UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20529
FORM 10-SB
Amendment #2
TRIMFAST GROUP, INC.
(Name of Small Business Issuer)
NEVADA 88-0367136
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 S. Harbour Island Blvd. Suite 780, Tampa, Florida 33602
(Address of principal executive offices)
(813) 275-0050
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
Title of each class to Name of Each Exchange
be registered
None None
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 Par Value
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TABLE OF CONTENTS
Part I Page
Item 1. Description Of Business ........................................ 2
Item 2. Management's Discussion And Analysis Or Plan Of Operation ...... 19
Item 3. Description Of Property ........................................ 22
Item 4. Security Ownership Of Certain Beneficial Owners And Management . 23
Item 5. Directors, Executive Officers, Promoters And Control Persons ... 24
Item 6. Executive Compensation .......................................... 25
Item 7. Certain Relationships And Related Transactions .................. 26
Item 8. Description Of Securities ....................................... 27
Part II
Item 1. Market For Common Equity And Related Stockholder Matters ....... 35
Item 2. Legal Proceedings .............................................. 36
Item 3. Changes In And Disagreements With Accountants .................. 38
Item 4. Recent Sale Of Unregistered Securities ......................... 38
Item 5. Indemnification Of Directors And Officers ...................... 41
Part III
Index To Exhibits ....................................................... 45
Part F/S Financial Statements ........................................... 46
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References in this document to "us," "we," or "the Company" refer to
TrimFast Group, Inc., its predecessors and its subsidiaries.
ITEM 1. DESCRIPTION OF THE BUSINESS.
Business Development.
We were incorporated in the State of Nevada on February 23, 1987 as Kendrex
Systems, Inc. On November 18, 1996, we reverse split our common stock. We issued
one (1) new share of our common stock in exchange for five (5) outstanding
shares of our common stock.* On the same day, we entered into a reverse
acquisition with HLHK World Group, Inc. (hereinafter "World Group"), a Nevada
corporation, and subsequently changed our name to HLHK World Group, Inc. World
Group was in the business of telecommunications, an area in which we wished to
pursue the available opportunities. Pursuant to the terms of this acquisition,
we issued 6,000,000 of our post-split common shares to the shareholders of World
Group plus 250,000 of our post-split shares as finder's fees. As a result of
this transaction, World Group became our wholly owned subsidiary.
On August 12, 1998, we acquired TrimFast, Inc., which was incorporated in the
State of Florida on April 28, 1991, in a common stock for common stock exchange.
Pursuant to the terms of this merger, we issued 1,370,049 shares of our common
stock to the shareholders of Trimfast, Inc. As such, the shareholders of
Trimfast, Inc. obtained control of our Company, and Trimfast, Inc. became our
wholly owned subsidiary. On September 4, 1998, we changed our name to TrimFast
Group, Inc. We continued the operations of Trimfast, Inc. As such, the
accounting and disclosure throughout this document reflects Trimfast, Inc. as
the surviving corporation.
Prior to and at the time of this transaction, Trimfast, Inc. was engaged in the
business of formulating and distributing dietary and vitamin supplements. We
entered into the merger with Trimfast, Inc. because we believed that the
nutrition and vitamin supplement field represented a business opportunity for
us. On December 20, 1998 we reverse split our common stock. We issued one (1)
new share of our common stock in exchange for ten (10) outstanding shares of our
common stock.*
(* Both stock splits are reflected in the numbers and calculations throughout
this document unless otherwise indicated.)
On September 4, 1998, we incorporated Body Life Sciences, Inc. (hereinafter
"Body Life"), a Florida corporation, as a wholly owned subsidiary of Trimfast,
Inc. We formed this subsidiary in order to expand our business by offering
products under the Body Life trade name.
On March 18, 1999, we acquired IMMMU, Inc. (hereinafter "IMMMU"), a Delaware
corporation, and IMMCEL Pharmaceuticals, Inc. (hereinafter "IMMCEL"), a New York
corporation. Both companies were engaged in the business of developing and
marketing nutritional supplements manufactured by third parties. Pursuant to the
terms of this acquisition, IMMMU and IMMCEL became our wholly owned
subsidiaries. We issued 235,000 shares of our common stock, $50,000 in cash, an
option agreement based upon performance criteria and an employment agreement
pursuant to the terms of the agreement.
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We rescinded these acquisitions effective November 1, 1999. In accordance with a
recission agreement dated October 23, 1999 the following consideration was
returned and delivered on November 30, 1999, as follows: (i) from our company to
the prior shareholders of IMMMU and IMMCEL, Leo Ehrlich, Helenka Bodner and
Joseph Levi, stock certificates reflecting 200 shares each of IMMMU and IMMCEL,
representing all of the outstanding shares of those corporations; (ii) to our
company, stock certificates reflecting 150,750 shares, 60,750 shares and 13,500
shares of our restricted common stock, respectively from prior IMMMU and IMMCEL
shareholders, Bodner, Ehrlich and Levi. In addition, on November 12, 1999, the
$50,000 cash payment was returned to us by IMMMU shareholders Bodner, Ehrlich
and Levi and on November 15, we received the final 10,000 free trading shares of
our common stock from Moisha Bodner.
We had a verbal agreement with Aryeh Trading, a third party investment group,
for the purchase of 155,000 shares of our stock. Aryeh Trading purchased the
shares; however the agreement provided that if the IMMMU/ IMMCEL acquisitions
were not completed, we had the option to repurchase the shares solely at our
discretion. We have not exercised that option.
From our operations of IMMMU/IMMCEL we had a loss of $88,830. We maintained
sufficient reserves to cover this loss from our retained earnings. To date, we
have received no amounts from IMMMU/IMMCEL to reimburse us for such loss.
We initially believed that the acquisitions of these companies would enhance our
product lines. However, we were unable to obtain audited financial statements
for the companies. In addition, these companies were unable to obtain audited
financial statements. As such, our management deemed it in our best interest to
rescind the transactions. We rescinded the transaction because:
i) These companies may have had undisclosed liabilities;
ii) We were unable to verify inventory; and
iii) We were unable to verify previous sales.
As a result of the rescission, we have no formal agreement to sell IMMMU and
IMMCEL products in the United States. This rescission has reduced our product
line by approximately 18 products. We do not feel this will have a materially
adverse affect on our operations given the short period of time in which these
companies were our subsidiaries.
Despite the above, management believed that the products of IMMMU would enhance
our product line. Our management deemed it in our best interest to enter into a
distribution agreement with IMMMU to sell their products in Canada. On November
1, 1999, we entered into an exclusive distributor agreement with IMMMU, Inc.
Such agreement provides that IMMMU appoints us as the exclusive distributor of
products in Canada. Under the agreement, we may market, sell, and distribute
IMMMU products pursuant to a pricing structure set forth by IMMMU. The
compensation provision for the Canadian distribution agreement is verbal and
requires us to pay IMMMU 12% of our sales of IMMMU products. The agreement
includes provisions that we will be indemnified by IMMMU for any loss, damages,
claim or settlement that may arise out of any defect, known or unknown, in any
of
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the products at the time of manufacture, assuming no material alteration of the
product occurred after manufacture. There is no assurance that IMMMU will have
sufficient assets or insurance coverage to indemnify us against any such
liabilities. The agreement is for a term of November 1, 1999 through December
31, 2001 with automatic renewals. Either party may terminate the agreement on
thirty days written notice.
On April 21, 1999, we formed a wholly owned subsidiary Nutrition Cafe, Inc., a
Florida Corporation which operates a website NutritionCafe.com. The website is
designed to provide nutritional information, provide links to other informative
sites and to market and sell our products.
On May 24, 1999, we acquired certain assets of Ice Cold Water, Inc. (hereinafter
"Ice Water"), a Florida corporation incorporated on August 7, 1997, including
certain receivables, inventory, property, equipment, a customer list and the
name "Ice Cold Water" and all other intellectual property rights associated with
the name. We acquired these assets for $20,000 cash and a promissory note in the
amount of $100,000 at 8.5% per annum due in four monthly installments of $25,000
plus accrued interest. The installment payments commenced on June 10, 1999. The
promissory note was secured by 23,000 restricted shares of our common stock and
held in escrow. The acquisition agreement provides in the event of our default
upon the terms of the agreement, we must release to Ice Water an amount of our
restricted stock equal to the outstanding principal and accrued interest
balance. On November 22, 1999, the escrow agent was notified of a default upon
the promissory note of $30,881 and released 7,323 of our shares to satisfy the
note. At the time of this transaction, Ice Water was engaged in the business of
selling bottled water and leasing water coolers in Tampa, Florida and the
surrounding metropolitan areas. We entered into this transaction in order to
expand our product line to include water products, which would also complement
our existing line of nutritional supplements.
On November 7, 1999 Perfumania.com, Inc. signed a letter of intent to acquire
Nutrition Cafe.com. The letter of intent provides proposed terms in which
Perfumania.com., Inc. would acquire NutritionCafe.com from our company. The
agreement provides that our company would sell to Perfumania.com, Inc. all of
the assets of NutritionCafe.com, including, but not limited to, goodwill,
trademarks, trade secrets, other proprietary information, domain trade
registrations, computer software and hardware and inventory. Perfumania.com,
Inc. would provide the Company with shares of their common stock valued at
$1,000,000 and $500,000 in cash consideration for the acquisition of
NutritionCafe.com.
On November 30, 1999, we received approval from the Deutsche Borse AG for our
stock to start trading on the Third Segment of the Frankfurt Stock Exchange. Our
common stock trades under the German trading symbol "TFT" .
On December 23, 1999, our company entered into a letter of intent to sign a
licensing agreement with Marvel Characters, Inc. (Marvel Comics) granting
Trimfast a license to market Spiderman's Children's Chewable Multi-Vitamin and
Mineral Supplement.
Business Description.
I. Nutritional Product Line Activities.
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We are engaged in the nutraceutical business. We formulate, distribute and
market natural dietary supplements and health and fitness products through
wholesale and retail outlets. Third parties do all manufacturing of our
products. We also distribute bottled water through our subsidiary Ice Water.
We sell approximately thirty-three (33) varieties of vitamins, nutritional
supplements, weight loss and muscle growth supplements and food supplements
under brand line names TrimFast, Body Life Sciences and IMMMU. TrimFast and Body
Life are our own product lines. We sell the IMMMU products through an exclusive
distributor agreement. (See this ITEM above). Products are formulated in
vitamins/minerals combinations with varying potency levels. They are offered in
soft-gel, two-piece capsule, chewable, and liquid and powder forms to
accommodate various consumer preferences.
There can be no assurances that any of our products will produce the desired
results since the consuming population is diverse in their physical,
psychological and mental makeup and differs in their metabolic rates, genetic
composition and other factors and hence there is no scientific basis for
believing that any of the desired results will be produced. Further, there have
been occurrences where ingredients in certain nutritional supplements have been
determined to be harmful when consumed by humans. We believe that our products
do not currently contain any ingredients not safe for human consumption, however
there is no assurance this assumption is correct. (See PART II, ITEM 2. Legal
Proceedings). Any product liability claims made against us could have an adverse
affect on our business. Many of the ingredients in our products are vitamins,
minerals, herbs and other substances for which there is not a long history of
human consumption. In addition, although we believe all of our products to be
safe when taken as directed by us, there is little experience with human
consumption of certain of these innovative product ingredients in concentrated
form. Accordingly, no assurance can be given that our products, even when used
as directed, will have the effects intended or be safe for human consumption.
However, because we are highly dependent upon consumers' perception of the
safety and quality of our products as well as similar products distributed by
other companies (which may not adhere to the same quality standards as we do),
we could be adversely affected in the event any of our products or any similar
products distributed by other companies should prove or be asserted to be
harmful to consumers. In addition, because of our dependence upon consumer
perceptions, adverse publicity associated with illness or other adverse effects
resulting from consumers' failure to consume our products as we suggest or other
misuse or abuse of our products or any similar products distributed by other
companies could have a material adverse effect on the results of our operations
and financial condition.
We, like any other retailer, distributor and manufacturer of products that are
designed to be ingested, face an inherent risk of exposure to product liability
claims in the event that the use of our products results in injury. Such claims
may include, among others, that our products contain contaminants or include
inadequate instructions as to use or inadequate warnings concerning side effects
and interactions with other substances. With respect to product liability
claims, we have $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
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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.
Specific Products.
The TrimFast Dietary Supplement, formerly named Herbal Plus, was introduced in
January of 1999. It is an all-natural herbal formula marketed weight loss
supplement. It is sold by distributors and in the following health food stores
and weight loss centers: Ansley's Natural Marketplace, Beehive Natural Foods of
Miami, The Honey Tree, Health Quest, Natural Nutrition, Physicians Weight Loss
Clinics and Supplement Warehouse. TrimFast was designed to assist in curbing
appetite and increasing metabolism to affect the fat burning process. In
addition, TrimFast was designed to increase energy and reduce water retention.
However, there can be no assurances that this product will have such effects
uniformly upon all users since the consuming population is diverse from the
standpoint of various metabolic rates. The TrimFast product has also been used
in combination with St. Johns Wort to provide the mental drive in implementing
the positive effects of St. Johns Wort - reducing stress and nervous tension and
causing an alert mood. This product is packaged in a one-month supply bottle.
Immune Blast, introduced in July of 1998, is an all-natural immune system
enhancer designed to aid in the prevention of colds and flu. The product is
marketed to the distributors: Abyss Distributors and Nutraline Distributors.
Max Impact is an entire product line targeted to convenience stores and gasoline
outlets. The products include all-natural packages, thirty count bottles and
daily supply packages of St. John's Wort, Trim Fast, Sudden Energy and Ginseng
Zing.
Kicks, introduced in October of 1998, is an all natural chewable multi-vitamin
and mineral supplement developed and formulated exclusively for active children
and young athletes. This product is designed to compete with national brand
children's vitamins such as Flintstones.
The TrimFast Weight Loss Bar is a new product we introduced on June 14, 1999. We
designed this product to assist the user in a weight loss program by helping to
curb appetite, increase metabolism and increase energy levels; however, there
can be no assurance that any one or all of these effects will be produced in all
or any case. This product was designed to be implemented in conjunction with a
sensible nutritional diet program with exercise. The product was designed to
compete with several national companies including Slim Fast, Nestle's, MediFast
and Pounds Off nutrition. This product is offered in three flavors: chocolate
chocolate chip, chocolate peanut butter and passion fruit.
St. John's Wort: The only herb that has been scientifically studied and proven
to elevate mood and positive outlook, reduce stress and nervous tension which is
used to treat depression and mood related ailments.
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Big Bad Rooster. A supplement designed to stimulate the male and female
reproductive, nervous and circulatory systems. The supplement contains an
alkaloid, yohimbine, which is believed by some to stimulate blood vessel
engorgement in the pelvic area, even though there is no scientific basis for
such conclusions.
Herbal Fen. A natural dietary supplement containing 5-Hydroxytryptophan that
helps increase brain levels of serotonin, a neurotransmitter that regulates key
functions related to moods.
Body Life, our wholly owned subsidiary, will market under its trade name Muscle
Recovery nutritional supplement. This product is a comprehensive remedy for
muscle aches, pains and soreness. It is to be taken immediately after injury or
exercise to boost the body's natural recuperative powers.
To date, we have not undergone any research and development of potential new
products or regarding any other areas of potential development. Although we plan
to devote 2% of our revenues to research and development within the next fiscal
year, such plans are totally dependent upon a number of factors, including:
sufficient revenue streams to support this expense, the retention of qualified
personnel participating in research and development. Currently we employ Steve
Kushner, the company nutritionist that has over 20 years of practical experience
and trained under Dr. Hazel Parcells. In addition, we must have the ability to
attract new qualified personnel to perform research and development and numerous
other factors which management may have not currently contemplated.
Competition.
Nutritional and dietary supplement products involve highly competitive markets.
We are in the process of developing our marketing strategies and product lines
and expect that both will involve an ever-changing and evolving process.
Although we will attempt to competitively price our products, provide superior
quality products, and achieve success through attentive and efficient customer
service and effective marketability strategies, we are limited by a number of
factors, including the developmental character of our company and the
unpredictability and uncertainty of our future revenues. In addition, we are
limited by the intensely competitive nature of the dietary food and vitamin
product industry in which more established companies may offer any combination
of the following: superior service, more competitive pricing, superior product
quality and availability, a variety of marketing strategies and distribution
networks and profitability achieved through sales volume and narrow profit
margins. There are many well-established competitors with substantially greater
financial revenues, as well as, significant new market entrants. Many of these
competitors have been in existence for substantially longer periods of time than
we have and may be better established in the market where we want to operate.
Further, they may have sufficient revenue streams to engage in extensive
advertising and promotional campaigns far in excess of our marketing
capabilities. In addition, many of the competitors in this field are privately
held, leading to unavailability of data of the size of our competition.
Accordingly, our competition is difficult to assess with any preciseness.
Distribution Methods for our Dietary and Nutritional Supplements.
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We utilize five different distribution channels for our health and fitness
products. These are wholesalers, distributors, food brokers, and direct sales to
retail outlets and the Internet. Currently, we distribute to twelve (12)
wholesalers and fifteen (15) distributors. We also have agreements with eleven
(11) food brokerage firms that sell products to nationwide retailers and
distributors.
Wholesalers buy products directly from us. These wholesalers in turn sell to
independent sales agents, who then sell to various retail establishments. The
distributors on the other hand buy the product directly from us and resell to
various retail outlets. Brokers are contracted to sell our products to retail
chains, distributors and wholesalers. Any retail accounts secured by the brokers
are directed to the distributors that currently supply the retailer with other
products.
Wholesalers and distributors are set up on terms of two percent (2%) fifteen-
(15) days net thirty (30) days as long as pre-approved credit has been
established. If credit has not been approved, we require one-half (1/2) of the
purchase order price upon ordering and the balance due on delivery.
We also market through direct response television advertising. Inside sales
personnel who work directly for us will accept orders, arrange for production
and delivery of the products as required to service demand and co-ordinate
delivery of product to retailers and end customers.
Prospective retail locations include convenience stores, supermarkets, drug
stores, health clubs, gasoline outlets, restaurants and bars, and health
specialty outlets.
Once the purchase order has been verified, shipping instructions are delivered
to our distribution center where orders are fulfilled within forty-eight (48)
hours. Typically, product orders are generally shipped by UPS ground
transportation and customers receive their product within seven (7) days.
Express delivery services are also available. Express product orders are
generally shipped within twenty-four (24) hours. Special order products may take
up to a week to deliver but, in general, can be shipped within seventy-two (72)
hours. Unless alternate payment plans are provided, payment is due within thirty
(30) days of delivery.
II. Internet Activities: Nutrition Cafe.
Nutrition Cafe, Inc., a wholly owned subsidiary of the Company, launched its
Internet site (www.nutritioncafe.com) in June of 1999. The Internet site became
fully operational on July 1, 1999 and currently offers approximately 1,365
products. Through this Internet site, we offer nutritional products, including
vitamins, minerals, dietary supplements, sports nutrition products and
homeopathic products for sale to the public. These products are also offered at
our retail store located in Clearwater, Florida. We will attempt to market
approximately 10,000 vitamins, herbs, dietary supplements and homeopathic
products to members at distributor wholesale prices. The Internet site is
planned to promote all of our products, as well as, market and sell vitamins and
nutritional products from such other manufacturers as Met-Rx, Prolabs and
Nature's Way. Our warehouse facility is equipped with adequate space to
accommodate these expanded number of products and product lines.
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In addition to offering a complete line of vitamins and supplements, the
nutritioncafe.com web page offers visitors advice relating to a variety of
highlighted subject areas including nutrition, health, diet, physical fitness
and nutritional supplements. Daily columns on such topics as health care,
vitamins, homeopathic remedies, chiropractic care, fitness and exercise may also
be provided. Management believes that the subject areas, style and special
features are arranged in a simple, easy-to-use fashion intended to enhance
product search and customer knowledge while encouraging repeat business.
There can be no assurance that we will have the ability to effectively market
our current products or those of other manufacturers. In addition, there can be
no assurance that our Internet site will be able to market a projected 10,000
such products. The marketability rate resulting from our Internet site is
dependent upon revenues from our Internet site and other sources, the relative
success of promoting our Internet site and competition from well-established
Internet sites operated by strong revenue based companies with long-life
operational success.
Membership.
During the period from July 1, 1999 to January 18, 2000, anyone wishing to
purchase products from the NutritionCafe.com site was required to purchase a
membership at the price of $9.95 per month. Memberships were sold on a
pay-as-you-go basis in one-month increments. Members had the option to continue
their membership each month and no long-term agreements were required. Competing
web sites did not charge a membership fee. As such, we decided to eliminate the
monthly membership fee on January 19, 2000, because we believed that it would
increase our ability to attract new customers. At that time, there were 1,330
enrolled members.
Payment.
Payment for orders placed on the nutritioncafe.com website may be made by check,
money order or credit card. Because of consumer concern on the issue of
utilizing their credit card for Internet purchases, we utilize secure server
software. This software encrypts all of the customer personal information
including credit card number, name and address, so that it cannot be read during
Internet transmission.
Availability and Shipment.
Most of the products that are ordered from the Nutrition Cafe site would be
available for shipment within forty-eight (48) hours. Those products not in
stock can be ordered from various distributors or directly from the
manufacturer. Delivery time for these products can range from two (2) to four
(4) weeks. Orders are planned to be shipped via UPS ground transportation.
Express delivery options will be available at an additional cost. Our goal is to
continue developing our distribution infrastructure to increase efficiency and
support greater customer demand.
Marketing And Promotion.
Our marketing strategy is designed to strengthen the nutritioncafe.com brand
name, to increase customer traffic to the nutritioncafe.com website, to build
customer loyalty, to increase the membership base and to encourage repeat
business. We intend to utilize traditional advertising media to gain name
recognition in the general public including television, radio and print
advertising. We also intend to utilize banners, agreements with search engine
providers and hyperlinks. All products
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sold on our website are offered with a 100% money back guarantee, if the
customer is dissatisfied for any reason with the purchase.
Competition.
The online commerce market, particularly over the Web, is new, rapidly evolving
and intensely competitive. Our current or potential competitors include Rexall
Sundown, Metabolife and Lifetrends International, each of which may be or are
currently offering their products on the Web. We also face competition from such
indirect sources as Yahoo and AOL that are involved in online commerce either
directly or in collaboration with other retailers, traditional retailers who
currently sell, or who may sell, products or services through the Internet. We
believe that the principal competitive edge in our market will be brand
recognition, price, selection, and a knowledgeable provider of health care
products, reliability and speed of performance. As the online commerce market
continues to grow, other companies may enter into business combinations or
alliances that strengthen their competitive positions. Our prospective customers
already have the opportunity to purchase various nutritional supplements from
various websites including greentree.com, rx.com, drugstore.com and vitamin.com.
Retail Location.
On May 15, 1999, we opened a Nutrition Cafe retail store at our warehouse
facility in Clearwater. The retail establishment occupies approximately 1,300
square feet of space and caters primarily to local clientele. We expect to use
this store to test the viability of opening additional Nutrition Cafe retail
establishments.
Raw Materials, Suppliers and Manufacturing.
While we employ our own consultants to develop new product mixes, we do not
currently manufacture any of our products; instead, we rely on third-party
contract manufacturers. Currently, Innovative Labs, Phillips Pharmatech Labs,
Inc., Dolisos America, Inc. and Five Star Brands, Inc. manufacture most of the
products for TrimFast and Body Life Sciences.
We procure raw materials from various suppliers, but we contract our finished
product production to one third party primarily. Since December 1998, we have
used a second production factory for some of our products to reduce the risk of
having a sole producer of our products or in the event that any manufacturer
ceases operations or cannot continue to manufacture any product for us. We
believe that there will be little difficulty in locating a manufacturer to
produce any of our products without delivery delays or significantly higher
costs.
The raw materials required for the manufacture of our products are readily
available from a number of different sources. As such, we do not believe there
will be any difficulties obtaining the required raw materials.
III. Bottled Water Activities.
We recently acquired the assets of Ice Water, a bottled water distributor
located in the Tampa, Florida area. Ice Water delivers bottled water to a base
of customers in the Tampa, Florida area. Customers typically either own or rent
their water coolers from Ice Water. Rental customers typically sign a one-year
contract, providing Ice Water with a modest, but relatively stable stream of
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revenue from both a monthly cooler rental charge and the sale of bottled water.
Water only customers generate revenues for us through the sale of bottled water
and ancillary services such as cooler repairs. We believe that direct delivery
water cooler companies enjoy several advantages over retailers of bottled water.
Management believes the strong industry growth has been and will continue to be
driven by: (i) concerns related to the quality of tap water sources, (ii)
consumer preferences for healthy products, (iii) taste preferences over tap
water and other refreshment beverages and (iv) favorable demographics.
Tap Water Concerns.
The aging of the tap water supply infrastructure and the high cost of adequately
maintaining or replacing existing water delivery systems have resulted in an
increase in tap water contamination incidences in recent years. Consequently,
there has been a decrease in consumers' confidence in the quality of tap water,
accompanied by an increase in consumption of bottled water. Management believes
that this trend will continue.
Healthy Products.
There is a movement toward a healthier lifestyle and the consumption of healthy
products, a theme that we attempt to promote in our varied line of products.
Within the "healthy products" segment, clear or natural colored products are
experiencing significant growth. Bottled water is perceived as a product with
strong health and fitness appeal.
Competition.
The bottled water industry is highly fragmented in North America. The bottled
water market is comprised of approximately 2,500 companies generating
approximately $4.0 billion in sales. Of these companies, the five largest
companies account for approximately 55% of the total market, with the remainder
comprised of hundreds of small regional companies. Management believes that the
industry will continue to consolidate as (i) operating leverage of the larger
companies makes the smaller companies uncompetitive, (ii) succession issues at
many smaller, family owned companies lead a number of independent companies to
exit the industry, and (iii) pressure to meet improving water quality standards
eliminates low quality producers.
