods $320,296
Product Components 56,974
--------
Total $377,270
========
The Company performs periodic inspections of inventory to identify expired or
obsolete items. Any merchandise, which has past its expiration date, or has
been deemed obsolete by management, is removed from inventory and written off.
<PAGE>
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION - (Cont'd)
--------------------------------------------------------------------------------
(D) Advertising Costs
------------------
Advertising costs are expensed as incurred unless a direct measurable response
exists. All advertising related costs have been recognized as expense in these
Interim Financial Statements.
(E) Software Development
---------------------
The Company has contracted with an outside software development firm to develop
software that runs the website for Nutrition Caf . All costs associated with the
development of the software have been capitalized while any costs associated
with content have been expensed.
NOTE 3 - ACQUISITION OF BUILDING
-------------------------------------
On July 30, 1999 the Company exercised its option to purchase the facility
located at 2555 Blackburn Street, Clearwater, FL for $1,200,000. The property
is used as the sales, storage and distribution facility for Nutrition Caf , Inc.
The funds were raised through the sale of 15,000 shares of Class A Preferred
Stock and 223,681 warrants to purchase common stock. (See Note 6)
NOTE 4 - WCW LICENSE AGREEMENT
-----------------------------------
On June 2, 1999 the Company signed a license agreement with World Championship
Wrestling, Inc (WCW) to utilize certain names, likeness, characters, trademarks
and/or copyrights in connection with the manufacture, distribution, advertising,
promotion and sale of certain articles of merchandise.
The license extends through December 2002. The agreement includes a
non-refundable advance of $50,000 which, has been capitalized as prepaid expense
and will be amortized over the life of the agreement. Terms of the agreement
include a royalty payment of 6% of net sales with the following guarantees:
$100,000 Due No Later Than 12-31-99
$100,000 Due No Later Than 6-30-00
$100,000 Due No Later Than 9-30-00
$100,000 Due No Later Than 12-31-00
$100,000 Due No Later Than 6-30-01
<PAGE>
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
NOTE 5 - CONVERTIBLE DEBENTURE
----------------------------------
On June 14, 1999 the Company issued $1,000,000 in Convertible Debentures in
exchange for $1,000,000 in cash. The agreement, which contains a beneficial
conversion feature, stipulates that the debentures may be converted as of the
closing date at the lower of $8.50 or 80% of the fair market value of the common
stock on
the conversion date resulting in the recognition of $250,000 interest expense at
closing.
The Company accounts for the debentures in accordance with EITF 98-5 "Accounting
for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios." Accordingly, the Company has allocated a portion
of the proceeds to additional paid-in capital equal to the intrinsic value of
the features as computed on the commitment date, resulting in recognition on the
closing date of $250,000 interest expense.
NOTE 6 - EQUITY TRANSACTIONS
--------------------------------
Sale of Preferred Stock and Warrants
On July 13, 1999 we issued 155,000 restricted shares of our common stock for
$4.00 each to Aryeh Trading. Under this agreement, the Company is obligated
repurchase these shares for $8.25 each with a $0.25 per share per month
increase in price pursuant to an escalation clause in the agreement. These
shares were issued pursuant to Section 4(2) of the Securities Act of 1933.
We believed section 4(2) was available because there was no general
solicitation or advertising used in connection with the offering and the
transaction did not involve a public offering.
The following shares were issued in consideration other than cash:
Pursuant to various agreements we issued the following shares of our restricted
common stock:
On July 7, 1999, we issued 10,000 shares of our common stock in exchange for
Legal Services rendered for the Company. On July 19, 1999, we issued 30,000
shares of our common stock for consulting services rendered to the Company. In
July 1999 we received 50,000 shares of our common stock from a principal
stockholder in exchange for $400,000 owed to the company. These shares were
issued pursuant to Section 4(2) of the Securities Act of 1933. We believed
section 4(2) was available because there was no general solicitation or
advertising used in connection with the offering and the transaction did not
involve a public offering.
On August 3, 1999, we issued 10,000 share of our common stock in exchange for
Business Consulting Services and 10,000 shares of our common stock in
consideration for Legal Services rendered to the Company. These shares were
issued pursuant to Section 4(2) of the Securities Act of 1933. We believed
section 4(2) was available because there was no general solicitation or
advertising used in connection with the offering and the transaction did not
involve a public offering.