We compete in the "alternative to tap water" market in two areas. First, we
compete directly with other home and office delivery bottled water companies in
our geographic markets. This segment is highly fragmented with the vast majority
of the companies being operated as small entrepreneurial and family-owned
businesses. We also compete indirectly with companies that distribute water
through retail stores and vending machines.
Management believes that the competitive advantage of water coolers over these
alternative distribution channels is primarily based on the convenience of home
or office delivery and, to a lesser extent, price. Similarly, we compete with
providers of on-premises water filtration systems, including systems distributed
through retail outlets, which we believe are aimed at less affluent consumers.
In certain markets, we market and provide on-premises water filtration systems.
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The "alternative to tap water" industry also includes a number of
well-established, well-capitalized companies. These include Nestle S.A., which
owns Perrier and the Perrier Group of America. Perrier Group of America operates
the Arrowhead, Poland Spring, Zephyrhills, Ozarka, Oasis and Great Bear brands.
Suntory owns Belmont Springs, Hinkley & Schmitt, Crystal, Kentwood, and Polar.
BSN Group owns the Evian and Dannon brands and also operates the Crystal Spring
(Toronto), Spring Valley, and Laurentian businesses. McKesson Corporation
operates the Sparkletts business. Ionics Incorporated operates the Aquacool
businesses. In addition, United States Filter Corp. and Culligan Water
Technologies, Inc. compete in the water filtration segment.
Business and Products.
We primarily market two types of water. These are spring water and premium
drinking water.
Spring Water.
Spring water is water that has been naturally filtered by its passage through
various geological layers, and is drawn from a protected underground reservoir
called an aquifer. It can then be either bottled at the source or transported in
stainless steel tankers to a more strategically located bottling facility.
Before bottling, spring water is passed through a micron filter that removes
sediment while retaining the natural mineral content of the water. The water is
then purified through an industry standard purification process known as
ozonation.
The Company draws its spring water from local sources. The spring water is
bottled at the source or transported to an independently owned bottling
facility. At the bottling facility, the spring water is filtered and ozonated.
Ozonation is a process whereby impurities not removed through ordinary
filtration are removed through the injection of oxygen. The process involves a
special form of oxygen, ozone, which is the strongest disinfectant and oxidizing
agent available for water treatment. The added oxygen quickly dissipates and
results in tasteless and odorless purification as compared to chlorination. This
process is designed to prevent bacteria and other contaminants from being
transferred from the spring or the tanker to the finished product.
Premium Drinking Water.
Premium Drinking Water is drawn from local municipal sources. It is passed
through a series of carbon and sand filters, processed by either reverse osmosis
or deionization, ozonated and then bottled. Premium drinking water has 99.9% of
all impurities removed from it, including its natural mineral content.
Premium drinking water, like spring water is obtained from an independent
bottler. Premium drinking water is accessed through local, publicly available
water supplies. It is further purified through reverse osmosis to remove
chlorine and other chemicals frequently found in tap water. The product then
goes through the ozonation process prior to bottling as premium drinking water.
All water is obtained from sources in the Tampa area. We do not do any bottling;
rather, we rely upon independent bottlers to deliver our supply of water bottles
and coolers that, in turn, are delivered to our customers.
Water Coolers.
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Rental customers typically sign a one-year contract, providing us with a stream
of relatively stable revenue from both a monthly cooler rental charge and the
sale of bottled water. While pricing varies depending on the water cooler
selected and the lease term selected by the customer, our current average
monthly rental charge for our coolers is approximately $8 -$10 per month.
We strip down, clean, and redeploy returned water coolers prior to all new
installations. Our average cost per water cooler is approximately $150, and we
estimate that the average life of a water cooler is ten (10) years. The typical
pay back period on a water cooler investment (assuming only rental revenue) is
approximately fifteen (15) months. In the event of termination of the rental
agreement, water coolers can be readily redeployed at a relatively low cost to
us. In addition, we charge a water cooler collection fee in certain markets when
a customer opts to discontinue purchasing water.
Delivery.
We believe that one of the most important success factors in the delivered
bottled water business is delivery route efficiency. Route efficiency is the
critical cost factor in the water cooler business, as the average cost of local
delivery per bottle is over four (4) times the cost of preparing one (1) bottle
for distribution. However, the marginal distribution cost of an additional
bottle on an existing route is relatively low.
Dependence on a Few Customers.
As of December 31, 1998, we had only 79 customers, of whom one (1) accounted for
sixty percent (60%) of our business and two (2) accounted for an additional
thirteen percent (13%) of our business. Although, our marketing strategy
contemplates increasing our customer base to 250 there are no assurances that we
will meet this goal.
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).
We have applied for trademark protection for Kicks. These applications are
currently pending, have not been approved and may not ever be approved. Even, if
obtained, there can be no assurance that our trademarks will not violate the
proprietary rights of others or that our trademarks would be upheld and not
prevented from using our trademarks, if challenged, any of which could have an
adverse effect on us. It is possible that our competitors will adopt product or
service names similar to ours, thereby impeding our ability to build brand
identity and possibly leading to customer confusion. Our inability to protect
our trade names will have a material adverse effect on our business, results of
operations and financial condition.
We also rely on trade secrets and proprietary know-how, and employ various
methods, to protect our concepts. However, such methods may not afford complete
protection, and there can be no assurance that others will not independently
develop similar know-how or obtain access to our know-how and concepts. We do
not maintain confidentiality or non-competition agreements with all of our
executives, key personnel or suppliers. There can be no assurance that we will
be able to adequately protect our trade secrets. Third parties may assert
infringement claims against us or
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against third parties upon whom we rely and, in the event of an unfavorable
ruling on any claim, we may be unable to obtain a license or similar agreement
to use technology that we rely upon to conduct our business.
Unlike pharmaceutical products that rely on specific combinations of drugs and
chemicals, patents cannot protect herbal products. However, management believes
that simply knowing the ingredients to an herbal product does not mean that
other manufacturers can duplicate the product. Effective trademark, copyright
and trade secret protection may not be available in every country in which we
may offer or intend to offer or sell our products. Failure to adequately protect
our intellectual property rights could harm brand-name recognition, devalue our
proprietary content and adversely affect our ability to compete effectively in
the marketplace. Further, defending the intellectual property rights could
result in the expenditure of significant financial and managerial resources,
which could materially affect the operations of the business. While we believe
that our steps are adequate to secure our intellectual property rights, there
can be no assurance that a third party will not misappropriate any of our
proprietary information.
Government Approval and Regulation.
We do not plan to collect sales or other similar taxes in respect of goods sold
by our Nutriction Cafe.com website except where required by law for purchasers
located in certain jurisdictions. However, one or more states or the federal
government may seek to impose sales tax collection obligations on out-of-state
companies (such as nutritioncafe.com) which engage in or facilitate online
commerce, and a number of proposals have been made at the state and local level
that would impose additional taxes on the sale of goods and services through the
Internet. Such proposals, if adopted, could substantially impair the growth of
electronic commerce, and could adversely affect our opportunity to derive
financial benefit from such activities.
Due to the increasing popularity and use of the Internet, it is possible that a
number of laws and regulations may be adopted with respect to the Internet,
covering issues such as user privacy, pricing, and characteristics and quality
of products and services. Furthermore, the growth and development of the market
for Internet commerce may prompt calls for more stringent consumer protection
laws that may impose additional burdens on those companies conducting business
over the Internet. The adoption of any additional laws or regulations may
decrease the growth of the Internet, which, in turn, could decrease the demand
for our Internet products and increase our cost of doing business or otherwise
have an adverse effect on our business, results of operations and financial
condition. Moreover, the applicability to the Internet of existing laws in
various jurisdictions governing issues such as sales tax, libel and personal
privacy is uncertain and may take years to resolve.
In addition, since our service is available over the Internet in multiple states
and we may sell to numerous consumer residents in such states, such
jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in each such state. Our failure to qualify as a foreign
corporation in a jurisdiction where we are required to do so could subject our
business to taxes and penalties for failure to qualify. Any such existing or new
legislation or regulation, including state sales tax, or the application of laws
or regulations from jurisdictions whose laws do not currently apply to our
business, could have a material adverse effect on our business, results of
operations and financial condition.
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The manufacturing, processing, formulating, packaging, labeling, distributing,
selling and advertising of our products are subject to regulation by one or more
federal agencies. The most active regulation has been administered by The Food
and Drug Administration (hereinafter the "FDA") which regulates our products
pursuant to the Federal Food, Drug and Cosmetic Act (hereinafter the "FDCA") and
regulations promulgated thereunder. In particular, the FDA regulates the safety,
manufacturing, labeling and distribution of dietary supplements, including
vitamins, minerals and herbs, food additives, food supplements, over-the-counter
drugs and prescription drugs, medical devices and cosmetics. In addition, the
Federal Trade Commission (hereinafter the "FTC") has overlapping jurisdiction
with the FDA to regulate the labeling, promotion and advertising of dietary
supplements, over the counter drugs, cosmetics and foods.
Although the dietary supplement industry is subject to regulation by the FDA and
local authorities, dietary supplements, including vitamins, minerals, herbs and
other dietary ingredients, now have been statutorily affirmed as a "food."
Dietary supplement companies are authorized to make substantiated statements of
nutritional support and, subject to several possible limitations, to market
manufacture-substantiated-as-safe dietary supplement products without FDA
pre-clearance. Failure to comply with applicable FDA requirements can result in
sanctions being imposed on the Company or the manufacturers of our products,
including but not limited to fines, injunctions, product recalls, seizures and
criminal prosecution.
Compliance with applicable FDA and any state or local statutes is critical.
Although we believe that we are in compliance with applicable statutes, there
can be no assurance that, should the FDA amend its guidelines or impose more
stringent interpretations of current laws or regulations, we would be able to
comply with these new guidelines. We are unable to predict the nature of such
future laws, regulations, interpretations or applications, nor can we predict
what effect additional governmental regulations or administrative orders, when
and if promulgated, would have on our business in the future. These regulations
could, however, require the reformation of certain products to meet new
standards, market withdrawal or discontinuation of certain products not able to
be reformulated, imposition of additional record keeping requirements, expanded
documentation regarding the properties of certain products, expanded or
different labeling and/or additional scientific substantiation.
The FDCA has been amended several times with respect to dietary supplements,
most recently by the Dietary Supplement Health and Education Act of 1994
(hereinafter "DSHEA"). DSHEA was enacted on October 15, 1994. It provides a new
statutory framework governing the composition and labeling of dietary
supplements. DSHEA provides a regulatory framework to ensure safe, quality
dietary supplements and the dissemination of accurate information about such
products. Under DSHEA, dietary supplements are generally excluded from the legal
definition of "food additive."
With respect to composition, DSHEA created a new class of "dietary supplements",
consisting of vitamins, minerals, herbs, amino acids and other dietary
substances for human use to supplement the diet, as well as concentrates,
metabolites, extracts or combinations of such dietary ingredients. Generally,
under DSHEA, dietary ingredients that were on the market before October 15, 1994
may be sold without FDA pre-approval and without notifying the FDA. On the other
hand, a new dietary
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ingredient (one not lawfully on the market before October 15, 1994) requires
proof that it has been present in the food supply as an article used for food
without being chemically altered, or evidence of a history of use or other
evidence of safety establishing that it is reasonably expected to be safe. The
FDA must be supplied with such evidence at least seventy-five (75) days before
the initial introduction into interstate commerce use of a new dietary
ingredient. There can be no assurance that the FDA will accept the evidence of
safety for any new dietary ingredients that we may decide to use, and the FDA's
refusal to accept such evidence could result in regulation of such dietary
ingredients as adulterated until such time as reasonable expectation of safety
for the ingredient can be established to the satisfaction of the FDA.
As for labeling, DSHEA permits "statements of nutritional support" for dietary
supplements without FDA pre-approval. Such statements may describe how
particular dietary ingredients affect the structure, function or general
well-being of the body, or the mechanism of action by which a dietary ingredient
may affect body structure, function or well-being (but may not state that a
dietary supplement will diagnose, mitigate, treat, cure or prevent a disease). A
company making a statement of nutritional support must possess substantiating
evidence for the statement, and, for such statements that are not about the
effects on the body as a result of a dietary supplement used as a tool for its
nutritive value and are not otherwise "health claims," disclose on the label
that the FDA has not reviewed that statement and that the product is not
intended for use for a disease, and notify the FDA of the statement within
thirty (30) days after its initial use. The manner for making the disclosure and
notifying the FDA are set forth in the regulations. However, there can be no
assurance that the FDA will not determine that a given statement of nutritional
support that we decide to make is a drug claim rather than an acceptable
nutritional support statement. Such a determination would require deletion of
the drug claim or our submission, and the FDA's approval of a New Drug
Application (hereinafter "NDA"), which would entail costly and time-consuming
clinical studies. In addition, DSHEA allows the dissemination of "third party
literature", publications such as reprints of scientific articles linking
particular dietary ingredients with health benefits. Third party literature is
exempted from FDA regulation as dietary supplement "labeling" and may be used in
connection with the sale of dietary supplements to consumers. Such a publication
may be so used if, among other things, it is not false or misleading, no
particular manufacturer or brand of dietary supplement is promoted and a
balanced view of available scientific information on the subject matter is
presented. There can be no assurance, however, that all pieces of third party
literature that may be disseminated in connection with our products will be
determined by the FDA to satisfy each of these requirements, and any such
failure could subject the product involved to regulation as a new drug or as a
"misbranded" product.
DSHEA permits substantiated, truthful and non-misleading statements of
nutritional support to be made in labeling, such as statements describing
general well being resulting from consumption of a dietary ingredient or the
role of a nutrient or dietary ingredient in affecting or maintaining structure
or function of the body. Any statement of nutritional support beyond traditional
claims must be accompanied by disclosure that the FDA has not evaluated such
statement and that the product is not intended to cure or prevent any disease.
We anticipate that the FDA will promulgate Good Manufacturing Practices
(hereinafter "GMPs"), which are specific to dietary supplements and require at
least some of the quality control provisions contained in the GMPs for drugs.
Management anticipates that the FDA may promulgate GMP regulations authorized by
DSHEA, which are
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specific to dietary supplements. GMP regulation would require supplements to be
prepared, packaged and held in compliance with such rules, and may require
similar quality control provisions contained in the GMP regulations for drugs.
There can be no assurance that, if the FDA adopts GMP regulations specific to
dietary supplements, that either we or our manufacturers will be able to comply
with such GMP rules upon promulgation or without incurring material expenses to
do so.
Our products and product related activities may also be subject to regulation by
other regulatory agencies, including but not limited to the FTC, the Consumer
Products Safety Commission, the United States Department of Agriculture, the
United States Postal Service, the United States Environmental Protection Agency
and the Occupational Safety and Health Administration. These activities are also
regulated by various agencies of the states and localities in which our products
are sold.
Advertising of dietary supplement products is subject to regulation by the FTC
under the Federal Trade Commission Act (hereinafter the "FTCA"). Section 5 of
the FTCA prohibits unfair methods of competition and unfair or deceptive trade
acts or practices in or affecting commerce. Section 12 of the FTCA provides that
the dissemination or the causing to be disseminated of any false advertising
pertaining to drugs or foods, which would include dietary supplements, is and
unfair or deceptive act or practice. Under the FTC's Substantiation Doctrine, an
advertiser is required to have a "reasonable basis" for all objective product
claims before the claims are made. Pursuant to this FTC requirement, we are
required to have adequate substantiation of all material advertising claims made
for its products. Failure to adequately substantiate claims may be considered
either deceptive or unfair practices.
In recent years the FTC has initiated numerous investigations of dietary
supplement and weight loss products and companies. The FTC has recently issued a
guidance document to assist supplement marketers of dietary supplement products
in understanding and complying with the substantiation requirement.
The FTC is authorized to use a variety of processes and remedies for
enforcement, both administratively and judicially including compulsory process,
cease and desist orders, and injunctions. FTC enforcement can result in orders
requiring, among other things, limits on advertising, corrective advertising,
consumer redress, divestiture of assets, rescission of contracts and such other
relief as may be deemed necessary. State and local authorities can also regulate
advertising and labeling for dietary supplements and conventional foods. There
can be no assurance that state and local authorities will not commence
regulatory action that could restrict the permissible scope of our product
claims.
Employees.
We currently have fifteen (15) employees, of whom eleven (11) are employed
full-time and four (4) are employed part-time.
Material Agreements.
License Agreement with WCW. In June 1999 we developed our first private label
product by entering into a licensing agreement with the World Championship
Wrestling Organization ("WCW")
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to produce Energy Bars in three flavors under the WCW brand name in the United
States, its territories and possessions and its Military Installations. This
license agreement is non-exclusive and expires on December 31, 2002. This
agreement provides that we may use logos, slogans and the likeness of WCW
wrestlers, as provided by WCW, on the labels of our energy bars, which have been
designed to target an audience of millions of adults and children watching and
attending professional wrestling matches.
Our agreement with WCW provides that WCW will receive royalty payments of 6% of
net sales with the following minimum payments guaranteed: (i) December 31, 1999
- - $100,000; (ii) June 30, 2000 - $100,000; (iii) September 30, 2000 - $100,000;
(iv) December 31, 2000 - $100,000; and (v) June 30, 2001 - $100,000. There is no
provision in this agreement to grant authority to our company to sell the Energy
Bars at WCW wrestling matches. WCW would not be the proper party from which to
obtain this authority, since the company which manages the location of each
individual wrestling match would grant this authority. We have no plans of
pursuing any such grant with any venue at which the WCW wrestling matches are
held.
Venture Direct Worldwide Agreement. On June 29, 1999 we entered into an
agreement with Venture Direct Worldwide Inc. as agent for Microsoft Network to
exclusively utilize the keywords vitamins, supplements and Sports Nutrition on
the Microsoft Network. Venture Direct never provided any services to our company
and the contract was terminated on December 31, 1999.
May Davis Group of New York Agreement. We have entered into a series of
agreements with the May Davis Group of New York, whereby the May Davis Group of
New York acts as a placement agent for our securities offered and sold in
private placements. In exchange for these services, May Davis Group of New York
has been compensated with options to purchase forty thousand (40,000) shares of
our common stock at a variable price depending on an equation involving the
trading price at the time of exercise. Such options are exercisable for sixteen
(16) months from the date of each agreement and have registration rights.
Year 2000 Compliance.
Our systems are Year 2000 ("Y2K") compliant. The cost of such compliance on our
part was less than $5,000. The Y2K compliance issue is the result of computer
programs being written using two digits rather than four to define the
applicable year. Computer programs that have time sensitive software may
recognize a date using "00" as the year 1900 rather than 2000. This could result
in a systems failure or miscalculation causing disruption of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. We have verified
that our two principal customers are Y2K compliant. We do not know if our other
suppliers or distributors are Y2K compliant, but believe there will be no
material adverse impact upon us if one of our individual distributors or
manufacturers is not Y2K compliant. We have experienced no adverse affects
related to the Y2K compliance issue at any time. We are unaware of any adverse
affects experienced by any of our suppliers related to the Y2K compliance issue.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS/PLAN OF OPERATION
FINANCIAL STATEMENT PRESENTATION.
The 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 increased from $131,633 in 1997 to $221,773 in 1998 to $505,372 for
the nine months ended September 30, 1999 for several reasons. 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. As of December 31, 1999, the
receivable and reserve balances were $88,830.
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. 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
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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 total $31,633 and
$221,773 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 income for the
year ended December, 31 1998 was $22,026. Income before income taxes for the
year ended December 31, 1998 was $42,626. 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.
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 $673,364 at December
31, 1998 and increased approximately 40% to $1,308,267 at September 30, 1999.
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Property and equipment increased from $5,481 on December 31, 1997 to $33,403 on
December 31, 1998 and to $1,459,270 on September 30, 1999. This increase is due
primarily to our purchase of the facility, which houses our warehouse operations
for Nutrition Cafe, and the equipment purchased to operate this facility. The
$228,705 attributable to software development represents our investment in the
Nutrition Cafe website software.
We also experienced a significant increase in liabilities. Accounts payable
increased from $14,873 on December 31, 1997 to $625,767 on December 31, 1998 and
to $926,612 on September 30, 1999. In addition, we issued a convertible debt
instrument in the amount of $1,000,000 in 1999. The proceeds raised from this
debt offering were used to purchase the warehouse facility.
Management believes that we have sufficient revenue and reserves to finance
ongoing business activities.
BUSINESS DEVELOPMENT.
Trimfast, Inc. was organized as a Florida corporation in April of 1997 and, in
its first year of operations generated revenues of $22,338. Start-up and
operating costs totaled $164,559 that resulted in a net loss of $151,846.
Trimfast, Inc.'s president, Michael Muzio, who, as of December 31, 1997, was
owed a total of $150,200, funded these operating expenses. Fiscal year 1998
represented the first full year of operations for Trimfast, Inc. From the
beginning, management chose not to invest the capital required to lease or
acquire the machinery needed to manufacture their products. Instead, Trimfast,
Inc. relied upon contract manufacturers, freeing working capital for other
matters.
At the beginning of August 1998, our assets were negligible, totaling $599.
Liabilities at that time totaled $680,917 with no revenues being generated and
no business plan in place. Accumulated losses totaled $1,122,218 with a
stockholders deficiency of $680,318. Due to the lack of revenues and no business
plan, our management sought out an acquisition candidate and, on August 11,
1998, acquired all of the issued and outstanding shares of common stock of
Trimfast, Inc., a company engaged in the nutraceutical business.
With the addition of our wholly owned subsidiary, Trimfast, Inc., revenues in
1998 were $1,925,332. Cost of sales was $567,472 resulting in a gross profit of
$1,357,860. Operating expenses totaled $1,314,797 resulting in income from
operations of $43,063. We recorded $503,839 in bad debt expense in December
1998. This sum was partially due to the financial difficulties experienced by
Cutting Edge, a customer who accounted for approximately sixty percent (60%) of
our revenues in 1998 and the bankruptcy of another customer. The bad debt
expense of $267,240 attributable to Cutting Edge represented 50% of the
receivable balance due from Cutting Edge at December 31, 1998 and was due to the
failure of Cutting Edge to return product we sold to them. In December 1998, we
recorded the bad debt expense relating to Cutting Edge and ceased doing business
with them at that time. During 1998, a total of three (3) customers accounted
for approximately seventy-three (73%) of our sales. Prior to our acquisition of
Trimfast, Inc., Trimfast, Inc. was engaged in the nutraceutical business,
distributing health and fitness products.
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Our cash balance as of December 31, 1998 was $105,641. We also had approximately
$358,000 in accounts receivable and $188,000 in inventory. Our total assets as
of December 31, 1998 were $731,438. Liabilities totaled $718,467 that was
comprised of approximately $626,000 in accounts payable, $72,000 in notes and
$20,600 in income taxes payable.
1998 represented a growing year for us. Relationships with distributors,
manufacturers and wholesalers had to be established. Manufacturing rates and
shipping costs all had to be analyzed and evaluated. With our acquisition of
Trimfast, Inc. in 1998, we opened new financing opportunities that would have
otherwise been foreclosed to us. We received a significant capital infusion
through the issuance of our common stock in private placements and borrowed
funds from private lenders.
1999 saw our launch of the NutritionCafe website and the purchase of the assets
of Ice Water. Management believes direct sales to consumers will significantly
reduce reliance on several customers. During the next twelve months of
operation, management remains confident that revenues from operations will be
able to support our ongoing operations. Should the Company determine additional
financing is necessary, the additional financing will be to expand current or
proposed operations.
Debentures.
In June 1999, we entered into a debenture agreement. As a result, we have
$1,000,000 of 7.0% convertible debentures outstanding, which mature on June 14,
2002. After the date of issuance and continuing until the maturity date of the
Debentures, the Debentures may be converted, at the option of the holder, into
shares of our common stock, $0.001 par value per share, at a conversion price
equal to the lesser of $8.50 or 80.0% of the 5 day average closing bid price as
reported by Bloomberg, LP for the five consecutive trading days prior to the
conversion date.
Interest will be paid on the Debentures at a rate of 7.0% per annum, at the time
of any conversion, with respect to the principal amount of the Debenture being
converted, until the principal amount is paid in full or has been converted
entirely. Interest may be paid in cash or shares of common stock, at our option.
With our twenty (20) days notice, we may redeem the Debentures in whole or in
part at any such time as the closing bid price of our common stock, as reported
by Bloomberg, LP, falls to $6.00 or less at a redemption price equal to the
principal amount of the Debenture being redeemed plus accrued interest on such
amount and the profit that the holder would have received upon conversions of
that portion of the Debenture being redeemed.
ITEM 3. DESCRIPTION OF PROPERTY
Our executive offices are located at 777 South Harbour Island Boulevard, Suite
780, Tampa, Florida 33602, where we lease approximately 2,772 square feet of
office space at a monthly rent of $5,197.50. We feel that this space is adequate
for our needs at this time. The current lease term expires on October 31, 2004.
Upon such expiration, we believe that we will be able to obtain renewal terms or
a lease for new space at terms favorable to the Company.
22
<PAGE>
We also exercised a lease option to acquire a 17,000 square foot warehouse
facility in Clearwater, Florida. The total purchase price for the property was
$1.2 million. On July 30, 1999, we paid for the warehouse facility in full with
funds raised from the issuance of preferred stock and warrants.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth the ownership, as of September 30, 1999, of our
common stock by our officers, directors and principal shareholders who are known
by us to own, either beneficially or of record, more than 5% of said stock and
by all directors as a group.
Security Ownership of Certain Beneficial Owners.
<TABLE>
<CAPTION>
TITLE OF NO. OF NATURE OF CURRENT
CLASS NAME & ADDRESS SHARES OWNERSHIP %OWNED
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Common Michael Muzio 1,194,203 Direct 26.30%
4957 Bayshore Blvd.
Tampa, Florida 33611
Common Mark Sansom 344,000 Direct 07.58%
4061 South Powers Circle
Salt Lake City, UT 84124
<CAPTION>
Security Ownership of Officers and Directors.
TITLE OF NO. OF NATURE OF
CLASS NAME & ADDRESS SHARES(1) OWNERSHIP %OWNED
- ----------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Common Michael Muzio 1,194,203 Direct 26.30%
4957 Bayshore Blvd.
Tampa, Florida 33611
Common Gregg Vosler 0 Direct 0%
851 Lantana Avenue
Clearwater Beach, Florida 34630
Common Christopher Hee 1,590 Direct Less than 1%
3152 Fiesta Drive
Dunedin, Florida 34689
Common John Troy 0 Direct 0%
4014 W Waters Avenue #1508
Tampa, Florida 33614
- ----------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C>
All Officers and Directors as a Group
(3 Individuals) 1,195,793 26.5%
</TABLE>
(1) Any shares of Common stock underlying outstanding options, warrants
or convertible debentures are included in the figures under number
of shares.
Changes in Control.
There are currently no arrangements, which would result in a change in control
of our Company.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Our Bylaws provide that we shall have a minimum of three (3) directors on the
board at any one time. Vacancies are filled by a majority vote of the remaining
directors then in office. The directors and executive officers of the Company
are as follows:
NAME AND ADDRESS AGE POSITIONS HELD
- --------------------------------------------------------------------------------
Michael Muzio 35 President/Treasurer/Director
4957 Bayshore Blvd.
Tampa Florida 33611
Gregg Vosler 52 Vice President/Secretary/Director
851 Lantana Avenue
Clearwater Beach Florida 34630
Christopher Hee 58 Director
3152 Fiesta Drive
Dunedin Florida 34689
John Troy 37 Chief Financial Officer
4014 W Waters Avenue #1508
Tampa, Florida 33614
The directors named above will serve until the next annual meeting of our
shareholders or until their successors shall have been elected and accepted
their positions. Directors are elected for one-year terms. Mr. Muzio, Mr. Vosler
and Mr. Troy are parties to oral employment agreements with the Company that
pays annual salaries of $150,000, $50,000 and $65,000 respectively. In addition,
these oral employment agreements include provisions for family health insurance
coverage through the Company, provisions for memberships at the Harbour Island
Athletic Club, and Mr. Vosler has use of an automobile owned by the Company.
We have no minimum or maximum bonuses, which are implied or expressly
communicated, to any of our employees. Bonuses are only paid at the direction of
our Board of Directors. All factors affecting performance are evaluated by our
board of directors, including the company's overall
24
<PAGE>
performance and the impact that individual had upon our performance. When
appropriate, a bonus amount is proposed to the Board of Directors and is
submitted for a vote.
MICHAEL MUZIO: Since 1996, Mr. Muzio has served as president of the Company and
Trimfast, Inc. Prior thereto, from 1991 until 1995 he served as chief executive
officer of Advanced Medical Diagnostics, Inc. Research and development in health
related products represent a significant portion of his prior work experience.
In 1994, Mr. Muzio filed for Bankruptcy Protection under Chapter 7 in the
Southern District of Florida, Case Number 93-5409-8P7.
GREGG VOSLER: Mr. Vosler has served as vice president of the Company and
Trimfast, Inc. since November of 1997. Previously, from June 1996 to November
1997, he served as Director of Development for Physician's Weight Loss Center in
Akron, Ohio. In that capacity he was responsible for systems and franchise
development in the United States. From 1993 through June 1996, he served as an
independent consultant in the medical weight loss and health industry.
CHRISTOPHER HEE: Mr. Hee was appointed to serve as a director of the Company on
October 6, 1998. Dr. Hee received his M.D. degree at Sydney University, in
Sydney, Australia. He completed his residency at State General Hospital in
Melaka, Malaysia in 1975. Dr. Hee opened and operated four medical clinics in
Tampin, Malaysia from 1981 to 1992. After gaining admission to practice medicine
in the United States in 1992, Dr. Hee became the Chief Medical Officer of the
Tampa Military Processing Station for the United States Department of Defense,
where he still presently works. Dr. Hee provides the Board with the medical
background and skills necessary for the Company to develop vitamins and
supplements.
JOHN TROY: Mr. Troy became our Chief Financial Officer in October of 1999. Prior
to his current position, he served as a Controller for EnviroSys International
from February to September of 1999. From November 1997 through October 1998, Mr.
Troy was an Assistant Controller of Raymond James & Associates. From November
1995 through May of 1997, he was Accounting Manager at Lykes, Financial Services
Division. Prior to this position, Mr. Troy was a Controller of Chico's FAS, Inc.
until March of 1995. Mr. Troy obtained his Associates of Science Degree in May
of 1988 from Holyoke Community College and his Bachelor of Science Degree in
Accounting from Western New England College in 1990.
ITEM 6. EXECUTIVE COMPENSATION
Mr. Muzio, our president and treasurer, oversees the operations of the Trimfast,
Inc. subsidiary and in consideration thereof, receives annual compensation of
$150,000. Mr. Vosler, the Company's vice president and secretary, oversees sales
and in consideration thereof receives annual compensation of $50,000. Mr. Muzio
and Mr. Vosler exercise complete control over employee compensation. Mr. Troy is
responsible for the accounting and financial reporting activities of the Company
and receives annual compensation of $65,000.
The terms and conditions of each officer's employment is reviewed annually by
our Board of Directors who may also award annual bonuses. There is no
compensation paid to our board
25
<PAGE>
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
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Name & ------------------- ---------------------- Other
Position Year Salary Bonus Other Stock SARs LTIP Comp
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael Muzio 1999 $150,000 $0 $0 $0 $0 $0 $0
President & 1998 $150,000 $0 $0 $240,000(1) $0 $0 $0
Treasurer 1997 $0 $0 $0 $0 $0 $0 $0
Gregg Vosler 1999 $50,000 $0 $0 $0 $0 $0 $0
Vice President 1998 $50,000 $0 $0 $96,000(1) $0 $0 $0
& Secretary 1997 $31,000 $0 $0 $0 $0 $0 $0
John Troy 1999 $52,500 $0 $0 $53,750(2) $0 $0 $0
Chief Financial 1998 $0 $0 $0 $0 $0 $0 $0
Officer 1997 $0 $0 $0 $0 $0 $0 $0
</TABLE>
(1) The amount used in this table was calculated using the market close price
for TRIM common stock on December 31, 1998.
(2) The amount used in this table was calculated using the market close price
for TRIM common stock on December 31, 1999.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 12, 1998, we acquired all of the issued and outstanding shares of
common stock of Trimfast, Inc., in exchange for the issuance of 1,370,049 shares
of our common stock. In conjunction therewith, Michael Muzio acquired 975,000
shares of our common stock and Gregg Vosler was issued 120,000 shares of our
common stock. As a result of this transaction the shareholders of Trimfast, Inc.
gained control of our Company after August 12, 1998.
On December 8, 1998, Mr. Muzio purchased all 508,313 shares of our outstanding
common stock held beneficially by our prior principal shareholder in a private
transaction.
Effective December 31, 1998, our principal shareholder exchanged $126,664 of
loans due to him by us for 70,358 shares of our common stock. The number of
shares received by Mr. Muzio was on a dollar for dollar basis, based upon the
outstanding debt obligation as of December 1, 1998 and the stock valued at $1.80
per share, with the debt due Mr. Muzio. During 1998, we issued 19,500 shares of
our common stock to Marsha Hardin, an associate and business consultant to Mr.
Muzio, in a related party exchange for a loan payable by us in the amount of
$40,000.
26
<PAGE>
Mr. Muzio has entered into an oral employment agreement with us, which pays him
an annual compensation of $150,000. It is expected that we will renew this
agreement in the year 2001. Mr. Vosler has entered into an oral employment
agreement with us, which pays him an annual compensation of $50,000. It is
expected that we will renew this agreement in the year 2001. As of January 1,
2000, Mr. Troy has entered into an oral employment agreement with us, which pays
him an annual compensation of $65,000. It is expected that we will renew this
agreement in the year 2001.
We periodically advance funds to the principal stockholder and his affiliates as
well as borrow funds from the same parties. All of these amounts are interest
free without specific repayment terms. Such amounts do not exceed $60,000, and
we do not currently anticipate any repayment through issuances of our common or
preferred stock.
ITEM 8. DESCRIPTION OF SECURITIES
The following description is a summary and is qualified in its entirety by the
provisions of our Articles of Incorporation and Bylaws, copies of which have
been filed as exhibits to the Registration Statement.
COMMON STOCK.
General.
We are authorized to issue one-hundred million (100,000,000) shares of common
stock having a par value of $ 0.001 per share. As of September 30, 1999, there
were 4,540,978 common shares issued and outstanding. All shares of common stock
outstanding are validly issued, fully paid and non-assessable.
Voting Rights.
Each share of common stock entitles the holder thereof to one vote, either in
person or by proxy, at meetings of shareholders. The holders are not permitted
to vote their shares cumulatively. Accordingly, the holders of common stock
holding, in the aggregate, more than fifty percent (50%) of the total voting
rights can elect all of our directors and, in such event, the holders of the
remaining minority shares will not be able to elect any of such directors. The
vote of the holders of a majority of the issued and outstanding shares of common
stock entitled to vote thereon is sufficient to authorize, affirm, ratify or
consent to any item submitted a vote of the shareholders, except as otherwise
provided by law.
Dividend Policy.
All shares of common stock are entitled to participate ratably in dividends when
and as declared by our Board of Directors out of the funds legally available
therefore and subject to the rights, if any, of the holders of outstanding
shares of preferred stock. Any such dividends may be paid in cash, property or
additional shares of common stock. We have not paid any dividends since our
inception and presently anticipate that all earnings, if any, will be retained
for development of our business, and that no dividends on the shares of common
stock will be declared in the foreseeable future. Any future dividends will be
subject to the discretion of our Board of Directors and will depend upon, among
other things, our future earnings, operating and financial condition, our
capital requirements, general
27
<PAGE>
business conditions and other pertinent facts. Therefore, there can be no
assurance that any dividends on the common stock will be paid in the future.
Miscellaneous Rights and Provisions.
Holders of common stock have no preemptive or other subscription rights,
conversion rights, redemption or sinking fund provisions. In the event of our
dissolution, whether voluntary or involuntary, each share of common stock is
entitled to share ratably in any assets available for distribution to holders of
our equity after satisfaction of all liabilities and payment of the applicable
liquidation preference of any outstanding shares of preferred stock.
Under Nevada law, stockholders may take certain actions without the holding of a
meeting by a written consent or consents signed by the holders of a majority of
the outstanding shares of the capital stock of the company entitled to vote
thereon. Prompt notice of the taking of any action without a meeting by less
than unanimous consent of the stockholders will be given to those stockholders
who do not consent in writing to the action. The purposes of this provision are
to facilitate action by stockholders and to reduce corporate expense associated
with annual special meetings of the shareholders. If shareholder action is taken
by written consent, we will be required to send each shareholder entitled to
vote on the applicable matter, but whose consent was not solicited, an
information statement containing information about the action taken.
PREFERRED STOCK.
We have authorized the issuance of twenty million (20,000,000) shares of Class A
Preferred Stock with a par value of $0.01 and twenty-million (20,000,000) shares
of Class B Preferred Stock with a par value of $0.01. These shares have such
rights and preferences as determined by the Board of Directors. The Board of
Director's ability to issue preferred stock without further shareholder approval
has the potential to delay, defer or prevent a change in control of the Company.
As of July 16, 1999, there were 15,000 shares of Series A Preferred Stock, par
value $0.01 per share, outstanding. According to the terms of the Security
Purchase Agreement for these shares signed on the same date, such shares were
purchased at a price of $100.00 per share. The shares are (i) validly issued,
fully paid and non-assessable and (ii) free from all taxes, liens and charges
with respect to the issue thereof. All shares of our common stock are declared
junior in rank to such Series A preferred shares.
Dividends.
Regular Dividends. Each holder of the preferred shares shall be entitled to
receive on each July 1 and January 1, or if such date is not a business day, the
immediately subsequent business day, commencing January 1, 2000, dividends at a
rate of eight percent (8%) per annum, computed on the basis of $100.00 per
preferred share. Such dividends shall be cumulative from (and including) the
issuance date of such preferred shares and shall accrue daily, whether or not
earned or declared, thereafter until paid, and shall be calculated on the basis
of a 360 day year. Dividends shall be payable in cash; provided, however, that
in lieu of paying such dividends in cash, we may, at our option, pay any or all
of such dividends by delivery of a number of shares of our common stock equal to
the quotient of (x) the dollar amount of the Regular Dividends to be paid on
such date, divided by (y) the conversion
28
<PAGE>
price, as provided by agreement, determined on the day which is the third (3rd)
business day prior to the date.
Participating Dividends. In the event any dividend or other distribution payable
in cash or other property is declared on our common stock, each Series A
preferred shareholder on the record date for such dividend or distribution shall
be entitled to receive, per preferred share on the date of payment or
distribution of such dividend or other distribution, the amount of cash or
property equal to the cash or property which would be received by the Series A
preferred shareholders of the number of shares of common stock into which such
preferred share would be converted immediately prior to such record date.
Conversion.
Any holder of the Series A preferred shares shall be entitled to convert any
whole number of preferred shares into fully paid and nonassessable shares of
Common Stock in accordance with the Certificate of Designations, Preferences and
Rights for such preferred shares. Without our prior consent, a holder shall not
be entitled to convert any preferred shares during the period beginning on and
including the issuance date and ending on and including the date that is 120
days after such issuance date.
We shall not issue any fraction of a share of common stock upon any conversion.
If the issuance would result in the issuance of a fraction of a share of common
stock, we shall round such fraction of a share of common stock up to the nearest
whole share. Each share of the Series A Preferred Stock is convertible at the
lesser of (a) $8.5938 or (b) 80% of the market price of the common stock as
defined in the agreement and is subject to adjustment as provided in the
Certificate of Designations, Preferences and Rights for such preferred shares
which is included as an exhibit to this Registration Statement. Adjustment is
provided for in situations such as, but not limited to: our issuance of options,
our issuance of convertible securities, or our change or alternative treatment
of option prices or prices of conversion.
Voting.
Holders of Series A preferred shares shall have no voting rights, except as
required by law, including but not limited to the General Corporation Law of the
State of Nevada, and as expressly provided in the Certificate of Designations,
Preferences and Rights. The person or persons entitled to receive the shares of
common stock issuable upon a conversion of Series A preferred shares shall be
treated for all purposes as the record holder or holders of such shares of
common stock, with rights described above, on the date of conversion.
Liquidation.
In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Company, the holders of the Series A preferred shares shall be
entitled to receive in cash out of our assets, whether from capital or from
earnings available for distribution to our stockholders, before any amount shall
be paid to the holders of any of our capital stock of any class junior in rank
to the preferred shares in respect of the preferences as to the distributions
and payments upon our liquidation, dissolution and winding up, an amount per
preferred share equal to $100 and any accrued but unpaid Regular Dividends and
Participating Dividends. If insufficient funds are available to fulfill this
obligation,
29
<PAGE>
each Series A preferred shareholder would receive his pro rata share.
Redemption.
In addition to all other rights of the holders of Series A preferred shares,
upon our consummation of a major transaction or triggering event, as defined by
the Certificate of Designations, Preferences and Rights for such preferred
shares, each holder of Series A preferred shares shall have the right, at their
option, to require us to redeem all or a portion of such holder's preferred
shares at a price per Series A preferred share equal to the greater of (i) 125%
of the stated value of such preferred share and (ii) the product of the
conversion rate in effect at such time as such holder delivers a Notice of
Redemption at Option of Buyer and the Closing Sale Price of our common stock on
the date immediately preceding such major transaction or triggering event on
which the principal market, or the market or exchange where the common stock is
then traded, is open for trading.
Taxes.
We shall pay any and all taxes that may be payable with respect to the issuance
and delivery of common stock upon the conversion of Series A preferred shares.
THE FOLLOWING DESCRIPTIONS OF CERTAIN TERMS OF THE DEBENTURES AND WARRANTS DO
NOT PURPORT TO BE COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO
THE DEBENTURES AND WARRANTS PURSUANT TO WHICH THE DEBENTURES AND WARRANTS WERE
ISSUED, A COPY OF WHICH IS AN EXHIBIT TO THE REGISTRATION STATEMENT. TERMS
(WHETHER OR NOT CAPITALIZED) USED BUT NOT DEFINED IN THIS SECTION HAVE THE
MEANINGS GIVEN TO THEM IN THE RESPECTIVE WARRANTS OR DEBENTURES.
WARRANTS.
MAY 1999 WARRANTS.
In General.
We have warrants outstanding to purchase 20,000 common shares at an exercise
price of $4.00 per share. These warrants are exercisable on any date until May
12, 2000. In addition, we have warrants outstanding to purchase 20,000 common
shares at an exercise price of $7.00 per share. These warrants are exercisable
on any date until May 13, 2000. These warrants carry no other rights or
provisions.
JULY 1999 WARRANTS.
In General.
We currently have Warrants outstanding affording the holders thereof the
opportunity to purchase a total of 223,881 shares of our common stock. The
holders of the Warrants are entitled to purchase each share of common stock at a
price of $10.31 per common share (subject to adjustment as hereinafter provided)
at any time until 11:59 p.m. Central Time on July 16, 2002. Unless exercised,
the Warrants will automatically expire on July 16, 2002. The Warrant Agreement
may be amended, subject to certain exceptions, by the Company and the warrant
agent with the consent in writing of the holders of at least a majority of the
Warrants, provided that no such action may increase the Warrant Exercise Price
of the Warrants or decrease the number of shares or class of stock obtainable
30
<PAGE>
upon exercise of any Warrants without the written consent of the holder of such
Warrant.
Adjustment of Warrant Exercise Price.
The Warrant Exercise Price and the number of shares of common stock issuable
upon exercise of the Warrant may be adjusted from time to time due to our
subsequent issuance of any shares of common stock not issued in connection with
an approved stock plan or upon exercise or conversion of the other Securities,
our issuance of options, our issuance of convertible securities, our declaration
of dividends or subscription rights, our subdivision or combination of common
stock, our distribution of our assets other than dividends, or other certain
events undertaken on our part including, without limitation, the granting of
stock appreciation rights, phantom stock rights or other rights with equity
features.
Immediately upon any adjustment of the Warrant Exercise Price, we are required
to give written notice thereof to the holders of these Warrants, setting forth
in reasonable detail, and certifying the calculation of such adjustment.
Further, we are required to give written notice to the holders of these Warrants
at least twenty (20) days prior to the date on which we close our books or take
a record (a) with respect to any dividend or distribution upon the common stock,
(b) with respect to any pro rata subscription offer to holders of common stock
or (c) for determining rights to vote with respect to any organic change,
dissolution or liquidation, provided that such information shall be made known
to the public prior to or in conjunction with such notice being provided to such
holder.
Failure to Issue.
If we shall fail for any reason or for no reason to issue to the holder, on a
timely basis as described in the Warrant, a certificate for the number of shares
of common stock to which the holder is entitled upon the holder's exercise of
this Warrant or a new Warrant for the number of shares of common stock to which
such holder is entitled pursuant to the Warrant, we shall pay the amount of
0.25% of the product of (a) the number of shares of common stock not issued to
the holder on a timely basis and to which the holder is entitled and/or, the
number of shares represented by the portion of this Warrant which is not being
converted, as the case may be, and (b) the average of the closing bid price of
our common stock for the three consecutive trading days immediately preceding
the last possible date which we could have issued such common stock or Warrant,
as the case may be, to the holder as additional damages in cash each day the
issuance of such common stock certificate or new Warrant, as the case may be, is
not timely effected.
Taxes.
We shall pay any and all taxes which may be payable with respect to the issuance
and delivery of Securities upon exercise of the Warrant.
JULY 1999 WARRANTS.
In General.
We have warrants outstanding to purchase 18,000 common shares at an exercise
price of $4.00 per share. These warrants are exercisable on any date until July
26, 2000. In addition, we have warrants outstanding to purchase 50,000 common
shares at an exercise price of $4.00 per share. These
31
<PAGE>
warrants are exercisable on any date until July 29, 2000. These warrants carry
no other rights or provisions.
DEBENTURES.
In General.
We have $1,000,000 of 7.0% convertible debentures 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.
Interest will be paid on the Debentures at a rate of 7.0% per annum, at the time
of any conversion, with respect to the principal amount of the Debenture being
converted, until the principal amount is paid in full or has been converted
entirely. Interest may be paid in cash or shares of common stock, at our option.
Redemption.
With our twenty (20) days notice, we may redeem the Debentures in whole or in
part at any such time as the closing bid price of our common stock, as reported
by Bloomberg, LP, falls to $6.00 or less at a redemption price equal to the
principal amount of the Debenture being redeemed plus accrued interest on such
amount and the profit that the holder would have received upon conversions of
that portion of the Debenture being redeemed.
Marketability.
Prior to this offering, there has been no public market for the Debentures and a
limited public market for our common stock. There can be no assurance that a
public market will develop for the Debentures or that the public market for the
common stock will continue after the closing of this offering. The terms of the
Debentures were determined by negotiation between the parties bound thereby and
do not necessarily bear any direct relationship to our assets, earnings, book
value per share or other generally accepted criteria of value. Our common stock
is presently quoted on the OTCBB under the trading symbol "TRIM."
Taxes and Fees.
We shall pay any and all documentary, stamp, or similar issue or transfer tax
due on the issue of shares of common stock upon conversion of the Debenture.
Conversion of Debentures.
The holder of a Debenture will be entitled at any time prior to the close of
business on June 14, 2002, subject to prior redemption and conversion, to
convert the Debentures in denominations of $5,000, or multiples thereof, at the
principal amount thereof, into shares of our common stock at the conversion
price of conversion price of the lesser of $8.50 or 80.0% of the 5 day average
closing bid price as reported by Bloomberg, LP, for the five consecutive trading
days prior to the conversion date. We will
32
<PAGE>
not issue fractional shares upon conversion of Debentures. Instead, we will
round up or down, as the case may be, to the nearest whole share.
The number of shares of common stock purchasable upon the conversion of the
debenture is subject to adjustment in certain events, as set forth in the
Debentures. Such adjustments include the issuance of our stock as a dividend or
distribution on the common stock; subdivisions, combinations and
reclassifications of the common stock; the issuance to all holders of common
stock of certain rights (but only when the rights become exercisable) or
warrants entitling them to subscribe for our common stock at less than the
current market price; except for cash dividends permitted by the Indenture, the
distribution to all holders of our common stock of our assets or debt securities
or rights (other than those referred to above, but only when such additional
rights become exercisable) or warrants (other than those referred to above) to
purchase our assets, debt securities or other securities; the issuance, in
certain circumstances, of shares of our common stock for less than the then
current market price; and the issuance in certain circumstances of securities
which are convertible into or exchangeable for common stock (other than pursuant
to transactions described above) for a consideration per share less than the
then current market price of the common stock. If we consolidate or merge with
or into or transfer or lease all or substantially all of our assets to any
person, the person must assume in writing our obligations under the Debenture.
Events of Default.
In the event that the common stock is not delivered per the written instruction
of the Debenture holder, within seven (7) business days of the conversion date,
we must pay the Debenture holder one percent (1.0%) in cash of the dollar value
of the Debentures being converted per each day after the seventh (7th) business
day following the conversion date that the common stock is not delivered. A
provision for liquidated damages is also included in the Debenture in order to
provide for damages that would be difficult to ascertain in the case of default
on our part.
Should the delivery of shares of common stock upon conversion be delayed by our
failure to have the common stock necessary for complete conversion available, we
have agreed to pay to all holders of the outstanding Debentures for conversion
default. The exact terms of such conversion default payment are included in the
Debenture.
An Event of Default occurs if we default in payment of any principal of the
Debenture when the same becomes due and payable at maturity, upon redemption or
otherwise; default for five (5) business days on a payment other than the
principal; fail to comply with the provisions of the Debenture for the period
and after the notice required by the Debenture; engage in certain events of
bankruptcy, insolvency or reorganization; or fail to maintain listing on any
recognized exchange including the OTCBB. We must cure such default within five
(5) business days of such notice as provided for in the Debenture, or the
Debenture holder will have the right to accelerate the payments due and declare
the remaining principal amount of the Debenture to be due and payable upon such
failure to cure.
SHARES ELIGIBLE FOR FUTURE SALE.
A significant portion of the shares of our common stock currently outstanding
are "restricted
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securities" within the meaning of Rule 144 promulgated under the Securities Act,
and may not be sold except in compliance with the registration requirements of
the Securities Act or an applicable exemption under the Securities Act,
including an exemption pursuant to Rule 144 thereunder.
In general, under Rule 144 as currently in effect, any of our affiliates and any
person (or persons whose sales are aggregated) who has beneficially owned his or
her restricted shares for at least one year, may be entitled to sell in the open
market within any three-month period a number of shares of common stock that
does not exceed the greater of (i) 1% of the then outstanding shares of our
common stock, or (ii) the average weekly trading volume in the common stock
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to certain limitations on manner of sale, notice requirements, and
availability of current public information about us. Non-affiliates who have
held their restricted shares for one year may be entitled to sell their shares
under Rule 144 without regard to any of the above limitations, provided they
have not been affiliates for the three months preceding such sale.