<PAGE>
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
The aforementioned issuances and sales were made in reliance upon the exemption
from registration contained in Section 4(2) of the Act. The purchasers of the
securities described above acquired them for their own account and not with a
view to any distribution thereof to the public. The shares which have been
issued pursuant to Section 4(2), bear legends stating that the securities may
not be offered, sold or transferred other than pursuant to an effective
Registration Statement under the Act, or an exemption from such registration
requirements. The Registrant will place stop transfer instructions with its
transfer agent with respect to all such securities.
The Company entered into several consulting agreements with various individuals
whereby the Company was to be provided with advice with regard to corporate
strategy and business development including targeting of acquisitions. The
Company advanced the consultants 490,000 shares in 1999 but minimal services as
anticipated in the consulting agreements were performed in 1999 and no services
were performed in 1998. Therefore on June 30, 1999 the consulting agreements
were rescinded and the Company offered the consultants the restricted shares at
a price of $0.25 per share resulting in a subscription receivable. The Company
expects to receive the payment in the form of invoices for prior services
rendered under the rescinded consulting agreements. As of the date of this
report invoices for $15,625 has been received. When an invoice is received, the
Company recognizes consulting expense for all shares issued based on the fair
market value of the stock on the grant date.
In July 1999, we issued 15,000 Class A convertible preferred shares and 223,881
warrants. Cranshire Capital purchased 5,000 preferred shares and 74,627
warrants for consideration of $300,010. Dotcom Fund purchased 3,000 preferred
shares and 44,776 warrants for consideration of $500,010. Keyway Investments
purchased 5,000 preferred shares and 74,627 warrants for $500,010. Robert
Productions, Inc. purchased 2,000 preferred shares for consideration of
$200,010. The warrants are exercisable at any time until July 16, 2002 at an
exercise price of $10.00 per warrant. The Company relied upon the exemption from
registration provided in Section 4(2) of the Act. We believed section 4(2) was
available for the issuance of the preferred shares and warrants because there
was no general solicitation or advertising used in connection with the offering
and the transaction did not involve a public offering. As a result of accounting
for the beneficial conversion feature, the Company charged a $375,011 dividend
to retained earnings on the issuance date. (See Note 3)
During the period ended September 30, 1999 the Company issued 108,000 warrants
(i.e., stock options) to certain consultants and other service providers of the
Company.
The Company applies SFAS 123 for warrants and options issued to consultants and
other service providers. For financial statement disclosure purposes and for
purposes of valuing these stock options, the fair market value of each stock
option granted was estimated on the date of grant using the Black-Scholes
Option-Pricing Model in accordance with SFAS 123 using the following
weighted-average assumptions: expected dividend yield 0%, risk-free interest
rate of 5.3%, volatility 70% and expected term of one year. Accordingly,
professional and consulting fees of
<PAGE>
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
$413,780 was charged to operations in 1999. The deferred tax asset of $140,685
resulting from the professional and consulting fees of $413,780 was fully offset
by a valuation allowance at December 31, 1999.