Further, Rule 144A as currently in effect, in general, permits unlimited resales
of certain restricted securities of any issuer provided that the purchaser is an
institution that owns and invests on a discretionary basis at least $100 million
in securities or is a registered broker-dealer that owns and invests $10 million
in securities. Rule 144A allows our existing stockholders to sell their shares
of common stock to such institutions and registered broker-dealers without
regard to any volume or other restrictions. Unlike under Rule 144, restricted
securities sold under Rule 144A to non-affiliates do not lose their status as
restricted securities.
TRANSFER AGENT.
Florida Atlantic Stock Transfer, located in Tamarac, Florida, has recently been
appointed the transfer agent of our common stock and preferred stock. Our prior
transfer agent was in Nevada, and we wanted to appoint a transfer agent in the
Eastern Standard Time Zone for convenience purposes.
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<PAGE>
PART II.
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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 December 31, 1999, there were 4,517,362 common
shares and 15,000 preferred shares outstanding. There is limited trading
activity in our securities, and there can be no assurance a regular trading
market for our common stock will be sustained.
The following table sets forth, for the period indicated, the bid price range of
our common stock. Please note that the prices reflected prior to August 12, 1998
reflect those of World Group and are not representative of the current business
activities reflected throughout this registration statement.
High Bid Low Bid
-------- -------
1997
Quarter Ended March 31, 1997 $ 9.00 $ 3.37
Quarter Ended June 30, 1997 5.50 1.55
Quarter Ended September 30, 1997 3.75 1.50
Quarter Ended December 31, 1997 2.62 0.25
1998
Quarter Ended March 31, 1998 $12.50 $ 2.50
Quarter Ended June 30, 1998 5.31 3.10
Quarter Ended September 30, 1998 2.60 1.50
Quarter Ended December 31, 1998 5.30 1.20
1999
Quarter Ended March 31, 1999 $ 6.31 $ 2.75
Quarter Ended June 30, 1999 10.37 5.12
Quarter Ended September 30, 1999 9.19 7.06
Quarter Ended December 31, 1999 7.31 4.00
Such market quotations reflect the high bid and low prices as reflected by the
OTC BB or by prices, without retail mark-up, markdown or commissions and may not
necessarily represent actual transactions. The following companies serve as
market makers for our securities: D.L. Cromwell, Wilson Davis and Knight
Securities.
Holders.
As of June 1, 1999 there were approximately 159 holders of record of our common
stock.
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<PAGE>
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 2. LEGAL PROCEEDINGS
Product Liability.
Three lawsuits have been 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. 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 $300,000 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." 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.
We have received notice indicating that three other parties have hired counsel
in connection with potential product liability claims arising from the use of
Revivarant. 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. All of the aforementioned claims have
been submitted to Royal Insurance Company. At the time that the alleged causes
of action arose, we had product liability insurance under the policy of our
third party manufacturer in the amount of $1,000,000 per occurrence and up to
$2,000,000 in the aggregate. We have since obtained a company owned policy with
an effective date of May 27, 1999. Our company owned product liability insurance
will not be available to cover these claims, should we be found liable. As such,
our business, results of operations and financial condition could be adversely
affected, if we are found liable for these claims.
Since our company owned product liability insurance only became effective on May
27, 1999, we may have no insurance coverage, other than under our third party
manufacturer's policy, 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.
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<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. Kingchem was one
of our suppliers, until a dispute arose about the quantity of supplies that had
been delivered. This suit is a result of our inability to resolve the dispute.
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.
Other.
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<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 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The accounting firm of Schvaneveldt and Company previously audited our financial
statements. As a result of the stock exchange agreement entered into between the
Shareholders of Trimfast, Inc. and us on August 12, 1998, there was a change in
control of the Company and a relocation of our principal place of business from
Las Vegas, Nevada to Tampa, Florida. As a result of this move, the Board of
Directors felt that we would be better served by retaining an accounting firm
located in the State of Florida. As a result, we engaged the firm of Weinberg &
Co. to conduct our latest audit.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In April 1997, we issued 1,286,625 shares of our common stock to then existing
shareholders of TrimFast, Inc. in reliance upon the exemption from registration
contained in Section 4(2) of the Act, in our acquisition of TrimFast, Inc. 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.
During the period from June 1998 through August 1998, we issued 63,924 shares of
our common stock for cash. These shares were issued pursuant to Section 4(2) of
the Act. We believed section 4(2) was available because there was no general
solicitation or advertising used in connection with the
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<PAGE>
offering and the transaction did not involve a public offering.
In July 1998, we issued 19,500 shares of our common stock in repayment of a loan
of $40,000 due by the Company. These shares were issued pursuant to Section 4(2)
of the Act. 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 12, 1998, pursuant to the merger agreement and recapitalization of
Trimfast Inc., the Company issued 817,749 shares of common stock to the prior
stockholders of HLHK World Group, Inc. Additionally, on August 12, 1998 we
issued 500 shares of our common stock to an employee for a bonus, 5,000 shares
of our common stock in consideration of legal services provided to the Company
and 75,000 shares of our common stock in exchange for and outstanding loan to
principal stockholders in the amount of $491,123.
In December 1998, we exchanged 70,358 shares of our common stock for an
outstanding loan from Mr. Muzio to the Company for $126,574. These shares were
issued pursuant to Section 4(2) of the Act. 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.
We conducted an offering pursuant to Rule 504 of Regulation D of the Securities
Act of 1933, as amended, raising total cash proceeds of $934,500 and resulting
in the issuance of 403,000 shares of common stock. At the time of the offering,
we were not subject to the reporting requirements of Section 13 of 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). We were not a
development stage company at the time of the offering and had not raised funds
in the twelve months prior to the offering in reliance on Section 3(b) of the
Act. A Form D was filed in connection with the offering. These shares were
purchased from February 9, 1999 through April 5, 1999. Each shareholder in this
offering received subscription documents stating that the securities had not
been registered under the Act, and subsequently made representations that they
were purchasing for investment purposes only and not with a view toward
distribution of the securities.
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 can repurchase
these shares at our discretion for $8.00 each. These shares were issued pursuant
to Section 4(2) of the Act. 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.
In consideration other than cash, pursuant to various agreements we issued the
following shares of our restricted common stock:
On January 6, 1999, we issued 75,000 shares of our common stock to employees as
bonuses. Additionally, we issued 402,100 shares of our common stock in
consideration of various Consulting Services rendered to the Company. On January
18, 1999, we issued 82,950 shares on our common stock in consideration of
various consulting services. These shares were issued pursuant to Section
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4(2) of the Act. 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 February 8, 1999 we issued 30,000 shares of our common stock in consideration
of consulting services. On February 9, 1999, we issued 20,000 shares of our
common stock in consideration of Nutrition Consulting Services rendered to the
Company. On February 19, 1999 we issued 220,000 shares of our common stock in
consideration of Consulting Services rendered to the Company. On February 19,
1999, we issued 8,000 shares of our common stock and on April 21, 1999 we issued
2,500 shares of our common stock for cancellation of a bridge loan of $25,000
due by the Company. These shares were issued pursuant to Section 4(2) of the
Act. 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 March 15, 1999 we issued 25,000 shares of our common stock in consideration
of consulting services. On March 18, 1999, we issued 225,000 shares of our
common stock to the then existing shareholders of IMMMU and IMMCEL in reliance
upon the exemption from registration contained in Section 4(2) of the Act in our
acquisitions of IMMMU and IMMCEL. This transaction was rescinded on October 23,
1999. These shares were issued pursuant to Section 4(2) of the Act. 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 April 5, 1999, we issued 42,500 shares of our common stock in consideration
of Business & Legal Consulting Services rendered to the Company. On April 21,
1999, we issued 14,000 shares of our common stock in consideration of
cancellation of a Bridge Loan due of $25,125. On April 22, 1999, we issued
20,000 shares of our common stock in consideration of Business Consulting
Services rendered to the Company. On April 26, 1999, we issued 125,000 shares of
our common stock in consideration of Financial Consulting Services rendered to
the Company. On April 30, 1999, we issued 20,000 shares of our common stock in
consideration of Website Consulting Services rendered to the Company, 7,000 for
Landscaping Services rendered to the Company, and 5,000 for Employee Bonuses in
1999. These shares were issued pursuant to Section 4(2) of the Act. 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 May 19, 1999, we issued 150,000 shares of our common stock in consideration
of Business Consulting Services rendered to the Company. On May 26, 1999, we
issued 23,000 shares of our common stock in consideration of the acquisition of
Ice Water and 3,750 shares of our common stock in consideration of Business
Consulting Services rendered to the Company. These shares were issued pursuant
to Section 4(2) of the Act. 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 June 1, 1999, we issued 17,000 shares of our common stock in consideration of
Construction Services rendered to the Company and 47,500 shares of our common
stock for Nutritional Consulting
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Services rendered to the Company. On June 2, 1999, we issued 22,000 shares of
our common stock in exchange for Public Relations Services rendered for the
Company. On June 17, 1999, we issued 15,000 shares of our common stock in
exchange for Nutritional Consulting Services rendered for the Company. On June
30, 1999, we issued 10,000 shares of our common stock in exchange for Legal
Services rendered for the Company. These shares were issued pursuant to Section
4(2) of the Act. Also on June 30, 1999, we issued 30,500 restricted shares of
our common stock at $4.00 per share in an offering made in reliance upon the
exemption from registration contained in Section 4(2) of the Act (May Davis
Placements). 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 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 Act. 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 shares 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 Act. 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 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.
In May of 1999, we issued warrants for the purchase of 40,000 shares of our
common stock in exchange for placement services. Of these, 20,000 were issued to
Cranshire Capital and are exercisable on any date until May 12, 2000 at a price
of $4.00 per share. The remaining 20,000 were issued to Namex and are
exercisable on any date until May 13, 2000 at a price of $7.00 per share. These
warrants were issued without registration in reliance on the exemption from
registration provided in Section 4(2) of the Securities Act.
In June 1999, we issued a total of $1,000,000 in convertible debentures to Calp
II LP, a Bermuda corporation with a mailing address in Toronto, Ontario, out of
a total offering of $3 million. The Company issued these debentures in reliance
upon the exemption from registration contained in
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Section 4(2) of the Act and Rule 506 of Regulation D promulgated under the Act.
The issuance of the convertible debenture was an isolated issuance of securities
to a non-U.S. entity, which is also an accredited investor. We 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.
In July 1999, we issued 15,000 Class A convertible preferred shares to Cranshire
Capital, The Dotcom Fund, Keyway Investments and Robert Investments, Inc. in
consideration of $1,500,000 paid to the Company. The Company relied upon the
exemption from registration provided in Section 4(2) of the Act. 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.
In July 1999, we issued warrants, which entitle the holder thereof to purchase a
total of 223,881 shares of our common stock at a variable price, to Cranshire
Capital, The Dotcom Fund, Keyway Investments and Robert Investments, Inc. Such
warrants are exercisable at any time until July 16, 2002. The Company relied
upon the exemption from registration provided in Section 4(2) of the Act. 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.
In July of 1999, we issued warrants to purchase 68,000 shares of our common
stock in exchange for consulting services. Of these, 18,000 were issued to
Francois Goelo and are exercisable on any date until July 26, 2000 at a price of
$4.00 per share. The remaining 50,000 were issued to Sal Russo and are
exercisable on any date until July 29, 2000 at a price of $4.00 per share. These
warrants were issued without registration in reliance on the exemption from
registration provided in Section 4(2) of the Act. We 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.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.7502 of the NRS provides that Nevada corporations may limit, through
indemnification, the personal liability of their directors or officers in
actions, claims or proceedings brought against such person by reason of that
person's current or former status as an officer or director of the corporation.
Indemnification of directors or officers is available if the person acted in
good faith and in a manner the person reasonably believed was, at least, not
opposed to the best interests of the corporation. In the event of a criminal
action or proceeding, indemnification is not available if the person had
reasonable cause to believe their action was unlawful.
Further, in an action brought by the corporation or in the right of the
corporation, if the person, after exhaustion of all appeals, is found to be
liable to the corporation, or if the person makes payment to the corporation in
settlement of the action, indemnification is available only to the extent a
court of competent jurisdiction determines the person is fairly and reasonably
entitled to indemnification. Such discretionary indemnification is available
only as authorized on a case-by-case basis by: (1) the
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stockholders; (2) a majority of a quorum of the board of directors consisting of
members of the board who were not parties to the action, suit or proceeding; (3)
if a majority of a quorum of the Board of Directors consisting of members of the
Board who were not parties to the action, suit or proceeding so orders, by
independent legal counsel in a written opinion; or (4) if a quorum of the Board
of Directors consisting of members of the Board who were not parties to the
action cannot be obtained, by independent legal counsel in a written opinion.
To the extent that a director or officer of a corporation is successful in
defending against an action, suit or proceeding brought against that person as a
result of their current or former status as an officer or director, the
corporation must indemnify the person against all expenses actually and
reasonably incurred by the person in connection with their defense. Nevada law
also allows Nevada corporations to advance expenses of officers and directors
incurred in defending a civil or criminal action as they are incurred, upon
receipt of an undertaking by or on behalf of the director or officer to repay
such expenses if it is ultimately determined by a court of competent
jurisdiction that such officer or director is not entitled to be indemnified by
the corporation because such officer or director did not act in good faith and
in a manner reasonably believed to be in or not opposed to the best interests of
the corporation.
Section 78.751 of the NRS provides that any indemnification provided for by NRS
78.7502 (by court order or otherwise) shall not be deemed exclusive of any other
rights to which the indemnified party may be entitled and that the scope of
indemnification shall continue as to directors or officers who have ceased to
hold such positions and to their heirs, executors and administrators.
Section 78.752 of the NRS allows corporations to provide insurance, or other
financial arrangements such as a program of self-insurance, for their directors
or officers. Such insurance may provide coverage for any liability asserted
against the person and liability and expenses incurred by the person in their
capacity as a director or officer or arising out of their status as such,
whether or not the corporation has the authority to indemnify the person against
such liability and expenses. However, no financial arrangement made under
Section 78.752 may provide protection for a person adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be liable
for intentional misconduct, fraud or a knowing violation of law, except with
respect to the advancement of expenses or indemnification ordered by a court.
Our By-laws provide for the indemnification of its directors and officers to the
maximum extent provided by law. It is the position of the Securities and
Exchange Commission and certain state securities administrators that any attempt
to limit the liability of persons controlling an issuer under the federal
securities laws or state securities laws is contrary to public policy and
therefore unenforceable.
Our By-laws provide for the indemnification of its directors and officers to the
maximum extent provided by law. It is the position of the Securities and
Exchange Commission and certain state securities administrators that any attempt
to limit the liability of persons controlling an issuer under
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the federal securities laws or state securities laws is contrary to public
policy and therefore unenforceable.
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EXHIBIT INDEX
- --------------------------------------------------------------------------------
Exhibit # Description Page Number
- --------------------------------------------------------------------------------
2.1 Kendrex and HLHK Merger (Incorporated by N/A
reference as filed in Form 10-SB/A filed on
12/23/99 as Exhibit 2.1)
- --------------------------------------------------------------------------------
2.2 Trimfast, Inc. Acquisition (Incorporated by N/A
reference as filed in Form 10-SB/A filed on
12/23/99 as Exhibit 2.2)
- --------------------------------------------------------------------------------
2.3 Rescission of IMMMU and IMMCEL Acquisitions N/A
(Incorporated by reference as filed in Form
10-SB/A filed on 12/23/99 as Exhibit 2.3)
- --------------------------------------------------------------------------------
3.1 Articles of Incorporation (Incorporated by N/A
reference as filed in Form 10-SB filed on
7/12/99 as Exhibit 3.1)
- --------------------------------------------------------------------------------
3.2 Bylaws (Incorporated by reference as filed in N/A
Form 10-SB filed on 7/12/99 as Exhibit 3.2)
- --------------------------------------------------------------------------------
4.1 Specimen Share Certificate (Incorporated by N/A
reference as filed in Form 10-SB/A filed on
12/23/99 as Exhibit 4.1)
- --------------------------------------------------------------------------------
4.2 Debenture Agreement (Incorporated by reference N/A
as filed in Form 10-SB filed on 7/12/99 as
Exhibit 4)
- --------------------------------------------------------------------------------
4.3 Warrant Agreement (Incorporated by reference N/A
as filed in Form 10-SB/A filed on 12/23/99 as
Exhibit 4.3)
- --------------------------------------------------------------------------------
4.4 Preferred Share Agreement (Incorporated by N/A
reference as filed in Form 10-SB/A filed on
12/23/99 as Exhibit 4.4)
- --------------------------------------------------------------------------------
4.5 Series A Certificate of Designations, E-1
Preferences and Rights
- --------------------------------------------------------------------------------
10.1 Lease Option Agreement (Incorporated by N/A
reference as filed in Form 10-SB filed on
7/12/99 as Exhibit 10)
- --------------------------------------------------------------------------------
10.2 WCW Agreement E-20
- --------------------------------------------------------------------------------
10.3 Venture Direct Worldwide Agreement N/A
(Incorporated by reference as filed in Form
10-SB/A filed on 12/23/99 as Exhibit 10.3)
- --------------------------------------------------------------------------------
10.4 Distribution Agreement (Incorporated by N/A
reference as filed in Form 10-SB/A filed on
12/23/99 as Exhibit 10.4)
- --------------------------------------------------------------------------------
21 Subsidiaries of Registrant (Incorporated by N/A
reference as filed in Form 10-SB/A filed on
12/23/99 as Exhibit 21)
- --------------------------------------------------------------------------------
27 Financial Data Schedule
- --------------------------------------------------------------------------------
45
<PAGE>
PART F/S
FINANCIAL STATEMENTS
46
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
(CONSOLIDATED) AND 1997
<PAGE>
TRIMFAST GROUP, INC. AND SUBSIDIARIES
CONTENTS
PAGE 1 - INDEPENDENT AUDITORS' REPORT.
PAGE 2 - CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998
PAGE 3 - 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)
PAGE 4 - INTERIM CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS
EQUITY FOR THE ONE YEAR ENDED DECEMBER 31, 1998 (Audited)
AND THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,1999
(Unaudited)
PAGES 5 - 6 - INTERIM CONSOLIDATED STATEMENT FO CASH FLOWS FOR THE ONE
YEAR ENDED DECEMBER 31, 1999 (Audited) AND THE NINE MONTHS
ENDED SPTEMBER 30,1999 (Uanudited)
PAGES 7 - 23 - NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Trimfast Group, Inc.
We have audited the accompanying balance sheet of TrimFast Group, Inc. and
Subsidiaries as of December 31, 1998 (consolidated) and the related statements
of operations, changes in stockholders' equity and cash flows for the year ended
December 31, 1998 (consolidated) and for the period from April 27, 1997
(inception) to December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TrimFast Group, Inc. and
Subsidiaries as of December 31, 1998 (consolidated) and the results of their
operations and their cash flows for the year ended December 31, 1998
(consolidated) and for the period from April 27, 1997 (inception) to December
31, 1997 in conformity with generally accepted accounting principles.
/s/ WEINBERG & COMPANY, P.A.
----------------------------
Boca Raton, Florida
June 10, 1999 (Except for Notes 13(G), 13(H), 13(D), 7(C), 13(B) and 13(A) as to
which the dates are June 14, 1999, July 16, 1999, July 30, 1999, August 31,
1999, October 22, 1999 and October 23, 1999, respectively.)
1
<PAGE>
TRIMFAST GROUP, INC.
INTERIM CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
September 30, 1999
December 31, 1998 (Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
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 163,987 6,174,610
Accumulated deficit (129,820) (3,608,622)
Less cost of treasury stock (5,5000 as of December 31,1998
and 32,5000 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>
2
<PAGE>
TRIMFAST GROUP, INC.
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE ONE YEAR ENDED DECEMBER 31,1998 (Audited)
AND THE THREE AND NONE MONTHS ENDED SEPTEMBER 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
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 221,773 208,215 505,372
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 1,314,797 1,188,851 2,904,014
---------- ---------- ----------
INCOME FROM OPERATIONS 43,063 (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)
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 42,626 (1,425,645) (3,103,791)
FEDERAL AND STATE INCOME TAXES 20,600 0 0
---------- ---------- ----------
NET INCOME/ (LOSS) 22,026 (1,425,645) (3,103,791)
========== ========== ==========
Dividend on Preferred Stock (375,011)
NET INCOME/ (LOSS) APPLICABLE TO COMMOM STOCK 42,626 (1,425,645) (3,478,802)
NET INCOME (LOSS) PER COMMON SHARE-BASIC AND DILUTED 0.02 (0.31) (0.87)
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
TRIMFAST GROUP, INC.
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
FOR THE ONE YEAR ENDED DECEMBER 31,1998 (Audited)
AND THE NINE MONTHS ENDED SEPTEMBER 30,1999 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK AND
COMMON STOCK TO ADDITIONAL Preferred Stock Issued Accumulated
BE ISSUED PAID-IN 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 39,980 -- -- --
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 5,00 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 -- -- --
Purchase of treasuty stock at cost -- -- -- -- -- --
Net income 1998 -- -- -- -- -- 22,026
--------- ----------- ----------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1998 2,338,656 $ 2,338 $ 163,987 -- -- ($ 129,820)
========= =========== =========== ====== =========== ===========
Equity financing-issuance of stock
for cash 558,000 558 1,628,942 -- -- --
Issuance of common stock in exchange for
consulting and other professional services 1,350,895 1,350 806,970 -- -- --
Issuance of common stock acquistion of
Immmu and Imcel. To be returned per
recission agreement 225,000 225 925,077 -- -- --
Issunace of common stock to employees 80,000 80 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 Perferred Stock -- -- 1,874,901 15,000 150 (375,011)
Valuation of warrants issued for services -- -- 461,640 -- -- --
Net Loss, year to date of September 30,1999 -- -- -- -- -- (3,103,791)
--------- ----------- ----------- ------ ----------- -----------
Balance, September 30,1999 4,549,451 $ 4,549 $ 6,174,610 15,000 $ 150 ($3,608,622)
========= =========== =========== ====== =========== ===========
<CAPTION>
Subscriptions Shares Treasury
Receivable Advanced Stock Total
------------- -------- --------- -----
<S> <C> <C> <C> <C>
BALANCE JANUARY 1,1998 -- -- -- ($ 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
Purchase of treasuty stock at cost -- -- (23,534) ($ 23,534)
Net income 1998 -- -- -- $ 22,026
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1998 -- -- ($ 23,534) $ 12,971
=========== =========== =========== ===========
Equity financing-issuance of stock
for cash -- -- -- $ 1,629,50
Issuance of common stock in exchange for
consulting and other professional services (358,325) -- -- $ 449,995
Issuance of common stock acquistion of
Immmu and Imcel. To be returned per
recission agreement -- (925,312) -- $ 10
Issunace of common stock to employees -- -- -- $ 95,327
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 Perferred Stock -- -- -- $ 1,500,040
Valuation of warrants issued for services -- -- -- $ 461,640
Net Loss, year to date of September 30,1999 -- -- -- ($3,103,791)
----------- ----------- ----------- -----------
Balance, September 30,1999 ($ 358,325) ($ 925,312) ($ 139,547) $ 1,147,503
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
TRIMFAST GROUP, INC.
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE ONE YEAR ENDED DECEMBER 31,1999 (Audited)
AND THE NINE MONTHS ENDED SEPTEMBER 30,1999 (Unaudited)
<TABLE>
<CAPTION>
For the One Year
Ended
December 31,1998
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) 42,626 $(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)
Issuance of warrants for professional services 0 461,640
Issuance of common stock for professional services 0 760,207
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
Total adjustments (12,281) 853,604
Net cash (used in) provided by operating
activities 30,345 (2,250,187)
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) (1,748,024)
Due from affilate (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) (1,771,112)
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 3,3974,750
CHANGE AND CASH EQUIVALENTS 87,983 (46,549)
CHANGE IN CASH AND CASH EQUIVALENTS-BEINNING OF YEAR 17,658 105,641
--------- ----------
CASH AND CASH EQUIVALENTS-END OF YEAR 105,641 59,092
</TABLE>
See accompanying notes to financial statements.
5
<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 companys 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 Caf 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. Revenue for products ordered is
recognized when the product is shipped. 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.
The Company offers a 100% money back guarantee on products purchased at
Nutrition Cafe and Nutritioncafe.com. Because the products we sell are sold in
quantities packaged for consumption in short time frames (usually 1 month supply
or less), and many of our customers are knowledgeable of the supplements they
buy, returns have been insignificant. As a result, the Company records any
returns against current sales.
6
<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. Due to the nature of
the products offered, and customers ordering product conservatively, we have
experienced no material product returns. Based on this experience, our policy is
to record any returns against current sales. With the introduction of our WCW
ultra energy bars, we are aggressively attempting to place our products with
larger retail networks. As a result of this, we will review this policy and
modify it as necessary as orders are received.
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 recission of IMMMU purchase 50,000
Stock held in escrow securing loan 199,790
Other 2,930
$512,278
7
<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)
(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.
(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
8
<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.