A summary of the options issued to consultants as of September 30, 1999 is
presented below:
<TABLE>
<CAPTION>
Number of Weighted Average
Options Exercise Price
--------- -----------------
<S> <C> <C>
Stock Options
Balance at beginning of period - $ -
Granted 108,000 $ 4.55
Exercised - -
Forfeited - $ -
--------- -----------------
Balance at end of period 108,000 $ 4.55
========= =================
Options exercisable at end of period 108,000 $ 4.55
Weighted average fair value of options
granted during the period 108,000 $ 3.83
</TABLE>
The following table summarizes information about stock options outstanding at
September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------------------------
Number Weighted
Outstanding Average Weighted Number Weighted
Range Of At Remaining Average Exercisable Average
Exercise September 30, Contractual Exercise At September Exercise
Price 1999 Life Price 30, 1999 Price
<S> <C> <C> <C> <C> <C>
$ 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
============= ============
</TABLE>
NOTE 7 - ACQUISITIONS
------------------------
(A) Acquisitions of Subsidiaries and Subsequent Rescission
----------------------------------------------------------
On March 18, 1999 the Company acquired IMMMU, Inc. ("IMMMU") and IMMCEL
Pharmaceuticals, Inc. ("IMMCEL"), two companies related through common
stockholders, in a transaction accounted for as a purchase. Under terms of the
agreement, 235,000 shares of the Company's common stock, $50,000 in cash and an
option agreement for shares of
<PAGE>
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited
the Company's common stock exercisable based on stipulated Company performance
criteria were exchanged for all of the issued and outstanding capital stock of
IMMMU and IMMCEL. Subsequently, the Company entered into a rescission agreement
of the purchase. Activity from IMMMU and IMMCEL are not part of these
consolidated statements. The common stock shares are recorded as "Common Shares
Advanced" and deducted from stockholder equity and the $50,000 is recorded in
Accounts Receivable - Other. The Company incurred a loss of $94,225 from
operating the companies during 1999 which is recorded in Accounts Receivable -
Other with a reserve for 100% recorded as bad debt.
(B) Asset Accumulation
-------------------
On May 24, 1999 the Company acquired certain assets of Ice Cold Water Co., Inc.
("ICW") including certain receivables, inventory, property and equipment, a
customer list and the name "Ice Cold Water" and all other intellectual property
rights associated with the name. Under terms of the agreement, the Company
acquired the assets for $20,000 in cash and a $100,000 promissory note at 8.5%
per annum which is due in four monthly installments of $25,000 plus accrued
interest, commencing June 10, 1999. 23,000 shares of the Company's common stock
were reserved in an escrow account to be released to ICW in the case of default
of payments. The Company then formed a new subsidiary, The Cooler Group and
transferred these assets into it. A balance of $30,406 remains outstanding as of
September 30, 1999.
NOTE 8 - LITIGATION
----------------------
In 1999 the Company initiated a legal proceeding against a former major customer
to collect amounts receivable from that customer aggregating approximately
$535,000 at December 31, 1998. Such receivable related to products sold to that
customer during 1998 that were voluntarily recalled by the Company, but never
returned by the customer. As of December 31, 1998, it was management's assertion
with regard to this matter that since the product was never returned to the
Company, and is believed to have been resold by the customer, a successful
outcome in favor of the Company was possible. The Company has therefore written
off $267,240 or fifty percent of the total receivable as of December 31, 1998.
Subsequent to the date of these financial statements, management does not expect
to receive any further payments of this customer and therefore decided to write
off the balance reduced by payments received during January, 1999.
In early 1999, pursuant to a voluntary arrangement with the Food and Drug
Administration, the Company's product, Revivarant, was recalled and removed from
sale. Since the time of the recall, the Company has been subject to five known
lawsuits and an additional three consumer-protection claims relating to consumer
use of the product. As of the date of this report, only one lawsuit has
specified a dollar amount, that being, $400,000 of compensatory damages and
$350,000 of punitive damages. All lawsuits have been referred by management to
the insurance carrier of our third party manufacturer, however, the Company has
received notice from the insurance carrier denying all claims. Management
intends to contest the claim denials. The Company obtained its own insurance
policy in May 1999 and believes it would not be covered under its own policy for
these prior
<PAGE>
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
occurrences. With regard to any punitive damage claims, the Company intends to
vigorously
oppose any factual basis for imposition of punitive damages based upon research
and efforts made prior to the distribution of the Revivarant product to
determine its safety. The Company's management and outside legal counsel are
unable to evaluate and determine the likely outcome of each cause of action.
Accordingly, pursuant to the Financial Accounting Standards Board, Statement of
Financial Accounting Standards No. 5, no liabilities have been accrued as of
September 30, 1999 relating to the above matters. Any future liabilities
required to be recorded pursuant to SFAS 5 will be recorded gross of any
expected insurance recovery pursuant to SAB5:Y. The above litigation related to
Revivarant may have an adverse effect on the Company's results of operations and
financial condition.
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.
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 canceled
by the Company while still validly owned by the Plaintiff. The Plaintiff has
demanded the removal of the stop transfer order from their share certificates or
alternatively the Company re-issue new share certificates. The action also
alleges a consulting agreement for which the Company has not tendered the
required consideration of 270,000 shares of the Company's common stock. The
action also seeks $100,000 for breach of fiduciary duty and $10,000,000 in
punitive damages. An adverse judgment may have an adverse affect on the
Company's results of operations and financial condition.
A lawsuit filed against the Company, its Chief Executive Officer, principal
stockholder and certain affiliates demanding an excess of $790,000 in
compensatory and punitive damages, alleges that the plaintiff had purchased
approximately 22,000 shares of the Company's common stock for approximately
$77,000, but has not received the same. As of May 3, 2000 settlement
negotiations are ongoing. An adverse judgment of this litigation may have an
adverse effect on the Company's results of operations and financial condition.
<PAGE>
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
The Company is subject to various other lawsuits, investigations and claims
primarily relating to amounts due to vendors which, in the opinion of
management, arise in the normal course of
conducting Company business. Appropriate amounts have been accrued at September
30, 1999. In the opinion of the Company's management, after consultation with
outside legal counsel, the ultimate disposition of such remaining proceedings
will not have a materially adverse effect on the Company's consolidated
financial position or future results of operations.
NOTE 9 - SUBSEQUENT EVENTS
------------------------------
A. Contributed Capital
On February 1, 2000 Michael Muzio contributed 500,000 shares of restricted stock
to the Company. The shares were valued at the $7.50 based on the quoted trading
price on the date of contribution.
B. Acquisition of Nutrition Clubstores, Inc.
On March 20, 2000 we acquired from Nutrition Superstores.com, Inc. all of the
issued and outstanding shares of common stock in its wholly owned subsidiary,
Nutrition Clubstores, Inc. The purchase price was $150,000 cash plus 570,000
shares of our common stock valued at $4.80 per share based average quoted
trading price a few days before and after the announcement of the transaction
based on EITF 95-19 for a total of $2,886,000. In addition, for a period
beginning three months following the Closing and continuing for a period of
twelve months thereafter, the Seller shall receive a royalty equal to three
percent (3%) of the gross sales generated by the kiosks operated by Nutrition
Clubstores, Inc. The number of shares issuable to the Seller of the Nutrition
Clubstores, Inc. is subject to adjustment based upon the audited financial
statements, which are to be provided by the sellers of Nutrition Clubstores,
Inc. To the extent that the Nutrition Clubstores audited financial statements
for February 28, 2000 show a net worth which is less than 85% of the unaudited
financial statements, for every $5.00 reduction or portion thereof in net worth,
Seller shall be entitled to receive one less share of common stock.
The acquisition will be accounted for under the purchase method. Subject to the
completion of the Nutrition Clubstores audit, we anticipate allocating the
purchase price of this acquisition as follows: inventory $410,885, fixed assets
$367,848, goodwill $2,335,004 accounts payable $162,422 and notes payable
$65,315.
The goodwill balance will be amortized over 60 months. The Company will review
the audited financial statements when received and adjust our books accordingly.
The $150,000 cash used in the acquisition was advanced to the Company by the
principal stockholder. We believe the acquisition of Nutrition Clubstores will
have an immediate positive impact on the Company's cashflows and revenue stream.
Prior to our acquisition, Nutrition Clubstores had a negative cashflow of
approximately $10,000 per month. However, during our analysis of the company, we
identified several areas where we believe they were operating
<PAGE>
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
inefficiently and implemented these changes immediately upon closing the deal.
Based on our changes Nutrition Clubstores had a positive cashflow of
approximately $5,000 for the eleven days we owned it in March. We have
continued to implement other cost cutting measures including promoting our
products in each location to increase margins and further changes to the
management structure in each location which should continue to increase the
positive cashflow each month.
C. Convertible Debenture.
On April 25, 2000 the Company entered into a convertible debenture agreement
with Gibralt U.S., Inc. a Colorado Corporation and FAC Enterprises, Inc. a
Pennsylvania Corporation for a total of $3,000,000 due July 13, 2001 with
interest at 12%. The proceeds will be used to open additional Nutrition
Clubstores and produce and air the commercial spots for our WCW Ultra Energy
Bars. On April 28, 2000 the first $1,000,000 was wired to our account.