NOTE 6 - EQUITY TRANSACTIONS
Sale of Preferred Stock and Warrants
On July 16, 1999 (the issuance date) the Company issued 15,000 shares of
convertible preferred stock and 223,881 warrants to purchase common stock in
exchange for $1,500,040 cash. The preferred stock contains a beneficial
conversion feature whereby it is convertible immediately at the lesser of $8.59
or 80% of the fair market value of the common stock on the conversion date. The
warrants vest immediately, expire on July, 2000 and are exercisable at $10.31
per share. 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)
On January 6, 1999 the company issued 303,100 shares of common stock for 6
consulting agreements. On January 18, 1999 the Company issued 82,950 shares of
common stock for 3 consulting agreements. On February 9, 1999 the Company issued
50,000 shares of common stock for 3 consulting agreements. On February 19, 1999
the Company issued 220,000 shares of common stock for 1 consulting agreement. On
March 15, 1999 the Company issued 150,000 shares of common stock for 2
consulting agreements. On April 22, 1999 the Company issued 20,000 shares of
common stock for 1 consulting agreement. On April 30, 1999 the Company issued
20,000 shares of common stock for 1 consulting agreement. On May 19 the Company
issued 150,000 shares of common stock for 1 consulting agreement. On May 26,
1999 the Company issued 3,750 shares of common stock for 1 consulting agreement.
On June 1, 1999 the Company issued 47,500 shares of common stock for 1
consulting agreement. On June 17, 1999 the Company issued 15,000 shares of
common stock for 1 consulting agreement. These contracts are reported at market
value of the stocks issued on the date of issuance.
The Company issued 96,500 shares of common stock to various individuals for
services rendered. These services were valued at the market price of the stock
on the day of issuance and reported in professional fees.
On February 19, 1999 the company issued 8,000 shares of common stock to payoff
an outstanding loan of $34,800. On April 21, 1999 the Company issued 16,500
shares of common stock to payoff 2 outstanding loans for $99,825. On June 1,
1999 the Company issued 12,000 shares of common stock to payoff an outstanding
loan of $85,200. On July 19, 1999 the Company issued 30,000 shares of common
stock to payoff an outstanding loan of $202,500.
9
<PAGE>
TrimFast Group, Inc.
Notes to Interim Consolidated Financial Statements
As of September 30, 1999
(Unaudited)
On May 12, 1999 the Company issued warrants to purchase 20,000 shares of common
stock at $4.00 per share. On May 13, 1999 the Company issued warrants to
purchase 20,000 shares of common stock at $7.00 per share. On July 26, 1999 the
Company issued warrants to purchase 18,000 shares of common stock at $4.00 per
share. On July 29, 1999 the Company issued warrants to purchase 50,000 shares of
common stock at $4.00 per share.
NOTE 7 - ACQUISITIONS
(A) Acquisitions of Subsidiaries and Subsequent Recission
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 Companys common stock, $50,000 in cash and an
option agreement for shares of the Companys 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 recission 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. A balance of $30,406 remains outstanding at
August 31, 1999.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
/s/ Michael Muzio
----------------------------------
By: Michael Muzio, President
Date: March 10, 2000
EXHIBIT 4.5
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK OF
TRIMFAST GROUP, INC.
TrimFast Group, Inc. (the "Company"), a corporation organized and existing under
the General Corporation Law of the State of Nevada, does hereby certify that,
pursuant to authority conferred upon the Board of Directors of the Company by
the Articles of Incorporation, as amended, of the Company, and pursuant to
Sections 78.195, 78.1955 and 78.196 of the General Corporation Law of the State
of Nevada, the Board of Directors of the Company at a meeting duly held, adopted
resolutions (i) authorizing a series of the Company's previously authorized
preferred stock, par value $100 per share, and (ii) providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of fifteen thousand
(15,000) shares of Series A Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 15,000 shares of Series A
Preferred Stock (the "Preferred Shares"), par value $.01 per share, which shall
have the following powers, designations, preferences and other special rights:
(1) Dividends.
(a) Regular Dividends. Each holder (a "Holder" and, collectively, the "Holders")
of the Preferred Shares shall be entitled to receive on each July 1 and January
1, or if such date is not a Business Day, the immediately subsequent Business
Day, commencing January 1, 2000 (each, a Dividend Payment Date), dividends at a
rate of eight percent (8%) per annum, computed on the basis of $100.00 per
Preferred Share. Such dividends shall be cumulative from (and including) such
Preferred Share's Issuance Date (as defined below) and shall accrue daily,
whether or not earned or declared, thereafter until paid and be calculated on
the basis of a 360 day year. Dividends shall be payable in cash; provided,
however that in lieu of paying such dividends in cash, the Company may, at its
option, pay any or all of such dividends by delivery of a number of shares of
Company common stock equal to the quotient of (x) the dollar amount of the
Regular Dividends to be paid on such Dividend Payment Date, divided by (y) the
Conversion Price determined on the day which is the third (3rd) Business Day
prior to the Dividend Payment Date. In the event the Company pays Regular
Dividends in shares of Company common stock, such common shares shall also have
the registration rights set forth in the Registration Rights Agreement (defined
below) and shall be considered Registrable Securities for purposes of the
Registration Rights Agreement.
(a) Participating Dividends. In the event any dividend or other distribution
payable in cash or other property is declared on the Common Stock (defined
below), each Holder on the record date for such dividend or distribution shall
be entitled to receive per Preferred Share on the date of payment or
distribution of such dividend or other distribution the amount of cash or
property equal to the cash or property which would be received by the Holders of
the number of shares of Common Stock into which such Preferred Share would be
converted pursuant to Section 2 hereof immediately prior to such record date.
(1) Conversion of Preferred Shares. Preferred Shares shall be convertible into
shares of the Company's common stock, par value $.001 per share (the "Common
Stock"), on the terms and conditions set forth in this Section 2.
(a) Certain Defined Terms. For purposes of this Certificate of Designations, the
following terms shall have the following meanings:
(i) "Business Day" means any day in which the Principal Market is open for
business.
(i) "Closing Date" has the same meaning as the term is defined in the Securities
Purchase Agreement, entered into by and between the Company and certain
investors, dated July 16, 1999.
(i) "Conversion Price" means, as of any Conversion Date (as defined below) or
other date of determination, the lower of (A) the Fixed Conversion Price and (B)
the Floating Conversion Price, each in effect as of such date and subject to
adjustment as provided herein.
(i) "Fixed Conversion Price" means $8.5938 subject to adjustment as provided
herein.
(i) "Floating Conversion Price" means, as of any date of determination, the
amount obtained by multiplying (A) the Conversion Percentage in effect as of
such date by (B) the Market Price for the Common Stock, subject to adjustment as
provided herein.
(i) "Conversion Percentage" means eighty percent (80%), subject to adjustment as
provided herein.
(i) "Market Price" means, with respect to any security for any period, that
price which shall be computed as the equally-weighted arithmetic average of the
three (3) lowest Closing Bid Prices (as defined below) for such security during
the period of the thirty (30) consecutive trading days immediately preceding
such date of determination. (All such determinations to be appropriately
adjusted for any stock dividend, stock split or other similar transaction during
such period).
(i) "Closing Bid Price" means, for any security as of any date, the last closing
bid price for such security on the Principal Market (as defined below) as
reported by Bloomberg Financial Markets ("Bloomberg"), or, if the Principal
Market is not the principal securities exchange or trading market for such
security, the last closing bid price of such security on the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price of such
security as reported by Bloomberg, or, if no last closing trade price is
reported for such security by Bloomberg, the average of the bid prices of any
market makers for such security as reported in the "pink sheets" by the National
Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such
security on such date on any of the foregoing bases, the Closing Bid Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the Holders of Preferred Shares. If the Company and the
Holders of Preferred Shares are unable to agree upon the fair market value of
the Common Stock, then such dispute shall be resolved pursuant to Section
2(e)(iii) below with the term "Closing Bid Price" being substituted for the term
"Market Price." (All such determinations to be appropriately adjusted for any
stock dividend, stock split or other similar transaction during such period).
(i) "Closing Sale Price" means, for any security as of any date, the last
closing trade price for such security on the Principal Market (as defined below)
as reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing trade
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing trade price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the last closing ask price of such security as reported
by Bloomberg, or, if no last closing ask price is reported for such security by
Bloomberg, the average of the ask prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Sale Price cannot be calculated for such security on such date on any of
the foregoing bases, the Closing Sale Price of such security on such date shall
be the fair market value as mutually determined by the Company and the Holders
of Preferred Shares. If the Company and the Holders of Preferred Shares are
unable to agree upon the fair market value of the Common Stock, then such
dispute shall be resolved pursuant to Section 2(e)(iii) below with the term
"Closing Sale Price" being substituted for the term "Market Price." (All such
determinations to be appropriately adjusted for any stock dividend, stock split
or other similar transaction during such period).
(i) "Issuance Date" means, with respect to each Preferred Share, the date of
issuance of the applicable Preferred Share.
(i) "Person" means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
(i) "Principal Market" means the Nasdaq National Market [or the Nasdaq Small Cap
Market].
(i) "Registration Rights Agreement" means that certain Registration Rights
Agreement entered into by and between the Company and certain investors, dated
as of July 16, 1999.
(i) "Stated Value" means $100.00.
(a) Holder's Conversion Right. Subject to the provisions of Section 2(d) below,
at any time or times on or after the Issuance Date (as defined below), any
Holder of Preferred Shares shall be entitled to convert any whole number of
Preferred Shares into fully paid and nonassessable shares of Common Stock in
accordance with Section 2(e), at the Conversion Rate (as defined below). The
Company shall not issue any fraction of a share of Common Stock upon any
conversion. All shares of Common Stock (including fractions thereof) issuable
upon conversion of more than one Preferred Share by a Holder thereof shall be
aggregated for purposes of determining whether the conversion would result in
the issuance of a fraction of a share of Common Stock. If, after the
aforementioned aggregation, the issuance would result in the issuance of a
fraction of a share of Common Stock, the Company shall round such fraction of a
share of Common Stock up to the nearest whole share.
(a) Conversion Rate. The number of shares of Common Stock issuable upon
conversion of each Preferred Share pursuant to Section 2(b) shall be determined
according to the following formula (the "Conversion Rate"):
Stated Value
Conversion Price
(a) Limitations on Conversion. Without the prior consent of the Company, a
Holder shall not be entitled to convert any Preferred Shares during the period
beginning on and including the Issuance Date and ending on and including the
date that is 120 days after the Issuance Date. Without the prior consent of the
Company, a Holder shall not be entitled to convert an aggregate number of
Preferred Shares during the period beginning on and including the date which is
121 days after the Issuance Date and ending on and including the date which is
150 days after the Issuance Date in excess of thirty-four percent (34%) of the
number of Preferred Shares purchased by such Holder on such Issuance Date.
Without the prior consent of the Company, a Holder shall not be entitled to
convert an aggregate number of Preferred Shares during the period beginning on
and including the date which is 151 days after the Issuance Date and ending on
and including the date which is 180 days after the Issuance Date in excess of
sixty-seven percent (67%) of the number of Preferred Shares purchased by such
Holder on such Issuance Date. Beginning on and including the date which is 181
days after the Issuance Date, a Holder shall be entitled to convert an aggregate
number of Preferred Shares which is one hundred percent (100%) of the number of
Preferred Shares purchased by such Holder on the Issuance Date.
Notwithstanding the foregoing, the conversion restriction set forth in this
Section 2(d) shall not apply (A) at any time on and after the occurrence of a
Material Adverse Change (as defined below) or (B) at any time on and after the
date of the issuance by the Company of any Convertible Securities (as defined in
Section 2(g)(i)(F) other than the Preferred Shares. For purposes of this
Section 2(d), "Material Adverse Change" means any change, event, result or
happening involving, directly or indirectly, the Company or any of its
subsidiaries resulting in a material adverse effect on the business, prospects,
financial condition or results or operations of the Company and its
subsidiaries, taken as a whole, including, without limitation, an event
constituting a Triggering Event or Major Transaction.
(a) Mechanics of Conversion. The conversion of Preferred Shares shall be
conducted in the following manner:
(i) Holder's Delivery Requirements. To convert Preferred Shares into shares of
Common Stock on any date (the "Conversion Date"), the Holder shall (A) transmit
by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m.,
Central Time on such date, a copy of a fully executed notice of conversion in
the form attached hereto as Exhibit I (the "Conversion Notice") to the Company's
designated transfer agent (the "Transfer Agent") with a copy thereof to the
Company and (B) surrender to a common carrier for delivery to the Transfer Agent
as soon as practicable following such date the original certificates
representing the Preferred Shares being converted (or an indemnification
undertaking with respect to such shares in the case of their loss, theft or
destruction) (the "Preferred Stock Certificates").
(i) Company's Response. Upon receipt by the Company of a copy of a Conversion
Notice, the Company shall immediately send, via facsimile, a confirmation of
receipt of such Conversion Notice to such Holder and the Transfer Agent, which
confirmation shall constitute an instruction to the Transfer Agent to process
such Conversion Notice in accordance with the terms herein. Upon receipt by the
Transfer Agent of the Preferred Stock Certificates to be converted pursuant to a
Conversion Notice, the Transfer Agent shall, on the next business day following
the date of receipt (or the second business day following the date of receipt if
received after 11:00 a.m. local time of the Transfer Agent), (A) issue and
surrender to a common carrier for overnight delivery to the address as specified
in the Conversion Notice, a certificate, registered in the name of the Holder or
its designee, for the number of shares of Common Stock to which the Holder shall
be entitled, or (B) provided the Transfer Agent is participating in The
Depository Trust Company ("DTC") Fast Automated Securities Transfer Program,
upon the request of the Holder, credit such aggregate number of shares of Common
Stock to which the Holder shall be entitled to the Holder's or its designee's
balance account with DTC through its Deposit Withdrawal Agent Commission system.
If the number of Preferred Shares represented by the Preferred Stock
Certificate(s) submitted for conversion is greater than the number of Preferred
Shares being converted, then the Transfer Agent shall, as soon as practicable
and in no event later than three (3) Business Days after receipt of the
Preferred Stock Certificate(s) and at its own expense, issue and deliver to the
Holder a new Preferred Stock Certificate representing the number of Preferred
Shares not converted.
(i) Dispute Resolution. In the case of a dispute as to the determination of the
Market Price or the arithmetic calculation of the Conversion Rate, the Company
shall instruct the Transfer Agent to issue to the Holder the number of shares of
Common Stock that is not disputed and shall submit the disputed determinations
or arithmetic calculations to the Holder via facsimile within one (1) Business
Day of receipt of such Holder's Conversion Notice. If such Holder and the
Company are unable to agree upon the determination of the Market Price or
arithmetic calculation of the Conversion Rate within one (1) Business Day of
such disputed determination or arithmetic calculation being submitted to the
Holder, then the Company shall within one (1) Business Day submit via facsimile
(A) the disputed determination of the Market Price to an independent, reputable
investment bank selected by the affected Holders and approved by the Company or
(B) the disputed arithmetic calculation of the Conversion Rate to the Company's
independent, outside accountant. The Company shall cause the investment bank or
the accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the Holder of the results no later than
forty-eight (48) hours from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shal l be binding upon all parties absent
manifest error.
(i) Record Holder. The person or persons entitled to receive the shares of
Common Stock issuable upon a conversion of Preferred Shares shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
the Conversion Date.
(i) Company's Failure to Timely Convert.
(A) Cash Damages. If within five (5) Business Days after the Transfer Agent's
receipt of the Preferred Stock Certificates to be converted and a copy of the
Conversion Notice (the "Share Delivery Period") the Transfer Agent shall fail to
issue a certificate to a Holder or credit such Holder's balance account with The
Depository Trust Company for the number of shares of Common Stock to which such
Holder is entitled upon such Holder's conversion of Preferred Shares or to issue
a new Preferred Stock Certificate representing the number of Preferred Shares to
which such Holder is entitled pursuant to Section 2(e)(ii) (a "Conversion
Failure"), in addition to all other available remedies which such Holder may
pursue hereunder and under the Securities Purchase Agreement between the Company
and the initial Holders of the Preferred Shares (the "Securities Purchase
Agreement") (including indemnification pursuant to the provisions thereof), the
Company shall pay additional damages to such Holder on each date after such
fifth (5th) Business Day such conversion is not timely effected and/or such
Preferred Stock Certificate is not delivered in an amount equal to 1.0% of the
product of (I) the sum of the number of shares of Common Stock not issued to the
Holder on a timely basis pursuant to Section 2(e)(ii) and to which such Holder
is entitled and, in the event the Company has failed to deliver a Preferred
Stock Certificate to the Holder on a timely basis pursuant to Section 2(e)(ii),
the number of shares of Common Stock issuable upon conversion of the Preferred
Shares represented by such Preferred Stock Certificate, as of the last possible
date which the Company could have issued such Preferred Stock Certificate to
such Holder without violating Section 2(e)(ii) and (II) the Closing Sale Price
of the Common Stock on the last possible date which the Company could have
issued such Common Stock or such Preferred Stock Certificate, as the case may
be, to such Holder without violating Section 2(e)(ii). If the Company fails to
pay the additional damages set forth in this Section 2(e)(v) within five (5)
Business Days of the date incurred, then the Holder entitled to such payments
shall have the right at any time, so long as the Company continues to fail to
make such payments, to require the Company, upon written notice, to immediately
issue, in lieu of such cash damages, the number of shares of Common Stock equal
to the quotient of (X) the aggregate amount of the damages payments described
herein divided by (Y) the Conversion Price in effect on such Conversion Date as
specified by the Holder in the Conversion Notice and such shares of Common Stock
shall be considered Registrable Securities pursuant to the Registration Rights
Agreements and shall have the respective registration rights thereunder.
(B) Void Conversion Notice; Adjustment to Conversion Price. If for any reason a
Holder has not received all of the shares of Common Stock prior to the tenth
(10th) Business Day after the expiration of the Share Delivery Period with
respect to a conversion of Preferred Shares, then the Holder, upon written
notice to the Transfer Agent, with a copy to the Company, may void its
Conversion Notice with respect to, and retain or have returned, as the case may
be, any Preferred Shares that have not been converted pursuant to such Holder's
Conversion Notice; provided that the voiding of a Holder's Conversion Notice
shall not effect the Company's obligations to make any payments which have
accrued prior to the date of such notice pursuant to Section 2(e)(v)(A) or
otherwise. Thereafter, the Fixed Conversion Price of any Preferred Shares
returned or retained by the Holder for failure to timely convert shall be
adjusted to the lesser of (I) the Fixed Conversion Price in effect as on the
date on which the Holder voided the Conversion Notice and (II) the lowest
Closing Bid Price during the period beginning on the Conversion Date and ending
on the date such Holder voided the Conversion Notice.
(i) Pro Rata Conversion and Redemption. In the event the Company receives a
Conversion Notice from more than one Holder of Preferred Shares for the same
Conversion Date and the Company can convert some, but not all, of such Preferred
Shares, the Company shall convert from each Holder of Preferred Shares electing
to have Preferred Shares converted at such time a pro rata amount of such
Holder's Preferred Shares submitted for conversion based on the number of
Preferred Shares submitted for conversion on such date by such Holder relative
to the number of Preferred Shares submitted for conversion on such date.
(i) [Reserved.]
(a) Taxes. The Company shall pay any and all taxes that may be payable with
respect to the issuance and delivery of Common Stock upon the conversion of
Preferred Shares.
(a) Adjustments to Conversion Price. The Conversion Price will be subject to
adjustment from time to time as provided in this Section 2(g).
(i) Adjustment of Fixed Conversion Price upon Issuance of Common Stock. If and
whenever on or after the date of issuance of the Preferred Shares, the Company
issues or sells, or in accordance with this Section 2(g) is deemed to have
issued or sold, any shares of Common Stock (including the issuance or sale of
shares of Common Stock owned or held by or for the account of the Company, but
excluding shares of Common Stock deemed to have been issued by the Company in
connection with an Approved Stock Plan (as defined below) or upon conversion of
the Preferred Shares) for a consideration per share less than the lesser of (A)
the Market Price of the Common Stock on the date of such issuance or sale and
(B) the Fixed Conversion Price in effect immediately prior to such time (the
"Applicable Price"), then immediately after such issue or sale, the Fixed
Conversion Price then in effect shall be reduced to an amount equal to the
product of (x) the Fixed Conversion Price in effect immediately prior to such
issue or sale and (y) the quotient of (1) the sum of (I) the product of the
Applicable Price and the number of shares of Common Stock Deemed Outstanding (as
defined below) immediately prior to such issue or sale and (II) the
consideration, if any, received by the Company upon such issue or sale, divided
by (2) the product of (I) the Applicable Price multiplied by (II) the number of
shares of Common Stock Deemed Outstanding immediately after such issue or sale.
For purposes of determining the adjusted Fixed Conversion Price under this
Section 2(g)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion or exchange of
any Convertible Securities issuable upon exercise of such Option is less than
the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this
Section 2(g)(i)(A), the "lowest price per share for which one share of Common
Stock is issuable upon the exercise of any such Option or upon conversion or
exchange of any Convertible Securities issuable upon exercise of such Option"
shall be equal to the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one share of Common
Stock upon granting or sale of the Option, upon exercise of the Option and upon
conversion or exchange of any Convertible Security issuable upon exercise of
such Option. No further adjustment of the Fixed Conversion Price shall be made
upon the actual issuance of such Common Stock or of such Convertible Securities
upon the exercise of such Options or upon the actual issuance of such Common
Stock upon conversion or exchange of such Convertible Securities.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 2(g)(i)(A) to the extent that such adjustment is based solely on the
fact that the Convertible Securities issuable upon exercise of such Option are
convertible into or exchangeable for Common Stock at a price which varies with
the market price of the Common Stock.
(B) Issuance of Convertible Securities. If the Company in any manner issues or
sells any Convertible Securities and the lowest price per share for which one
share of Common Stock is issuable upon such conversion or exchange thereof is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the issuance of sale of such Convertible Securities for such price per share.
For the purposes of this Section 2(g)(i)(B), the "price per share for which one
share of Common Stock is issuable upon such conversion or exchange" shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common Stock upon the
issuance or sale of the Convertible Security and upon the conversion or exchange
of such Convertible Security. No further adjustment of the Fixed Conversion
Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Fixed Conversion Price had been or are to be made
pursuant to other provisions of this Section 2(g)(i), no further adjustment of
the Fixed Conversion Price shall be made by reason of such issue or sale.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 2(g)(i)(B) to the extent that such adjustment is based solely on the
fact that such Convertible Securities are convertible into or exchangeable for
Common Stock at a price which varies with the market price of the Common Stock.
(C) Change in Option Price or Rate of Conversion. If the purchase price provided
for in any Options, the additional consideration, if any, payable upon the
issue, conversion or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exchangeable for Common
Stock changes at any time, the Fixed Conversion Price in effect at the time of
such change shall be adjusted to the Fixed Conversion Price which would have
been in effect at such time had such Options or Convertible Securities provided
for such changed purchase price, additional consideration or changed conversion
rate, as the case may be, at the time initially granted, issued or sold. For
purposes of this Section 2(g)(i)(C), if the terms of any Option or Convertible
Security that was outstanding as of the date of issuance of the Preferred Shares
are changed in the manner described in the immediately preceding sentence, then
such Option or Convertible Security and the Common Stock deemed issuable upon
exercise, conversion or exchange thereof shall be deemed to have been issued as
of the date of such change. No adjustment shall be made if such adjustment would
result in an increase of the Fixed Conversion Price then in effect.
(i) Treatment of Expired Options and Unexercised Convertible Securities. If, in
any case, the total number of shares of Common Stock issuable upon the exercise
of any Option or upon exercise, conversion or exchange of any Convertible
Security is not, in fact, issued and the rights to exercise or terminated, the
Fixed Conversion Price then in effect will be readjusted to the Fixed Conversion
Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof) never been issued.
(D) Calculation of Consideration Received. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options will be deemed to
have been issued for a consideration of $.01. If any Common Stock, Options or
Convertible Securities are issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor will be deemed to be the net
amount received by the Company therefor. If any Common Stock, Options or
Convertible Securities are issued or sold for a consideration other than cash,
the amount of the consideration other than cash received by the Company will be
the fair value of such consideration, except where such consideration consists
of securities, in which case the amount of consideration received by the Company
will be the fair market value of such securities on the date of receipt. If any
Common Stock, Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the Company is the
surviving entity, the amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash or securities will be determined jointly by the Company and the Holders of
a majority of the Preferred Shares then outstanding. If such parties are unable
to reach agreement within 10 days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such consideration will be
determined within five business days after the tenth (10th) day following the
Valuation Event by an independent, reputable appraiser jointly selected by the
Company and the Holders of a majority of the Preferred Shares then outstanding.
The determination of such appraiser shall be deemed binding upon all parties
absent manifest error and the fees and expenses of such appraiser shall be borne
by the Company.
(E) Record Date. If the Company takes a record of the holders of Common Stock
for the purpose of entitling them (1) to receive a dividend or other
distribution payable in Common Stock, Options or in Convertible Securities or
(2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(F) Certain Definitions. For purposes of this Section 2(g)(i), the following
terms have the respective meanings set forth below:
(I) "Approved Stock Plan" shall mean any employee benefit plan which has been
approved by the Board of Directors of the Company, pursuant to which the
Company's securities may be issued to any employee, officer, director,
consultant or other service provider for services provided to the Company.
(II) "Common Stock Deemed Outstanding" means, at any given time, the number of
shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Sections 2(g)(i)(A)
and 2(g)(i)(B) hereof regardless of whether the Options or Convertible
Securities are actually exercisable at such time, but excluding any shares of
Common Stock owned or held by or for the account of the Company or issuable upon
conversion of the Preferred Shares.
(III) "Options" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
(IV) "Convertible Securities" means any stock or securities (other than Options)
directly or indirectly convertible into or exchangeable for Common Stock.
(ii) Adjustment of Fixed Conversion Price upon Subdivision or Combination of
Common Stock. If the Company at any time subdivides (by any stock split, stock
dividend, recapitalization or otherwise) one or more classes of its outstanding
shares of Common Stock into a greater number of shares, the Fixed Conversion
Price in effect immediately prior to such subdivision will be proportionately
reduced. If the Company at any time combines (by combination, reverse stock
split or otherwise) one or more classes of its outstanding shares of Common
Stock into a smaller number of shares, the Fixed Conversion Price in effect
immediately prior to such combination will be proportionately increased.