<PAGE>
TRIMFAST GROUP, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
FINANCIAL STATEMENT PRESENTATION
The September 30, 1999interim financial statements are presented without
comparable 1998 quarterly information. We were not publicly traded in 1998 and
systems, though adequate to address annual audit needs, were not in place to
allow for extracting reliable quarterly information. We have presented the
comparison with adjustments from the year end 1998 numbers.
RESULTS OF OPERATIONS.
December 31, 1997 and 1998 as compared to September 30, 1999
Sales for the nine months ended September 30, 1999 were $581,337 as compared to
$1,925,332 for the year ended December 31, 1998 ($1,443,999 adjusted
proportionately for the nine months ended September 30, 1998 and $22,338 as of
December 31, 1997). The significant decline in sales from 1998 to 1999 is
primarily attributable to our decision to discontinue the sale of Revivarant, a
muscle replenishment supplement, which accounted for approximately $1.4 million
of revenues during 1998. This decision was initiated by an industry wide
investigation by the Food and Drug Administration into the active ingredient in
Revivarant.
Our salaries and compensation increased from $31,633 in 1997 to $993,773 in 1998
to $505,372 for the nine months ended September 30, 1999 for several reasons.
The 1998 amount included $762,000 non-cash stock based compensation expense.
Our 1999 salaries include increased expenses of support staff. Specifically, we
added two administrative assistants, upgraded our accounting position to Chief
Financial Officer and added a salesman to our staff. In addition, during 1999 we
added two new subsidiaries, Ice Cold Water and Nutrition Cafe, which account for
approximately 40% of the increased salary reported. Moreover, the employment
market in Tampa has been highly competitive in 1999 resulting in our company
paying higher wages to all employees to retain and recruit qualified employees.
Management expected that the introduction of the IMMCEL and IMMMU product lines
would add to revenues. However, customer acceptance proved disappointing and the
prior owner, and key employee refused to honor his contractual commitments to
manage the newly added subsidiaries. As a result, we have rescinded our
agreement with the prior owners of IMMMU and IMMCEL and will focus on the
expansion of our own line of nutritional supplements. All rights title and
interest to the IMMMU/IMMCEL product lines will revert back to their prior
owners, all consideration paid or received will be returned and any profits or
losses generated from the operation on IMMMU and IMMCEL will be allocated to its
prior owners. We recorded in the "Receivable - other" account the loss from
operating IMMMU and IMMCEL for the period of time we managed those companies. We
then recorded a 100% reserve against the balance at September 30, 1999. As of
December 31, 1999, the receivable and reserve balances were written off.
Management believes that a significant boost to its revenues will be generated
from its licensing agreement with World Championship Wrestling ("WCW"), once
other wrestling stars agree to promote our energy bars. We intend to sell high
nutrition, energy bars with the WCW logo and images of the various wrestling
personalities. Both food brokers and retail stores have shown tremendous
interest in the product. Although we have made shipments to small
retailers, we anticipate that our shipments to large retailers will commence
with the launch of our national advertising campaign, which is tentatively
scheduled to begin in May. While there can be no assurance that the product will
meet anticipated demand, management believes that the sale of the WCW energy
bars will be a significant source of revenues for the Company.
With the acquisition, formation and expansion of business activities during
1999, operating expenses increased significantly. Salaries and compensation
total $31,633 and $983,773 for the year ended December 31, 1997 and 1998
respectively, as compared to $505,372 for the nine months ended September 30,
1999. New employees had to be hired to handle the increased business activities
of the Company.
For the nine months ended September 30, 1999, we recorded $1,467,900 in
professional fees. A significant portion of this amount is non-cash expense,
representing the issuance of common stock to certain professionals in exchange
for professional services. Management anticipates that professional fees will
decline significantly in the future.
Selling general and administrative expenses were $92,565 and $423,289 for the
years ended December 31, 1997 and December 31, 1998 respectively, as compared to
$623,451 for the nine months ended September 30, 1999. Approximately $175,000 of
this increase was attributable to advertising for NutritionCafe.
Approximately $250,000 of the interest expense of $354,569 is attributable to
the intrinsic value of the convertible debenture executed by the Company.