(iii) [Reserved].
(iv) Holder's Right of Alternative Floating Conversion Price Following Issuance
of Convertible Securities. If after the Closing Date the Company in any manner
issues or sells Convertible Securities that are convertible into or exchangeable
for Common Stock at a price which varies with the market price of the Common
Stock (the formulation for such variable price being herein referred to as, the
"Variable Price") and such Variable Price is not calculated using the same
formula used to calculate the Floating Conversion Price in effect immediately
prior to the time of such issue or sale, the Company shall provide written
notice thereof via facsimile and overnight courier to each Holder of the
Preferred Shares ("Variable Notice") on the date of issuance of such Convertible
Securities. From and after the date the Company issues any such Convertible
Securities with a Variable Price, a Holder of Preferred Shares shall have the
right, but not the obligation, in its sole discretion to substitute the Variable
Price for the Floating Conversion Price upon conversion of any Preferred Shares
by designating in the Conversion Notice delivered upon conversion of such
Preferred Shares that solely for purposes of such conversion the Holder is
relying on the Variable Price rather than the Floating Conversion Price then in
effect. A Holder's election to rely on a Variable Price for a particular
conversion of Preferred Shares shall not obligate the Holder to rely on a
Variable Price for any future conversions of Preferred Shares.
(v) Other Events. If any event occurs of the type contemplated by the provisions
of this Section 2(e) but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Conversion Price
so as to protect the rights of the Holders of the Preferred Shares; provided
that no such adjustment will increase the Conversion Price as otherwise
determined pursuant to this Section 2(e).
(vi) Notices.
(A) Immediately upon any adjustment of the Conversion Price, the Company will
give written notice thereof to each Holder of Preferred Shares, setting forth in
reasonable detail, and certifying, the calculation of such adjustment.
(B) The Company will give written notice to each Holder of Preferred Shares at
least twenty (20) days prior to the date on which the Company closes its books
or takes a record (I) with respect to any dividend or distribution upon the
Common Stock, (II) with respect to any pro rata subscription offer to holders of
Common Stock or (III) for determining rights to vote with respect to any Organic
Change (as defined below), dissolution or liquidation, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such Holder.
(C) The Company will also give written notice to each Holder of Preferred Shares
at least twenty (20) days prior to the date on which any Organic Change,
dissolution or liquidation will take place, provided that such information shall
be made known to the public prior to or in conjunction with such notice being
provided to such Holder.
(1) Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition to all other rights of
the Holders of Preferred Shares contained herein, upon the consummation of a
Major Transaction (as defined below), each Holder of Preferred Shares shall have
the right, at such Holder's option, to require the Company to redeem all or a
portion of such Holder's Preferred Shares at a price per Preferred Share equal
to the greater of (i) 125% of the Stated Value of such Preferred Share and (ii)
the product of (A) the Conversion Rate in effect at such time as such Holder
delivers a Notice of Redemption at Option of Buyer Upon Major Transaction (as
defined below) and (B) the Closing Sale Price of the Common Stock on the date
immediately preceding such Major Transaction on which the Principal Market, or
the market or exchange where the Common Stock is then traded, is open for
trading ("Major Transaction Redemption Price").
(a) Redemption Option Upon Triggering Event. In addition to all other rights of
the Holders of Preferred Shares contained herein, after a Triggering Event (as
defined below), each Holder of Preferred Shares shall have the right, at such
Holder's option, to require the Company to redeem all or a portion of such
Holder's Preferred Shares at a price per Preferred Share equal to the greater of
(i) 125% of the Stated Value and (ii) the product of (A) the Conversion Rate in
effect at such time as such Holder delivers a Notice of Redemption at Option of
Buyer Upon a Triggering Event (as defined below) and (B) the Closing Sale Price
of the Common Stock on the date immediately preceding such Triggering Event on
which the Principal Market, or the market or exchange where the Common Stock is
then traded, is open for trading ("Triggering Event Redemption Price" and,
collectively with "Major Transaction Redemption Price," the "Redemption Price").
(a) "Major Transaction". A "Major Transaction" shall be deemed to have occurred
at such time as any of the following events:
(i) the consolidation, merger or other business combination of the Company with
or into another Person (other than pursuant to a migratory merger effected
solely for the purpose of changing the jurisdiction of incorporation of the
Company) involving the issuance, exchange or sale of more than 30% of the shares
of Common Stock then outstanding;
(i) the sale or transfer of all or substantially all of the Company's assets; or
(i) a purchase, tender or exchange offer made to the holders of more than 30% of
the outstanding shares of Common Stock.
(a) "Triggering Event". A "Triggering Event" shall be deemed to have occurred at
such time as any of the following events:
(i) the failure of the Registration Statement to be declared effective by the
SEC on or prior to the date that is 120 days after the Issuance Date;
(i) while the Registration Statement is required to be maintained effective
pursuant to the terms of the Registration Rights Agreement, the effectiveness of
the Registration Statement lapses for any reason (including, without limitation,
the issuance of a stop order) or is unavailable to the Holder of the Preferred
Shares for sale of all of the Registrable Securities (as defined in the
Registration Rights Agreement) in accordance with the terms of the Registration
Rights Agreement, and such lapse or unavailability continues for a period of
five (5) consecutive trading days, provided that the cause of such lapse or
unavailability is not due to factors solely within the control of such Holder of
Preferred Shares;
(i) the suspension from trading or failure of the Common Stock to be listed on
the Nasdaq National Market, The New York Stock Exchange, Inc. or The American
Stock Exchange, Inc. for a period of five (5) consecutive trading days or for
more than an aggregate of ten (10) trading days in any 365-day period (provided
that such failure shall not constitute a Triggering Event if caused by Holders
of Preferred Shares pursuant to Section 4(c) below);
(i) the Company's or the Transfer Agent's notice to any Holder of Preferred
Shares, including by way of public announcement, at any time, of its intention
not to comply with a request for conversion of any Preferred Shares into shares
of Common Stock that is tendered in accordance with the provisions of this
Certificate of Designations, or the failure of the Transfer Agent to comply with
a Conversion Notice tendered in accordance with the provisions of this
Certificate of Designations within ten (10) Business Days after the receipt by
the Transfer Agent of the Conversion Notice;
(i) upon the Company's receipt of a Conversion Notice, the Company shall not be
obligated to issue the Conversion Shares due to the provisions of Section 12; or
(i) the Company breaches any representation, warranty, covenant or other term or
condition of the Securities Purchase Agreement, the Registration Rights
Agreement, this Certificate of Designations or any other agreement, document,
certificate or other instrument delivered in connection with the transactions
contemplated thereby and hereby, except to the extent that such breach would not
have a Material Adverse Effect (as defined in Section 3(a) of the Securities
Purchase Agreement) and except, in the case of a breach of a covenant which is
curable, only if such breach continues for a period of at least ten (10) days.
(a) Mechanics of Redemption at Option of Buyer Upon Major Transaction. No sooner
than 15 days nor later than 10 days prior to the consummation of a Major
Transaction, the Company shall deliver written notice thereof via facsimile and
overnight courier ("Notice of Major Transaction") to each Holder of Preferred
Shares, which notice shall include the date by which a Holder receiving a Notice
of Major Transaction must provide the Company with notice of its intent to
exercise its redemption rights hereunder (which date shall not be sooner than
five business days after the date of the Notice of Major Transaction (the "Major
Transaction Response Date")). The Company shall publicly disclose the material
facts of such Major Transaction prior to or concurrently with providing the
Notice of Major Transaction, such public disclosure to be made not later than 10
days prior to the consummation of such Major Transaction. At any time after
receipt of a Notice of Major Transaction and prior to the Major Transaction
Response Date (or, in the event a Notice of Major Transaction is not delivered
at least 10 days prior to a Major Transaction, at any time prior to the
consummation of a Major Transaction) any Holder of Preferred Shares then
outstanding may require the Company to redeem all of the Holder's Preferred
Shares then outstanding by delivering written notice thereof via facsimile and
overnight courier ("Notice of Redemption at Option of Buyer Upon Major
Transaction") to the Company, which Notice of Redemption at Option of Buyer Upon
Major Transaction shall indicate (i) the number of Preferred Shares that such
Holder is electing to redeem and (ii) the applicable Major Transaction
Redemption Price, as calculated pursuant to Section 3(a).
(a) Mechanics of Redemption at Option of Buyer Upon Triggering Event. Within one
(1) day after the occurrence of a Triggering Event, the Company shall deliver
written notice thereof via facsimile and overnight courier ("Notice of
Triggering Event") to each Holder of Preferred Shares. At any time after the
earlier of a Holder's receipt of a Notice of Triggering Event and such Holder
becoming aware of a Triggering Event, any Holder of Preferred Shares then
outstanding may require the Company to redeem all of the Preferred Shares by
delivering written notice thereof via facsimile and overnight courier ("Notice
of Redemption at Option of Buyer Upon Triggering Event") to the Company, which
Notice of Redemption at Option of Buyer Upon Triggering Event shall indicate (i)
the number of Preferred Shares that such Holder is electing to redeem and (ii)
the applicable Triggering Event Redemption Price, as calculated pursuant to
Section 3(b) above.
(a) Payment of Redemption Price. Upon the Company's receipt of a Notice(s) of
Redemption at Option of Buyer Upon Major Transaction or a Notice(s) of
Redemption at Option of Buyer Upon Triggering Event, as the case may be, from
any Holder of Preferred Shares, the Company shall immediately notify each Holder
of Preferred Shares by facsimile of the Company's receipt of such notices and
each Holder which has sent such a notice shall promptly submit to the Transfer
Agent such Holder's Preferred Stock Certificates which such Holder has elected
to have redeemed. The Company shall deliver the applicable Redemption Price to
such Holder within five (5) Business Days after the Company's receipt of a
Notice of Redemption at Option of Buyer Upon Triggering Event or Notice of
Redemption at Option of Buyer Upon Major Transaction; provided that a Holder's
Preferred Stock Certificates shall have been so delivered to the Transfer Agent.
If the Company is unable to redeem all of the Preferred Shares submitted for
redemption, the Company shall (i) redeem a pro rata amount from each Holder of
Preferred Shares based on the number of Preferred Shares submitted for
redemption by such Holder relative to the total number of Preferred Shares
submitted for redemption by all Holders of Preferred Shares and (ii) in addition
to any remedy such Holder of Preferred Shares may have under this Certificate of
Designations and the Securities Purchase Agreement, pay to each Holder interest
at the rate of 2.0% per month (prorated for partial months) in respect of each
unredeemed Preferred Share until paid in full.
(a) Void Redemption. In the event that the Company does not pay the Redemption
Price within the time period set forth in Section 3(g), at any time thereafter
and until the Company pays such unpaid applicable Redemption Price in full, a
Holder of Preferred Shares shall have the option (the "Void Optional Redemption
Option") to, in lieu of redemption, require the Company to promptly return to
such Holder any or all of the Preferred Shares that were submitted for
redemption by such Holder under this Section 3 and for which the applicable
Redemption Price (together with any interest thereon) has not been paid, by
sending written notice thereof to the Company via facsimile (the "Void Optional
Redemption Notice"). Upon the Company's receipt of such Void Optional Redemption
Notice, (i) the Notice of Redemption at Option of Buyer Upon Triggering Event or
the Notice of Redemption at Option of Buyer Upon Major Transaction, as the case
may be, shall be null and void with respect to those Preferred Shares subject to
the Void Optional Redemption Notice, (ii) the Company shall immediately return
any Preferred Shares subject to the Void Optional Redemption Notice, (iii) the
Fixed Conversion Price of such returned Preferred Shares shall be adjusted to
the lesser of (A) the Fixed Conversion Price as in effect on the date on which
the Void Optional Redemption Notice is delivered to the Company and (B) the
lowest Closing Bid Price during the period beginning on the date on which the
Notice of Redemption at Option of Buyer Upon Major Transaction or the Notice of
Redemption at Option of Buyer Upon Triggering event, as the case may be, is
delivered to the Company and ending on the date on which the Void Optional
Redemption Notice is delivered to the Company, and (iv) the Conversion
Percentage in effect at such time shall be reduced by a number of percentage
points equal to the product of (A) .25 and (B) the number of days in the period
beginning on the date which is five business days after the date on which the
Notice of Redemption at Option of Buyer Upon Major Transaction or the Notice of
Redemption at Option of Buyer Upon Triggering Event, as the case may be, is
delivered to the Company and ending on the date on which the Void Optional
Redemption Notice is delivered to the Company.
(a) Disputes; Miscellaneous. In the event of a dispute as to the determination
of the Closing Bid Price, the Closing Sale Price or the arithmetic calculation
of the Redemption Price, such dispute shall be resolved pursuant to Section
2(e)(iii) above with the term "Closing Bid Price" and/or "Closing Sale Price",
as the case may be, being substituted for the term "Market Price" and the term
"Redemption Price" being substituted for the term "Conversion Rate". A Holder's
delivery of a Void Optional Redemption Notice and exercise of its rights
following such notice shall not effect the Company's obligations to make any
payments which have accrued prior to the date of such notice. Payments provided
for in this Section 3 shall have priority to payments to other stockholders in
connection with a Major Transaction. In the event of a redemption pursuant to
this Section 3 of less than all of the Preferred Shares represented by a
particular Preferred Stock Certificate, the Company shall promptly cause to be
issued and delivered to the Holder of such Preferred Shares a preferred stock
certificate representing the remaining Preferred Shares which have not been
redeemed.
(1) Other Rights of Holders.
(a) Reorganization, Reclassification, Consolidation, Merger or Sale. Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Company's assets to another Person or other
transaction which is effected in such a way that holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic Change". Prior to the consummation of any (i) sale of all
or substantially all of the Company's assets to an acquiring Person or (ii)
other Organic Change following which the Company is not a surviving entity, the
Company will secure from the Person purchasing such assets or the successor
resulting from such Organic Change (in each case, the "Acquiring Entity") a
written agreement (in form and substance satisfactory to the Holders of a
majority of the Preferred Shares then outstanding) to deliver to each Holder of
Preferred Shares in exchange for such shares, a security of the Acquiring Entity
evidenced by a written instrument substantially similar in form and substance to
the Preferred Shares, including, without limitation, having a stated value and
liquidation preference equal to the Stated Value and the Liquidation Preference
of the Preferred Shares held by such Holder, and satisfactory to the Holders of
a majority of the Preferred Shares then outstanding. Prior to the consummation
of any other Organic Change, the Company shall make appropriate provision (in
form and substance satisfactory to the Holders of a majority of the Preferred
Shares then outstanding) to insure that each of the Holders of the Preferred
Shares will thereafter have the right to acquire and receive in lieu of or in
addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such Holder's
Preferred Shares such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock which would have been acquirable and receivable
upon the conversion of such Holder's Preferred Shares as of the date of such
Organic Change (without taking into account any limitations or restrictions on
the convertibility of the Preferred Shares).
(b) Purchase Rights. If at any time the Company grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then the Holders of Preferred Shares will
be entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such Holder could have acquired if such Holder
had held the number of shares of Common Stock acquirable upon complete
conversion of the Preferred Shares (without taking into account any limitations
or restrictions on the convertibility of the Preferred Shares) immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record Holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.
(c) Forced Delisting. If a redemption voided pursuant to Section 3(h) was caused
by a Triggering Event involving the Company's inability to issue Conversion
Shares because of the Primary Exchange Cap (as defined in Section 12), and if so
directed by the Holders of at least two-thirds (2/3) of the Preferred Shares
then outstanding, including shares of Preferred Shares submitted for redemption
pursuant to Section 3 with respect to which the applicable Redemption Price has
not been paid, in a Void Mandatory Redemption Notice, the Company shall
immediately delist the Common Stock from exchange or automated quotation system
on which the Common Stock is traded and have the Common Stock, at such Holders'
option, traded on the electronic bulletin board or the "pink sheets".
(1) [Reserved.]
(1) Reservation of Shares.
(a) Authorized and Reserved Amount. The Company shall, at all times so long as
any of the Preferred Shares are outstanding, reserve and keep available out of
its authorized and unissued Common Stock, solely for the purpose of effecting
the conversion of the Preferred Shares, such number of shares (the Reserved
Amount) of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Preferred Shares then outstanding; provided that the
number of shares of Common Stock so reserved shall at no time be less than two
hundred percent (200%) of the number of shares of Common Stock for which the
Preferred Shares are at any time convertible (including but not limited to any
accrued but unpaid Regular Dividends, assuming any such accrued but unpaid
Regular Dividends are paid on such date by delivery of shares of Common Stock if
the Company elected to pay such Regular Dividends in Common Stock) (the Minimum
Amount). The initial number of shares of Common Stock reserved for conversions
of the Preferred Shares and each increase in the number of shares so reserved
shall be allocated pro rata among the Holders of the Preferred Shares based on
the number of Preferred Shares held by each Holder at the time of issuance of
the Preferred Shares or increase in the number of reserved shares, as the case
may be. In the event a Holder shall sell or otherwise transfer any of such
Holder's Preferred Shares, each transferee shall be allocated a pro rata portion
of the number of reserved shares of Common Stock reserved for such transferor.
Any shares of Common Stock reserved and allocated to any Person which ceases to
hold any Preferred Shares shall be allocated to the remaining Holders of
Preferred Shares, pro rata based on the number of Preferred Shares then held by
such Holders.
(b) Increases to Reserved Amount. Without limiting any other provision of this
Section 6, if the Reserved Amount for any three (3) consecutive trading days
(the last of such three (3) trading days being the Reservation Trigger Date)
shall be less than two hundred percent (200%) of the number of shares of Common
Stock issuable upon conversion of the Preferred Shares on such trading days (a
Share Authorization Failure), the Company shall immediately notify all Holders
of such occurrence and shall take action as soon as possible, but in any event
within thirty (30) days after a Reservation Trigger Date (including, if
necessary, seeking shareholder approval to authorize the issuance of additional
shares of Common Stock) to increase the Reserved Amount to two hundred fifty
percent (250%) of the number of shares of Common Stock then issuable upon
conversion of the Preferred Shares.
(1) Voting Rights. Holders of Preferred Shares shall have no voting rights,
except as required by law, including but not limited to the General Corporation
Law of the State of Nevada, and as expressly provided in this Certificate of
Designations.
(1) Liquidation, Dissolution, Winding-Up. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the Holders
of the Preferred Shares shall be entitled to receive in cash out of the assets
of the Company, whether from capital or from earnings available for distribution
to its stockholders (the "Liquidation Funds"), before any amount shall be paid
to the holders of any of the capital stock of the Company of any class junior in
rank to the Preferred Shares in respect of the preferences as to the
distributions and payments on the liquidation, dissolution and winding up of the
Company, an amount per Preferred Share equal to $100 and any accrued but unpaid
Regular Dividends and Participating Dividends (such sum being referred to as the
"Liquidation Preference"); provided that, if the Liquidation Funds are
insufficient to pay the full amount due to the Holders of Preferred Shares and
holders of shares of other classes or series of preferred stock of the Company
that are of equal rank with the Preferred Shares as to payments of Liquidation
Funds (the "Pari Passu Shares"), then each Holder of Preferred Shares and Pari
Passu Shares shall receive a percentage of the Liquidation Funds equal to the
full amount of Liquidation Funds payable to such Holder as a liquidation
preference, in accordance with their respective Certificate of Designations,
Preferences and Rights, as a percentage of the full amount of Liquidation Funds
payable to all Holders of Preferred Shares and holders of Pari Passu Shares. In
addition to the receipt of the Liquidation Preference, in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the Holders of the Preferred Shares shall be entitled to receive Liquidation
Funds distributed to holders of Common Stock, after the Liquidation Preference
has been paid, to the same extent as if such Holders of Preferred Shares had
converted the Preferred Shares into Common Stock (without regard to any
limitations on conversions herein or elsewhere) and had held such shares of
Common Stock on the record date for such distribution of the remaining
Liquidation Funds. The purchase or redemption by the Company of stock of any
class, in any manner permitted by law, shall not, for the purposes hereof, be
regarded as a liquidation, dissolution or winding up of the Company. Neither the
consolidation or merger of the Company with or into any other Person, nor the
sale or transfer by the Company of less than substantially all of its assets,
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Company. No Holder of Preferred Shares shall be entitled to
receive any amounts with respect thereto upon any liquidation, dissolution or
winding up of the Company other than the amounts provided for herein; provided
that a Holder of Preferred Shares shall be entitled to all amounts previously
accrued with respect to amounts owed hereunder.
(1) Preferred Rank. All shares of Common Stock shall be of junior rank to all
Preferred Shares in respect to the preferences as to distributions and payments
upon the liquidation, dissolution and winding up of the Company. The rights of
the shares of Common Stock shall be subject to the preferences and relative
rights of the Preferred Shares. Without the prior express written consent of the
Holders of not less than two-thirds (2/3) of the then outstanding Preferred
Shares, the Company shall not hereafter authorize or issue additional or other
capital stock that is of senior or equal rank to the Preferred Shares in respect
of the preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Company. Without the prior express written
consent of the Holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, the Company shall not hereafter authorize or make any
amendment to the Company's Articles of Incorporation or bylaws, or file any
resolution of the board of directors of the Company with the Nevada Secretary of
State or enter into any agreement containing any provisions, which would
adversely affect or otherwise impair the rights or relative priority of the
Holders of the Preferred Shares relative to the holders of the Common Stock or
the holders of any other class of capital stock. In the event of the merger or
consolidation of the Company with or into another corporation, the Preferred
Shares shall maintain their relative powers, designations and preferences
provided for herein and no merger shall result inconsistent therewith.
(1) Participation. Subject to the rights of the Holders, if any, of the Pari
Passu Shares, the Holders of the Preferred Shares shall, as Holders of Preferred
Stock, be entitled to such dividends paid and distributions made to the holders
of Common Stock to the same extent as if such Holders of Preferred Shares had
converted the Preferred Shares into Common Stock (without regard to any
limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions. Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.
(1) Restriction on Redemption and Cash Dividends. Until all of the Preferred
Shares have been converted or redeemed as provided herein, the Company shall
not, directly or indirectly, redeem, or declare or pay any cash dividend or
distribution on, its Common Stock without the prior express written consent of
the Holders of not less than two-thirds (2/3) of the then outstanding Preferred
Shares.
(1) Limitation on Number of Conversion Shares. The Company shall not be
obligated to issue any shares of Common Stock upon conversion of the Preferred
Shares if the issuance of such shares of Common Stock would exceed that number
of shares of Common Stock which the Company may issue upon Conversion of the
Preferred Shares (the "Exchange Cap") without breaching the Company's
obligations under the rules or regulations of the Principal Market, or the
market or exchange where the Common Stock is then traded, except that such
limitation shall not apply in the event that the Company (a) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market, or the market or exchange where the Common Stock is then
traded, (or any successor rule or regulation) for issuances of Common Stock in
excess of such amount or (b) obtains a written opinion from outside counsel to
the Company that such approval is not required, which opinion shall be
reasonably satisfactory to the Holders of a majority of the Preferred Shares
then outstanding. Until such approval or written opinion is obtained, no
purchaser of Preferred Shares pursuant to the Securities Purchase Agreement (the
"Purchasers") shall be issued, upon conversion of Preferred Shares, shares of
Common Stock in an amount greater than the product of (i) the Exchange Cap
amount multiplied by (ii) a fraction, the numerator of which is the number of
Preferred Shares issued to such Purchaser pursuant to the Securities Purchase
Agreement and the denominator of which is the aggregate amount of all the
Preferred Shares issued to the Purchasers pursuant to the Securities Purchase
Agreement (the "Cap Allocation Amount"). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser's Preferred Shares, the
transferee shall be allocated a pro rata portion of such Purchaser's Cap
Allocation Amount. In the event that any Holder of Preferred Shares shall
convert all of such Holder's Preferred Shares into a number of shares of Common
Stock which, in the aggregate, is less than such Holder's Cap Allocation Amount,
then the difference between such Holder's Cap Allocation Amount and the number
of shares of Common Stock actually issued to such Holder shall be allocated to
the respective Cap Allocation Amounts of the remaining Holders of Preferred
Shares on a pro rata basis in proportion to the number of Preferred Shares then
held by each such Holder.
(1) Vote to Change the Terms of Preferred Shares. The affirmative vote at a
meeting duly called for such purpose or the written consent without a meeting,
of the Holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, shall be required for any change to this Certificate of
Designations or the Company's Articles of Incorporation which would amend,
alter, change or repeal any of the powers, designations, preferences and rights
of the Preferred Shares.
(1) Lost or Stolen Certificates. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of any indemnification
undertaking by the Holder to the Company in customary form and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the Holder
contemporaneously requests the Company to convert such Preferred Shares into
Common Stock.
(1) Remedies, Characterizations, Other Obligations, Breaches and Injunctive
Relief. The remedies provided in this Certificate of Designations shall be
cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a Holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each Holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the Holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Holders of the
Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the Holders of the Preferred Shares shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
(1) Specific Shall Not Limit General; Construction. No specific provision
contained in this Certificate of Designations shall limit or modify any more
general provision contained herein. This Certificate of Designations shall be
deemed to be jointly drafted by the Company and all Buyers and shall not be
construed against any person as the drafter hereof.
(1) Failure or Indulgence Not Waiver. No failure or delay on the part of a
Holder of Preferred Shares in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to
be signed by Michael Muzio, its President, and Gregg Vosler, its Secretary, as
of the 16th day of July, 1999.
TRIMFAST GROUP, INC.
By: /s/ Michael Muzio
Name: Michael Muzio
Title: President
By: /s/ Greg Vosler
Name: Greg Vosler
Title: Secretary
State of ______________ )
) ss
County of ____________ )
I, ___________________________________, a Notary Public, do hereby affirm that
the signatures of ____________________, and ___________________ are true and
correct. I hereto affix my notary seal this _____ day of ____________, 199__.
___________________________________
[Name]
My Commission Expires:
___________________________________
<PAGE>
EXHIBIT I
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
TrimFast Group, Inc. (the "Certificate of Designations"). In accordance with and
pursuant to the Certificate of Designations, the undersigned hereby elects to
convert the number of shares of Series [A] Preferred Stock, par value $100 per
share (the "Preferred Shares"), of TrimFast Group, Inc., a Nevada corporation
(the "Company"), indicated below into shares of Common Stock, par value $____
per share (the "Common Stock"), of the Company, by tendering the stock
certificate(s) representing the share(s) of Preferred Shares specified below as
of the date specified below.
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock to be issued:
Is the alternative Floating Conversion Price being relied on pursuant to Section
2(g)(iv) of the Certificate of Designations? (check one) YES ____ No ____
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
By:
Title:
Dated:
Account Number:
(if electronic book entry transfer):
Transaction Code Number
(if electronic book entry transfer):
MERCHANDISING LICENSE AGREEMENT
Date: as of June 2, 1999
Property: World Championship Wrestling
License No.: D993287
WCW LICENSEE
WORLD CHAMPIONSHIP WRESTLING, INC. TRIMFAST GROUP, INC.
One CNN Center 777 South Harbour Island Blvd., #260
l2th Floor, South Tower Tampa, FL 33602
Atlanta, Georgia 30348-5366
Contact: Michael J. Muzio
Tel: 8l3-275-0050
Fax: 813-275-0051
This Agreement is made as of the date specified above between WCW on
behalf of itself and its parent, subsidiaries and affiliates (the foregoing
collectively, "Related Entities") and Licensee, whereby WCW grants Licensee a
license to utilize certain names, likenesses, characters, trademarks and/or
copyrights in connection with the manufacture, distribution, advertising,
promotion and sale of certain articles of merchandise on the following terms and
conditions:
1. Licensed Elements: See Schedule "1" attached below.
2. Authorized Articles: Trimfast Energy Bars (WCW Bars) in 3 flavors:
chocolate, chocolate chip; chocolate peanut butter;
and Passion fruit
Licensee is limited to the foregoing Authorized Articles as
currently manufactured by Licensee with the ingredients set
out in Exhibit A*. Licensee has provided WCW with a complete
list of its entire current product line. Licensee shall from
time to time provide WCW with an updated list of its current
product line. In the event WCW objects to any products being
produced or sold by Licensee, Licensee shall discontinue
production and sale of such products within sixty (60) days of
notice by WCW or WCW may terminate this Licensee agreement
immediately without recourse.
*(Exhibit A)
Ingredients: High fructose, corn syrup, chocolate coating
(contains turbinado sugar, fractionated vegetable oils,
non-fat dry mild, cocoa, soy lecithin, and salt), cocoa
powder, chocolate chips, calcium, etc.
3. Licensed Territory: U.S., its territories and possessions & U.S. Military
Installations
The Authorized Articles may only be distributed in the Licensed Territory.
Licensee shall impose the obligation on its customers to sell the
Authorized Articles only within the Licensed Territory and shall not
knowingly sell Authorized Articles to persons or entities whom Licensee
knows, or reasonably should know, intend to resell or
<PAGE>
7. Advance/Guarantee: Advance: $50,000 (already received)
Balance of
Guarantee: $500,000
Total of Guarantee: $550,000 (includes advance)
The non-refundable Advance of $50,000 is payable in full concurrently with
WCW's receipt of copies of this Agreement (without amendments or
modifications) signed by Licensee, which in any event will be not later
than the date fourteen (14) days after Licensee receives copies of this
Agreement for signature.
The balance of the Guarantee is payable in installments as follows:
$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
$100,000 due no later than 6/30/01
(All references to "Dollar(s)" and/or "$" anywhere in this Agreement will
refer to United States Dollars.)
8. Marketing Date: Marketing of each of the Authorized Articles will begin no
later than October 1, 1999.
9. Shipping Date: Shipment to retailers of each of the Authorized Articles
will begin no later than November 1, 1999.
10. Authorized Channels of Distribution: Mass Markets, Chain Stores, Specialty
Stores
The Authorized Articles may only be distributed through the Authorized
Channels of Distribution within the Licensed Territory. Licensee shall
impose the obligation on its customers to sell the Authorized Articles
only through the Authorized Channels of Distribution and shall not
knowingly sell Authorized Articles to persons or entities whom Licensee
knows, or reasonably should know, intend to resell or are likely to resell
the Authorized Articles outside of the Authorized Channels of
Distribution. Authorized Articles may not be sold within 500 feet of any
WCW event.
The Authorized Articles may only be distributed through the Authorized
Channels of Distribution within the Licensed Territory. In the event the
Authorized Articles are permitted for distribution to retail outlets
located at or within 500 feet of a WCW event venue, Licensee shall impose
the obligation on the retail outlets not to sell any of the Authorized
Articles on the day of any WCW sponsored events at such venue. Licensee
shall impose the obligation on its customers to sell the Authorized
Articles only through the Authorized Channels of Distribution and shall
not knowingly sell Authorized Articles to persons or entities whom
Licensee knows, or reasonably should know, intend to resell or are likely
to resell the Authorized Articles outside of the Authorized Channels of
Distribution.
11. Sell-off Period: 90 days
12. Form of Copyright and Trademark Notice: Each Authorized Article shall bear
copyright and trademark notices in the following form (or in such other
form as WCW may hereafter designate, for prospective implementation, by
notice to Licensee):
19XX & WCW,Inc.
The packaging containing the Authorized Articles described in
Paragraph 2 hereir shall bear trhe following copyright and trademark
notices.
Copyright: 19XX World Championship Wrestling,Inc. A Time Warner
Company. All Rights Reserved.
<PAGE>
Trademark: WCW(tm) and NWO(c) are trademarks of World Championship
Wrestling, Inc.
All characters depicted, are trademarks of or used under
License to World Championship Wrestling Inc.
13. Notices: Payments and statements to WCW shall be made or given to agent,
Leisure Concepts Inc. (WCW's Agent) at 1414 Avenue of the Americas, New
York, NY 10014 attn: Accounting Department. All other notices to WCW shall
be sent to WCW at the Atlanta address specified on the first page of this
Agreement, with a copy to the same address, Attention: Legal Department.
14. Standard Terms: The attached "Exhibit `A' (Standard Terms and Conditions)
are incorporated by this reference into the terms of this Merchandising
License Agreement (collectively referred to herein as "Agreement"). If any
provision set forth above in this Agreement conflicts (or is construed to
conflict) with any provision of the Standard Terms and Conditions, the
provisions hereinabove set forth will control.
15. Credit Terms: Execution of this Agreement by WCW is contingent upon WCW's
satisfaction with Licensee's financial ability to fulfill the Guarantee
stated herein. To this end, Licensee agrees to furnish any financial
information requested by WCW to confirm Licensee's credit status. If
deemed necessary by WCW, Licensee shall furnish a first priority lien and
security interest, a letter of credit, or any other such acceptable form
of security to cover the Guarantee. Licensee agrees to comply with WCW's
request(s) pursuant to this Paragraph before and during the entire term of
this Agreement.
16. Special Terms: If Authorized Articles are not marketed within 90 days of
the Shipping Date, WCW may remove the rights of those items.
If the forgoing proposal meets with the approval of Licensee, please sign
and return this proposal to WCW. Upon execution by WCW, this document will
be a binding agreement between Licensee and WCW as of the date first above
written.
WORLD CHAMPIONSHIP WRESTLING, INC. TRIMFAST GROUP, INC.
("WCW" ) ("Licensee")
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
------------------------- --------------------
Title: Director of Licensing Title: C.E.O.
---------------------- ------------------
<PAGE>
SCHEDULE "1"
1. "Licensed Elements" means only the names and static visual likenesses of
the following specific fictional characters, only as depicted in the
entertainment properties defined below as the "Program(s)" (excluding
dialogue, storylines and plot elements from the Pictures, except as
specifically agreed in writing and in advance by WCW). It is specifically
understood and agreed that the character names, likenesses and other
elements referred to above (including, if applicable, the names of actors,
voice-over artists, and/or other elements listed in this Schedule "1") are
included within the definition of "Licensed Elements" (i) only to the
extent of WCW's ownership or control thereof, and (ii) only as
specifically depicted in and as part of the Program(s). Licensee
understands and acknowledges that nothing herein grants Licensee the right
to use sound bites, voices, music, or other audio effects from the
Program(s). If Licensee wishes to use any such elements, Licensee must
separately' procure the necessary rights, and any rights, clearance or
related fees arising from same shall be at Licensee's sole expense. WCW
reserves the right to amend the list of Licensed Elements from time to
time to keep the list current with WCW licensing rights.
PROGRAM(S) LICENSED ELEMENTS
WORLD CHAMPIONSHIP WRESTLING
All WCW & NWO Logos
All WCW & NWO Slogans
Adams, Brian
Adams, Chris
Anderson, Arn
Armstrong, Brad
Armstrong, Scott
Armstrong, Steve
Asya
Bagwell, Marcus
Barbarian
Benoit, Chris
Bam Bam Bigelow
Bischoff, Eric
Blaze, Bobby
Blitzkrieg
Burke, Leo
Chastity
Ciclope
Damien
Darsow, Barry
Dillon, JJ
Disciple
Disco Inferno
Disorderly Conduct (Tom)
Disorderly Conduct (Mike)
DJ Ran (DJ)
Duncum, Jr., Bobby
Eaton, Bobby
El Dandy
Elizabeth, Miss
El Vampiro
Enos, Mike
Finlay, Fit
Flair, David
FLair, Ric
Flores, Art
Flynn, Jerry
<PAGE>
Fortune, Chad
Fuller, Rick
Gambler
Garza, Hector
Goldberg, Bill
Gorgeous George
Guerrera, Juventud
Guerrero, Chavo Jr.
Guerrero, Eddie
Hacksaw Jim Duggan
Hale, Emory
Hak
Hall, Scott
Hanmer, Bret
Hankton, Kirt
Harlem Heat - Booker T
Harlem Heat - Stevie Ray
Hart, Bret "The Hitman"
Hart, Jimmy
Helms, Shane
Heenan, Bobby (Announcer)
Hennie, Curt
High Voltage -Rage
High Voltage - Kaos
Hogan, Hollywood
Horace
Horowitz, Barry
Hudson, Scott (Announcer)
Ice Train
Jakes
Johnson, Mark (NWO Referee)
Kanyon
Kaz
Kellum, Rob
Kidman, Billy
Knobs
Konnan
Karagias, Evan
Lane, Lenny
La Parka
LaRue, Lash
Lex Luger
Lizmark, Jr.
Lodi
Madusa
Malenko, Dean
Master P
Meng
Miller, Ernest
Mitchell, James
Moore, Shannon
Morris, Hugh
Mysterio Jr.,Rey
Nash,Kevin
Nitro Girls-Kimberly
Nitro Girls-Chae
Nitro Girls-Spice
Nitro Gilrs-Tygress
<PAGE>
Nitro Girls -- Fyre
Nitro Girls -- AC Jazz
Nitro Girls -- Storm
Norris, Harrison - Trainee
Norton, Scott
NWO Sting
Okerlund, Mean Gene (Announcer)
Onoo, Sonny
Page, Diamond Dallas
Patrick, Nick (Referee)
Piper, Roddy
Poffo, Lanny
Prince Iaukea
Psychosis
Public Enemy (Rocco Rock)
Public Enemy (Johnny Grunge)
Putski, Scott
Rachtman, Riki (Announcer)
Raven
Regal, Steven
Reese, Ron
Riggs, Scotty
Saturn
Savage, Randy
Schiavone, Tony (Announcer)
Sick Boy
Silver King
Smiley, Norman
Steiner, Rick
Steiner, Scott
Sting
Sullivan, Kevin
Swinger, Johnny
Swoll
Tatum, Chase
Tenay, Mike (Announcer)
Torborg, Dale
Ultimo Dragon
Van Hammer
Vicious, Sid
Villano IV
Villano V
Vincent
Walker, Bobby
Wallstreet, Michael
Watts, Erik
Wilson, Luther
Windham, Kendall
Windham. Barry
Wrath
Wright, Alex
Whipwreck, Mikey
Zbyszko,Larry (Announcer)
<PAGE>
EXHIBIT "A"
MERCHANDISING LICENSE AGREEMENT
STANDARD TERMS AND CONDITIONS
These Standard Terms and Conditions shall be deemed fully incorporated in
the License Agreement ("Underlying Agreement") to which this Exhibit "A" is
attached, and these Standard Terms and Conditions and the Underlying Agreement
shall hereinafter be collectively referred to as the "Agreement." All terms
shall, unless expressly provided to the contrary herein, have the same
respective meanings as set forth in the Underlying Agreement. Unless expressly
provided to the contrary herein, to the extent that any provision of these
Standard Terms and Conditions conflicts with any provision of the Underlying
Agreement, the Underlying Agreement shall control.
A-l LICENSE
WCW hereby grants to Licensee, and Licensee hereby accepts, a license to
utilize the Licensed Elements upon or in connection with the Authorized
Articles, for the purpose of the manufacture, distribution, advertising,
promotion and sale of the Authorized Articles in the Licensed Territory during
the License Period, upon and subject to all of the terms and conditions of this
Agreement. Any and all rights not expressly granted to Licensee hereunder are
expressly reserved by WCW and may be exercised and exploited freely by WCW at
any time, and Licensee covenants and agrees that it shall not exercise, or
authorize or permit others to exercise, any rights with respect to the Licensed
Elements other than the limited and specific rights licensed hereunder. It is
understood that the license granted hereunder relates to the sale of Authorized
Articles and does not grant Licensee any rights with respect to the use of the
Licensed Elements in connection with premium promotions or other giveaways.
A-2 PAYMENT AND ACCOUNTINGS
(a) Royalty. Licensee shall pay to WCW's Agent a royalty as specified in
the Underlying Agreement with respect to all Net Sales of Authorized Articles.
"Net Sales" shall mean gross sales by Licensee or any of its affiliated,
associated or subsidiary companies, without any deductions whatsoever
(including, without limitation, freight, taxes, uncollectible accounts,
manufacturing, distribution, advertising, marketing or promotion costs with the
exception of trade quantity discounts only), except for actual returns. Credit
against sales shall be allowed only for actual returns and shall not be allowed
on the basis of an accrual or reserve system. Net Sales for each Authorized
Article shall be computed on no less than Licensee's regular, full,
"top-of-the-line" gross wholesale invoice price calculated at source in the
Licensed Territory, based upon the usual billing price for items sold in the
normal course of business ("Royalty Base Price"). The foregoing royalty shall be
payable on all Authorized Articles distributed by Licensee, including Authorized
Articles not billed, except for a reasonable number of samples which may be
given away to the trade in the normal course of business.
(b) Advance and Guarantee. Licensee shall pay to WCW's Agent the Advance
and Guarantee in accordance with the payment schedule specified in the
Underlying Agreement. The Advance and installments of the balance of the
Guarantee constitute a non-refundable advance against royalties to be earned as
provided above. The total Guarantee shall be deemed accrued to WCW's account as
of the date of this Agreement.
(c) Monthly Statements. Not later than thirty (30) days after the initial
shipment of the Authorized Articles and promptly on the 15th day of every month
thereafter during the License Period, Licensee shall furnish to WCW's Agent
complete and accurate statements (certified to be accurate by Licensee) showing
the product and style number, description, unit sales, Royalty Base Price, gross
sales and Net Sales of each and every Authorized Article covered by this
Agreement. All statements shall be prepared by Licensee utilizing the form
attached as Exhibit "B" hereto and incorporated by reference, as said form may
be revised from time to time by WCW. Royalty reports shall be prepared
separately for each country within the Licensed Territory, and shall include a
product sales breakdown by style number, which indicates clearly which of the
Licensed Elements were utilized in connection with each Authorized Article,
including a breakdown for each Licensed Element, by character. Reporting will be
completed in such a manner, and in sufficient detail, to enable WCW to separate
royalties by the respective elements used; including, without limitation, the
contract number present in the upper left-hand corner of the first page of this
contract.
(d) Royalty Payments. Royalty payments due hereunder shall be paid not
later than thirty (30) days after the end of each calendar month and such
payments shall accompany the statements required above. Licensee shall also
include the contract number, present in the upper left-hand corner of the first
page of this contract, on the face of the royalty check. If the License Period
is extended beyond the term specified in Paragraph 4 of the Underlying
Agreement, royalty payments which exceed the total Guarantee shall not be
credited toward any similar guarantee which is payable with respect to the
extension period. All payments shall be in U.S. funds. Licensee shall pay, and
hold WCW forever harmless from, all taxes, customs, duties, levies, imposts or
any other charges now or hereafter imposed or based upon the manufacture,
delivery, license, sale, possession or use hereunder to or by Licensee of the
Authorized Articles or the Licensed Elements (including but not limited to
sales, use, inventory, income and value added taxes on sales of Authorized
Articles), which charges shall not be deducted from WCW's royalties. All monies
payable to or received by Licensee from the exploitation of the rights granted
herein shall be held by Licensee in trust for WCW`s account to the extent of
WCW`s entidement to such monies as set forth in this Agreement.
(e) Timeliness. All payments hereunder shall be made to WCW`s Agent at the
address set forth in the Underlying Agreement within the time and in the manner
specified herein, it being intended and agreed that the time within which
Licensee is required to make payment in accordance with the terms hereof is of
the essence of this Agreement and any failure so to do on the part of Licensee
shall constitute an event of default hereunder in accordance with Paragraph A-13
below. In addition to any other rights WCW may have in the event of such a
default,Lincensee agrees to pay interest to WCW on any sums which have not beem
by WCW`s Agent within thirty (30) days following the due date. Such interest
shall accrue from said date and shall be payable at the rate of two (2%) over
the prime rate as published in the Wall Street Journal on the dare the payment
is due or the maximum rate allowed by law.
<PAGE>
A-3 BOOKS AND RECORDS
Licensee shall keep accurate books of account and records in a form
meeting the generally accepted standards of the profession of certified public
accountants covering all transactions relating to the license hereby granted,
and WCW and its authorized representatives shall have the right at all
reasonable business hours, and upon reasonable notice, to examine and audit said
books of account and records and all other documents and materials in the
possession or under the control of Licensee with respect to the subject matter
and terms of this Agreement, and shall have free and full access thereto for
said purposes and for the purpose of taking extracts therefrom. Upon demand of
WCW, but not more than twice per calendar year. Licensee shall at its own
expense furnish to WCW a detailed statement prepared by an independent certified
public accountant, or certified to be accurate by a duly authorized official of
Licensee, showing the product and style number, description, Net Sales, itemized
deductions from Net Sales and Royalty Base Price of the Authorized Articles
distributed and/or sold by Licensee to the date of WCW's demand. If an audit
reveals that Licensee has misrepresented or underreported any item bearing upon
the royalties or other compensation due or payable to WCW, then, in addition to
recomputing and making immediate payment of the sums due based on the true items
together with interest thereon at the rate at which WCW is entitled to borrow
from its principal lending institution (after giving effect to compensating
balance requirements and any commitment fees), Licensee shall pay costs and
expenses incurred by WCW for the audit and checking and attorney's fees incurred
by WCW in connection therewith or in connection with enforcing the collection
thereof if the difference between the actual sums due hereunder is in excess of
three percent (3%) of the sums previously paid. All books of account and records
shall be kept available for at least three (3) years after the termination of
this license in Licensee's principle place of business.
A-4 EXCLUSIVITY
(a)(i) If, and only if, the Underlying Agreement specifies that Licensee's
license hereunder is exclusive, WCW shall not, except as otherwise provided
herein, grant any other licenses effective during the License Period for the use
of the Licensed Elements in connection with the manufacture, distribution and
sale, in the Licensed Territory, of the Authorized Articles as expressly
described in the Underlying Agreement. Notwithstanding the foregoing, nothing in
this Agreement shall be construed to prevent WCW from granting any licenses for
the use of the Licensed Elements other than as provided herein, or from
utilizing the Licensed Elements in any manner whatsoever other than as provided
herein, regardless of the extent to which such use or utilization may be
competitive with the license granted hereunder.
(ii) Licensee shall not during the License Period enter into or renew any
license agreements for the manufacture, distribution and/or sale of any of the
Authorized Articles and or manufacture, distribute or sell any of the Authorized
Articles for or in conjunction with or containing the elements of any other
professional wrestlers or professional wrestling organizations, and will not in
any event during the License Period directly or indirectly manufacture,
distribute or sell any Authorized Articles for or in conjunction with the World
Wrestlinig Federation (WWF).
(iii) If the Underlying Agreement specifies that Licensee's license
hereunder is non-exclusive, then WCW shall be free to utilize, or to grant any
licenses to third parties to utilize, the Licensed Elements in any manner for
any purposes whatsoever.
(b) In all cases, WCW expressly reserves all rights whatsoever relating to
the promotion, sale and other exploitation of Authorized Articles at (i) the MGM
Grand Hotel/Casino complex in Las Vegas, Nevada, and (ii) concert halls, arena
shows, circuses, stadiums, theaters, theme parks and all other public
performance venues at which television programs or motion pictures containing
elements included in the Licensed Elements or derivative works (e.g.. concerts,
musicals and other stage plays, motion picture sequels, audio-visual
performances, etc.) based thereon are exhibited or performed, and (iii) retail
outlets or any other facilities owned, operated or controlled by WCW (or its
parent, subsidiaries or affiliates), and (iv) catalogs or similar direct mail
sales publications featuring WCW products published by WCW (or its parent,
subsidiaries, or affiliates). The foregoing venues, retail outlets, other
facilities, and catalogs are collectively referred to herein as "WCW Venues".
Licensee acknowledges that WCW Venues are expressly excluded from the Licensed
Territory and that Licensee has not been granted any rights with respect to the
exploitation of Authorized Articles at WCW Venues, it being understood that WCW
may itself exercise such rights or grant others licenses for the manufacture and
distribution of Authorized Articles for sale or other exploitation at WCW
Venues.
(c) WCW reserves the right to permit distribution of stock on hand or in
process as of termination or expiration of prior licenses, even if the exercise
of said rights may conflict with those rights granted Licensee hereunder.
A-5 QUALITY OF MERCHANDISE
(a) The Authorized Articles shall be of high standard and of such style,
appearance and quality as to be adequate and suited to their exploitation to the
best advantage and to the protection and enhancement of the Licensed Elements
and the good will pertaining thereto. The Authorized Articles shall be
manufactured, sold, distributed, promoted and advertised in accordance with all
applicable governmental, regulatory, professional and industry-wide codes,
statutes, rules and regulations.
(b) Licensee shall submit to WCW and WCW shall have absolute approval of
the Authorized Articles, and the cartons, containers, and advertising,
promotional, packaging and wrapping materials bearing any Licensed Elements
("Collateral Materials") at all stages of the development and application
thereof. Licensee may not manufacture, use, sell, advertise, promote, or
distribute any Authorized Articles or Collateral Materials until and unless
Licensee has received WCW's prior written approval. Any and all items submitted
by Licensee to WCW pursuant to this Paragraph A-5 shall be at Licensee`s expense
and shall clearly indicate the contract number associated with each
suchsubmission. After each Authorized Article of Collateral Material has been
finally approved pursuant to this Paragraph, Licensee shall not depart therefrom
in any material respect without first submotting to WCW a prototype, layout or
sample of the modified article or material and obtaining WCW`s prior written
consent to such modification. Any such approval by WCW shall not constitute
waiver of WCW`s rights or Licensee`s duties under any provision of this
Agreement.
(c) Any item submitted to WCW shall not be deemed approved unless and
until WCW has approved it in writting.
<PAGE>
(d) At the time of first distribution of each Authorized Article, Licensee
shall submit to WCW twelve (12) samples of each such item to WCW and a royalty
shall not be payable on such samples. Upon WCW's annual written request
thereafter, Licensee shall furnish without cost to WCW twelve (12) additional
random samples of each Authorized Article being distributed by Licensee
hereunder, together with any cartons, containers and packing and wrapping
material used in connection with such distribution for quality control by WCW.
It being agreed that WCW shall have the right, if quality problems are
encountered as a result of the examination of samples, to take such additional
samples as frequently as WCW in its sole discretion deems desirable in an effort
to assure that proper quality control has been established. Moreover, WCW shall
have the right to have its representatives visit the plant or plants where the
Authorized Articles are produced and where the Collateral Materials and the like
are printed or produced in order to determine whether or not proper quality
controls are being exercised.
(e) In the event Licensee is not the manufacturer of the Authorized
Articles, Licensee shall, subject to WCW's prior written consent, be entitled to
engage a third party manufacturer to make and produce the Authorized Articles
exclusively for Licensee, provided that Licensee will obtain from such
manufacturer and deliver to WCW a duly executed letter in the form contained in
Exhibit "C" hereto. The use by Licensee of any such manufacturer shall not
affect Licensee's obligations hereunder and Licensee shall be responsible for
ensuring that such manufacturer complies with the provisions of this Agreement.
A-6 LABELING
(a) As a condition to WCW's authorization of the public distribution of
items bearing reproductions of the Licensed Elements, including, without
limitation, Authorized Articles sold under this license and advertising,
promotional and display material therefor, all such items shall bear copyright
and trademark notices as set forth in Paragraph 11 of the Underlying Agreement
as well as any other legal notices which WCW may from time to time reasonably
direct.