Net loss for the year ended December 31, 1997 was $151,846. Net loss for the
year ended December, 31 1998 was $739,974. Loss before income taxes for the
year ended December 31, 1998 was $719,374. We have generated a net loss of
$3,478,802 for the nine months ended September 30, 1999 or net loss of $0.87 per
share.
LIQUIDITY AND CAPITAL RESOURCES.
December 31, 1997 & 1998 as compared to September 30, 1999.
Total cash and cash equivalents as of September 30, 1999 were $100,312 as
compared to $120,938 as of December 31, 1998 and $17,658 as of December 31,
1997, a decline of approximately 17% from the period ending December 31, 1998 to
the period ending September 30, 1999.
Trade receivables were $4,889 at December 31, 1997 and $357,889 at December 31,
1998, including $267,240 related to Cutting Edge that was subsequently written
off, but declined to $318,407 for the period ending September 30, 1999. Our 1998
trade receivables also included $11,745 related to IMMMU and IMMCEL, an amount
for which we maintained adequate receivables and was fully reserved to cover an
allowance for bad debt.
We recorded $503,839 in bad debt expense in December 1998, $267,240 of which was
due to unknown financial difficulties experienced by Cutting Edge. The bad debt
expense of $267,240 attributable to Cutting Edge represented 50% of the
receivable balance due from Cutting Edge at December 31, 1998 and was due to the
Cutting Edge's failure to return product we sold them. We recorded the bad
debt expense relating to Cutting Edge in December 1998 and ceased doing business
with them at that time. In addition, the bad debt expense was due to the
bankruptcy of another customer, Dynamic Health Concepts. During 1998 a total of
two (2) customers, Cutting Edge and Dynamic Health Concepts, accounted for
approximately seventy-two percent (72%) of our sales.
Our decision to pull Revivarant from the market impacted our short-term income
potential due to the large percent of 1998 revenues from this product. During
1999 we have made several decisions, which we believe will help replace the lost
revenue. Specifically, we developed our Max Impact line of supplements and
packaged them in a daily package of three pills each, which are marketed to
convenience stores.
Additionally, we signed an agreement with the WCW to produce and market the
ultra energy bars, which include the likenesses of Hulk Hogan, Bill Goldberg and
Randy "Macho Man" Savage. Additionally, during 1999 we increased our usage of
outside brokers for sales to independent retail locations and hired sales
personnel for direct marketing to our target industries. The result of these
changes has been the elimination of our reliance on a few large customers for
our revenue. We believe these changes will position us for increased revenues in
the near future.
Inventory was $23,699 at December 31, 1997, increased to $188,737 at December
31, 1998 and to $377,270 at September 30, 1999. This increase in inventory is
attributable to the launch of Nutrition Cafe and the inventory that we are
required to carry to meet customer orders.
Total current assets were $46,246 at December 31, 1997 and $679,309 at December
31, 1998 and increased approximately 40% to $1,308,267 at September 30, 1999
Property and equipment increased from $5,481 on December 31, 1997 to $33,403 on
December 31, 1998 and to $1,459,270 on September 30, 1999. This increase is due
primarily to our purchase of the facility, which houses our warehouse operations
for Nutrition Cafe, and the equipment purchased to operate this facility. The
$228,705 attributable to software development represents our investment in the
Nutrition Cafe website software.
We also experienced a significant increase in liabilities. Accounts payable
increased from $14,873 on December 31, 1997 to $625,767 on December 31, 1998 and
to $926,612 on September 30, 1999. In addition, we issued a convertible debt
instrument in the amount of $1,000,000 in 1999. The proceeds raised from this
debt offering were used to purchase the warehouse facility.
<PAGE>
Management believes that we have sufficient revenue and reserves to finance
ongoing business activities for the 12 months ending March 31, 2001. However,
any judgment or claim in favor of a claimant regarding Revivarant could have a
materially adverse effect on our operations, including that we may be unable to
continue in business.
Part II. Other Information
Item 6 Exhibits
Exhibit 27
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TrimFast Group, Inc.
/s/ Michael Muzio
----------------------------
BY: Michael Muzio, President
Dated: This 5th day of June, 2000
<PAGE>