(b) In the event that any Authorized Article is marketed in a carton,
container and/or packing or wrapping material employing the Licensed Elements,
such notice shall also appear upon the said carton, container and or packing or
wrapping material. Each and every tag, label, imprint or other device containing
any such notice and all advertising, promotional or display material bearing the
Licensed Elements shall be submitted by Licensee to WCW for its written approval
prior to use by Licensee in accordance with Paragraph A-5 above. Any such
approval by WCW shall not constitute waiver of WCW's rights or Licensee's duties
under any provision of this Agreement.
A-7 TECHNICAL AND PROMOTIONAL MATERIAL
WCW reserves the right to require Licensee to pay for film footage or
other technical materials which Licensee may requests for which WCW from time to
time might charge. All technical materials involving the Licensed Elements or
any reproduction thereof, notwithstanding their invention, creation or use by
Licensee, shall be and remain the property of WCW, and WCW shall be entitled to
use same and to license the use of same by others provided such use does not
conflict with the terms of this Agreement. "Technical materials" shall mean all
artwork and designs, pictures. separations, textual material, screens, films,
proofs and any and all materials used in the creation, production and/or
reproduction of the Authorized Articles.
A-8 DISTRIBUTION
(a) Commencing not later than the Marketing Date specified in the
Underlying Agreement, and thereafter during the License Period (including any
extensions thereof), Licensee shall diligently and continuously manufacture,
sell, distribute and promote Authorized Articles in interstate commerce
throughout the Licensed Territory and Licensee shall make and maintain adequate
arrangements for the distribution of the Authorized Articles. Licensee's failure
(except as otherwise provided herein) to commence in good faith to manufacture
and distribute in substantial commercial quantities any of the Authorized
Articles on or before the Marketing Date and to continue during the License
Period diligently and continuously to manufacture, sell, distribute and promote
each such Authorized Article throughout the Licensed Territory will result in
immediate damage to WCW. In such a case, in addition to all other remedies
available to it hereunder, WCW may remove from this Agreement any Licensed
Elements listed in the Underlying Agreement or any article or class or category
of articles included within the definition of Authorized Articles which is not
so diligently and continuously used by Licensee for a period of three (3)
consecutive months, by giving thirty (30) days' written notice to Licensee.
(b) Unless expressly provided herein otherwise, Licensee shall not,
without the express prior written consent of WCW, permit the distribution or
other marketing of any Authorized Articles on an F.O.B. or L.C. basis (as those
terms are commonly understood in the international merchandising business). All
Authorized Articles distributed or marketed (as subject to WCW's prior written
approval) on an F.O.B. or L.C. basis will be subject to a Royalty Rate in the
amount of one and one-half (1 1/2%) percent over the Royalty Rate indicated in
the Underlying Agreement.
(c) Licensee shall sell to WCW such quantities of the Authorized Articles
as WCW shall request at as low rate and on as favorable terms as Licensee sells
similar quantities of the Authorized Articles to the general trade.
<PAGE>
A-9 GOODWILL AND PUBLICITY
(a) Licensee acknowledges that particular and substantial good will values
are associated with the Licensed Elements and that said Licensed Elements and
names and all rights therein and good will pertaining thereto belong exclusively
to WCW. Licensee further acknowledges that said Licensed Elements and names have
secondary meanings in the mind of the public and that the value therof cannot
readily be fixed in amounts or sums of money. Licensee shall not be any act or
omission jeopardize such good will, and any good will develped hereunder shall
accrue to the benefit of WCW. Licensee acknowledges the neccessity of protecting
WCW`s name, copyrights and trademarks generally and specifically to conserve the
good will and good name of WCW and the Licensed Elements, and the right of WCW
to wupevise or intervene in the activities of Licensee in sonnection therewith.
(b) WCW shall have the right, but shall not be under any obligation, to
use the Licensed Elements and/or the name of Licensee so as to give the Licensed
Elements, Licensee, WCW and/or WCW's television programs and/or motion pictures
full and favorable prominence and publicity. WCW shall not be under any
obligation whatsoever to broadcast or exhibit, or to continue broadcasting or
exhibiting, any television program or motion picture or use the Licensed
Elements or any person, character, symbol, design or likeness or visual
representation thereof in any medium, nor shall WCW be restricted in any way
whatsoever from producing and distributing derivative works which contain or are
derived from the Licensed Elements or any element or component part thereof.
A-10 WARRANTIES AND REPRESENTATIONS
(a) By WCW. WCW has the right and power to enter into and perform this
Agreement, and has taken all steps necessary and appropriate to authorize the
execution and performance hereof. WCW owns or controls all rights necessary to
grant Licensee the rights granted to it hereunder.
(b) By Licensee. Licensee has the right and power to enter into and
perform this Agreement, and has taken all steps necessary and appropriate to
authorize the execution and performance hereof. Licensee will not act in any
manner that is inconsistent with the provisions hereof.
A-11 INDEMNIFICATION AND INSURANCE
Subject to the full performance by Licensee of all of its obligations
hereunder, WCW hereby indemnifies Licensee and undertakes to defend Licensee
against and hold Licensee harmless from all claims, suits, liabilities, losses,
damages, penalties, costs and expenses (including reasonable attorneys fees,
which may be suffered by or obtained against Licensee arising solely out of the
use by Licensee of the Licensed Elements in strict accordance with this
Agreement. Licensee hereby indemnifies WCW and undertakes to defend WCW against
and hold WCW harmless from any and all claims, suits, liabilities, losses,
damages, penalties, costs and expenses (including reasonable attorneys fees,
which may include, without limitation, an allocation for in-house counsel) of
any nature which may be suffered by or obtained against WCW arising from (i) any
allegedly unauthorized use of any patent, design, mark, process, idea, method or
device by Licensee (none of the same being included in the Licensed Elements) in
connection with the Authorized Articles or any other alleged action or omission
by Licensee constituting a breach by Licensee of any term or provision of, or
representation, warranty, covenant or agreement made by Licensee under, this
Agreement, and (ii) alleged defects in the Authorized Articles, any alleged
inadequacy or failure to perform any agreement or render any service, or
personal damages or injury resulting from the use of the Authorized Articles.
Licensee shall obtain, at its own expense, a comprehensive general liability
insurance policy for the entire License Period (including any extensions
thereof) including coverage for contractual liability (applying to the terms and
conditions of this Agreement), product liability, personal injury liability and
advertiser's liability, and including a vendor's liability endorsement in favor
of WCW. Said policy shall be written by a recognized insurance company which has
qualified to do business in the State of California, the State of New York and
the State of Georgia, or which has an A. M. Best Company rating of "B" or better
in the latest edition of Best's Insurance Guide and Key Ratings, and shall
provide for minimum combined single limit of liability coverage of not less than
$1,000,000 for each occurrence. As proof of such insurance, fully paid
certificates of insurance naming WCW as an insured party, will be submitted by
Licensee for WCW's prior approval before any Authorized Articles are
distributed, advertised or sold, and at the latest within thirty (30) days after
the commencement of the License Period: World Championship Wrestling, Inc., One
CNN Center, Box 105366, Atlanta, GA 30345-5366, Attn: Director of Risk
Management. Any proposed change in such certificates of insurance shall be
submitted to WCW for its prior approval, and Licensee shall furnish WCW with a
copy of the then prevailing certificate of insurance. For purposes of Licensee's
indemnity and insurance policy coverage under this Paragraph, WCW shall also
include the officers, directors, shareholders, agents and employees of WCW and
its Related Entities, as well as any person(s) the use of whose name or likeness
may be licensed hereunder.
A-12 PROTECTION OF WCW'S RIGHTS
(a) Licensee acknowledges that WCW owns or controls the copyrighted works
which underlie this license and Licensee shall not during the term hereof or
thereafter attack the rights of WCW in the Licensed Elements or any trademarks
based thereon, regardless of the basis of such attack and regardless of whether
the same relates to title or validity. Licensee shall at no time use or
authorize the use of any trademark, trade name or other designation identical
with or confusingly or colorably similar to the Licensed Elements.
(b) Licensee shall cooperate fully and in good faith with WCW for the
purpose of securing and preserving rights of WCW (or any grantor of WCW) in and
to the Licensed Elements. WCW may commence or prosecute any claims or suits in
its own name or in the name of Licensee or join Licensee as a party thereto.
Licensee shall immediately notify WCW in writing of any infringements or
imitations by others of the Licensed Elements on articles similar to those
covered by this Agreement, and WCW shall have the sole right to determine
whether or not any action shall be taken on account of any such infringements or
imitations. Licensee shall not institute any suit or take any actions on account
of any such infringements or imitations without first obtaining the written
consent of WCW so to do.
(c) Licensee shall utilize all necessary and adequate security measures to
prevent the loss, theft, destruction or unauthorized exploitation of the
technical materials and/or Licensed Elements delivered to Licensee, and Licensee
shall immediately report to WCW any such loss, theft,
<PAGE>
Agreement. If any materials bearing the Licensed Elements (or any element or
component part thereof) utilized by Licensee hereunder on or in connection with
the Authorized Articles were not created or owned by WCW, it is an essential
condition of this Agreement that Licensee shall do all that is necessary to
ensure that such materials achieve copyright protection and that valid title to
such copyright is, at the earliest possible moment, transferred to WCW. To this
end, Licensee shall, among other things, enter into a contract with anyone not
directly in its employ who creates such materials bearing the Licensed Elements,
or any element or component part thereof, which states that such materials are
created as works made for hire, as such term is defined in the U.S. Copyright
Act, 17 U.S.C. ss. 101 et seq. or otherwise contractually bind such person to
execute all such documents as may be necessary to transfer valid title in the
copyright in such materials to WCW and shall arrange for the execution of such
documents and their transmittal to WCW at the earliest possible moment.
(e) No later than thirty (30) days following the date of the first
interstate shipment by Licensee of each Authorized Article, Licensee shall
provide WCW, free of cost, with sufficient evidence of the date of first
shipment of the Authorized Article in interstate commerce and a description of
the use of the Licensed Elements in relation to the Authorized Article along
with identical samples of each such Authorized Article including packaging. Such
evidence and sample shall be sent to WCW at its address at World Championship
Wrestling. Inc., c/o Legal Department - Domestic Trademarks, One CNN Center,
Atlanta, Georgia 30303.
(f) Licensee shall fully cooperate with WCW in undertaking the
registration of any copyright, trademark, service mark or other intellectual
property registration or filing with respect to the Licensed Elements and/or
Authorized Articles as requested by WCW in writing, and all such registrations
shall be in WCW's name (or such other name as WCW designates). Such registration
shall be handled by attorneys selected or approved by WCW. In the event of any
registration relating to the Licensed Elements by Licensee in its own name or
that of any third party, such registration shall be (i) deemed to be for WCW's
benefit and (ii) held in trust for WCW by Licensee, and (iii) Licensee shall
bear all costs, expenses, damages and loss occasioned by such unauthorized
registration and/or WCW's correction of same.
(g) Licensee shall execute and deliver to WCW, in such form as WCW shall
reasonably request, any and all documents which may be necessary or desirable to
assist WCW in recording Licensee as a registered user of the Licensed Elements
(as trademark and/or servicemark) in the Licensed Territory, if appropriate.
Upon or after the expiration or termination of this Agreement. Licensee shall
execute and deliver to WCW, in such form as WCW shall reasonably request, any
and all documents which may be necessary or desirable to cancel the recordation
of Licensee as a registered user of the Licensed Elements in the Licensed
Territory provided, however, that if WCW elects first to complete the
recordation of Licensee as a registered user, Licensee shall also provide any
and all documents which may be necessary or desirable to achieve this purpose.
(h) Licensee shall not commingle on Authorized Articles manufactured
hereunder (or in the advertising and promotion thereof) names, characters and/or
likenesses from any individual motion picture or other television program which
are included in the Licensed Elements with those associated with any other
motion picture or television program (whether or not containing elements
included in the Licensed Elements) without WCW's prior written consent.
(i) WCW may, in its absolute discretion, withdraw any element of the
Licensed Elements, or any component part thereof, from the terms of this
Agreement if WCW determines that the exploitation thereof hereunder would or
might violate or infringe or reasonably tend to violate or infringe the
copyright, trademark or other rights of third parties, or subject WCW to any
liability, or violate any law, court order, government regulation or other
ruling of any governmental agency, or if, on account of the expiration or sooner
termination of an agreement between WCW and a third party from whom WCW has
obtained certain underlying rights relating to the exploitation of the Licensed
Elements hereunder or otherwise, WCW shall no longer have the right to act in
the capacity herein contemplated on behalf of any third party or parties, or if
WCW determines that it cannot adequately protect its rights in the Licensed
Elements under the copyright, trademark or other laws of the Licensed Territory;
provided, however, that in the event of any such withdrawal, WCW shall reimburse
Licensee its actual, out-of-pocket cost of any Authorized Articles (bearing such
withdrawn Licensed Element) which were produced, but not sold, prior to
Licensee's receipt of notice of such withdrawal. Any such withdrawal shall not
constitute grounds for termination of this Agreement unless all elements and
component parts of the Licensed Elements are simultaneously withdrawn by WCW.
A-13 DEFAULT
The following shall be events of default hereunder: if Licensee (i)
becomes the subject of any bankruptcy proceeding, becomes insolvent, makes an
assignment for the benefit of its creditors, or a receiver, liquidator or
trustee is appointed for its affairs, (ii) breaches any other agreement with
WCW, (iii) fails to make payment of royalties, Guarantee(s) and or any other
sums payable to WCW pursuant to this Agreement when due or fails to perform any
of its other material obligations hereunder or otherwise breaches any
representation, warranty, covenant or agreement referred to or contained in this
Agreement, and does not fully cure such failure or breach within ten (10)
business days after receipt of written notice thereof from WCW, in the case of
failure to make payments, or within fifteen (15) business days in the case of
other failure or breach, (iv) discontinues its business or loses any license or
authorization required to permit Licensee to perform fully its obligations
hereunder pursuant to an action of any duly constituted governmental, judicial
or legislative authority. Upon any default, WCW may, in addition and without
prejudice to any other rights it may have, terminate this Agreement, in which
event the entire unpaid balance of all royalties and Guarantees accrued to WCW's
account hereunder shall immediately become due and payable. In the event this
Agreement is so terminated, Licensee, its receivers, representatives, trustees,
agents, administrators, successors, and or assigns shall not have the right to
sell, exploit or in any way deal with or in any Authorized Articles or any
carton, container, packing or wrapping material, advertising, promotional or
display materials pertaining thereto, except with and under the special consent
and instructions of WCW in writing, which they shall be obligated to
<PAGE>
A-14 FORCE MATEURE
This license shall terminate in the event that any act of God, fire,
flood, public disaster, or any action, rule, regulation, requirement or order of
any governmental authority or any other cause or reason beyond the control of
the parties renders performance impossible and one party so informs the other in
writing of such causes and its desire to be so releasedd. In such event, all
royalties on sales theretofore made shell become immediatley due and payable and
neither the Guarantee nor portion thereof shall be repayable.
A-15 EFFECT OF TERMINATION OR EXPIRATION
Upon and after the expiration or sooner termination of this license, (a) all
rights licensed to Licensee hereunder shall forthwith revert to WCW, (b) if the
Underlying Agreement specifies that the license granted hereunder is an
exclusive license, WCW shall be free to license others to use the Licensed
Elements in connection with the manufacture, sale, distribution and promotion of
the Authorized Articles in the Licensed Territory (it being acknowledged that
WCW has the full and complete right so to do during the License Period if the
license granted hereunder is a non-exclusive license), and (c) Licensee shall
refrain from further use of the Licensed Elements or any further reference,
direct or indirect, thereto or to anything deemed by WCW to be similar to the
Licensed Elements, in connection with the manufacture, sale, distribution or
promotion of Licensee's products, except as permitted in Paragraph A-17 below.
It shall not be a violation of any right of Licensee if WCW should at any time
during the License Period enter into negotiations with another to license use of
the Licensed Elements in respect of the Authorized Articles within the Licensed
Territory provided that, in the event that the license granted to Licensee
hereunder is an exclusive license, it is contemplated that such prospective
license shall commence after termination of this Agreement. In the event of any
termination hereunder, no monies or other consideration which WCW may receive in
respect of any licenses of the Licensed Elements within or outside the Licensed
Territory shall be deemed in mitigation of, or be otherwise offset, credited or
applied against, any sums payable to WCW pursuant to this Agreement.
A-16 FINAL STATEMENT
Ninety (90) days before the expiration of the License Period, and, in the event
of its sooner termination, ten (10) business days after receipt of notice of
termination, a statement showing the number and description of Authorized
Articles which are or will be fully manufactured, packaged and ready for
distribution as of the expiration or termination of the Agreement shall be
furnished by Licensee to WCW. WCW shall have the right to take a physical
inventory to ascertain or verify such inventory and statement. Refusal by
Licensee to submit to such physical inventory by WCW and/or failure by Licensee
to render the final statement as and when required by this provision, shall
result in a forfeiture by Licensee of Licensee's right to dispose of its
inventory (as provided by the next paragraph hereof), WCW retaining all other
legal and equitable rights may have in the circumstances.
A-17 DISPOSAL OF INVENTORY
(a) Licensee shall not at any time manufacture Authorized Articles in excess of
those reasonably anticipated to meet normal customer requirements. Provided that
Licensee is in compliance with the foregoing, after termination or expiration of
the license under the provisions hereof, Licensee, except as otherwise provided
in this Agreement, may distribute and sell Authorized Articles which are fully
manufactured, packaged and ready for immediate distribution at the time notice
of termination is received or upon the expiration date, whatever the case may
be, during the sell off period indicated in the Underlying Agreement, on a non
exclusive basis, provided Guarantee and royalty payments are up-to-date for the
current period and payments and statements are made and furnished for that
period in accordance with Paragraph A-2 above. As of the commencement of such
sell-off period, Licensee may no longer manufacture or promote any Authorized
Articles. Licensee shall not be authorized to sell and distribute such excess
inventory to the extent that it exceeds ten percent (10%) of the total number of
Authorized Articles sold during the License Period, without WCW's prior written
consent. Upon the conclusion of the sell-off period, Licensee shall cease all
sale and distribution of Authorized Articles, and any Authorized Articles which
have not been sold as of the expiration of the sell-off period shall, at WCW's
election, be delivered to WCW or destroyed. Notwithstanding anything to the
contrary herein, Licensee shall not manufacture, sell or dispose of any
Authorized Articles after any expiration or termination of this license based on
the failure of Licensee to affix notice of copyright, trademark or servicemark
registration or any other notice to the Authorized Articles, canons, containers
or packing or wrapping material or advertising, promotional or display material
or because of the departure by Licensee from the quality and style approved by
WCW pursuant to Paragraph A-5 above. All applicable royalties shall be paid on
Authorized Articles sold during the sell-off period within fifteen (15) days
following the expiration of said sell-off period.
(b) Licensee acknowledges that its failure to cease the manufacture, sale,
distribution or promotion of the Authorized Articles or any class or category
thereof after the termination or expiration of this Agreement (or any applicable
sell-off period) will result in immediate and irremediable damage to WCW and to
the rights of any subsequent licensee. Licensee acknowledges and admits that
there is no adequate remedy at law for such failure to cease manufacture, sale,
distribution or promotion, and Licensee agrees that in the event of such
failure, WCW shall be entitled to equitable relief by way of temporary and
permanent injunctions and such other and further relief as any court with
jurisdiction may deem just and proper, other provisions to the contrary
elsewhere herein notwithstanding.
A-18 ASSIGNMENT
WCW reserves the right to assign this Agreement to any third party and to
hypothecate or pledge this Agreement as collateral for any purpose. In the event
of any such assignment, Licensee shall pay the royalties and Guarantees due
hereunder as directed by WCW. This Agreement shall be binding upon and shall
inure to the benefit of the successors and assigns of WCW. The license herein
granted is personal to Licensee and this Agreement may not be assigned,
transferred, sublicensed, pledged, mortgaged or otherwise encumbered, in whole
or in part, by Licensee either voluntarily or by operation of law or as part of
a merger, consolidation or otherwise without WCW's prior written consent, which
shall not be unreasonably withheld
<PAGE>
have been sent by facsimile transmission or personally delivered to the
recipient. The date of said facsimile transmission or personal delivery, or the
date which is three (3) business days following the date of said mailing, shall
be deemed to be the date of the giving of such notice, except statements and
payments to WCW hereunder and notice of change of address, which shall be deemed
effective only upon actual receipt thereof.
A-19 NOTICES
All notices, statements, accountings and other documents required to be
given or delivered hereunder shall be given in writing either by personal
delivery (including Federal Express & Airborne Express), by certified mail which
delivery is evidenced by a signed receipt, or by facsimile transmission unless
otherwise specified. Licensee`s and WCW`s respective addresses for notice
purposes shall be as set forth in the Underlying Agreement unless either party
notifies the other as provided herein that notices to such party should be sent
to a different address. All such notices shall be sufficiently given when the
same shall be deposited, so addressed, postage prepaid in the mail, or when the
same shall have been sent by facsimile transmission or personally delivered to
the recipient. The date of said facsimile transmission or personal delivery, or
the date which is three (3) business days following the date of said mailing,
shall be deemed to be the date of the giving of such notice, except statements
and payments to WCW hereunder and notice of change of address, which shall be
deemed effective only upon actual receipt therof.
A-20 FURTHER DOCUMENTS
Licensee shall execute, verify, acknowledge, deliver and file any formal
assignments, recordations and any and all other documents which WCW may prepare
and reasonably call for to give effect to any of the provisions of this
Agreement. If Licensee fails so to do within ten (10) days after WCW requests
such execution, verification. acknowledgment, delivery or filing, Licensee
hereby irrevocably appoints WCW its attorney-in-fact (which appointment shall be
deemed a power coupled with an interest), with full powers of substitution and
delegation, to execute, verify, acknowledge and deliver any such assignments,
recordations and/or such other documents.
A-21 MISCELLANEOUS PROVISIONS
In the event any provision of this Agreement shall be found to be contrary
to any law or regulation of any federal, state or municipal administrative
agency or body, the other provisions of this Agreement shall not be affected
thereby but shall notwithstanding continue in full force and effect. If any
legal action or other proceeding is brought for the enforcement of this
Agreement or as a result of a breach, default or misrepresentation in connection
with any of the provisions of this Agreement, the successful or prevailing party
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in such action or proceeding, in addition to any other relief to which such
party may be entitled. No waiver by either party hereto of any breach or default
by the other party shall be construed to be a waiver of any other breach or
default by such other party. Resort to any remedies referred to herein shall not
be construed as a waiver of any other rights and remedies to which either party
is entitled under this Agreement or otherwise, nor shall an election to
terminate be deemed an election of remedies or a waiver of any claim for damages
or otherwise. This Agreement may not be altered or modified except in writing
signed by the party to be charged with such alteration or modification. This
Agreement constitutes the entire understanding between the parties with respect
to the subject matter hereof and all prior understandings, whether oral or
written, have been merged herein. Irrespective of the place of execution or
performance, this Agreement shall be governed, construed and enforced in
accordance with the laws of the State of Georgia applicable to agreements
entered into and to be wholly performed therein, and Licensee hereby consents to
the exclusive jurisdiction of the courts of the State of Georgia and United
States courts located in the State of Georgia in connection with any suit,
action or proceeding brought by Licensee arising out of or related in any manner
to this Agreement. Licensee agrees that the service of process by mail shall be
effective service of same and that such service shall have the same effect as
personal service within the State of Georgia and result in jurisdiction over
Licensee in the appropriate forum in the State of Georgia. Nothing herein
contained shall constitute a partnership between, or joint venture by, the
parties hereto or constitute either party the employee or agent of the other,
and Licensee shall have no right or power to obligate or bind WCW in any manner
whatsoever. This Agreement is not for the benefit of any third party and shall
not be deemed to give any right or remedy to any third party whether referred to
herein or not. Paragraph headings as used in this Agreement are for convenience
only and are not a part hereof, and shall not be used in any manner to interpret
or otherwise modify any provision of this Agreement. As used herein, the word
"person" means any individual, firm, partnership, association, corporation or
other entity.
END OF STANDARD TERMS AND CONDITIONS
<PAGE>
EXHIBIT "C"
Attn: Licensing Manager
World Championship Wrestling. Inc.
One CNN Center, Box 105366
Atlanta, GA 30348
Re: Trimfast Group, Inc.
Dear Sirs,
This letter will serve as notice to you that pursuant to Paragraph A-5(a) of the
Merchandising Licensee Agreement (the "Agreement") dated May 6, 1999 between
World Championship Wrestling, Inc. ("WCW") and the Licensee (as defined
therein), we have been engaged as the manufacturer for the manufacture of the
Articles as defined in the Agreement. We hereby acknowledge that we have
received and read copy of Exhibit "A" to that License Agreement containing the
Standard Terms and Conditions and understand the terms and conditions set forth
in the said Agreement and hereby agree to be bound by those provisions of the
said Agreement which are applicable to us as manufactures of the Articles,
including but not limited to your right, pursuant to Paragraphs A-3 and A-5 of
the Agreement, to examine our books of account and records and manufacturing
facility with respect to the manufacture of the Articles.
We further agree that we will abide by all relevant instructions from WCW and/or
Licensee with respect to the inclusion of markings and notices on the Authorized
Articles and the packaging and wrapping materials or cartons or containers
therefor.
We understand that our engagement as the manufacture for the Authorized Articles
is subject to your written approval. We request, therefore, that you sign the
space below, thereby showing your acceptance of our engagement as aforesaid.
For and on behalf of:
/s/ [ILLEGIBLE]
- -------------------
Agreed and accepted
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 105,641
<SECURITIES> 15,297
<RECEIVABLES> 357,889
<ALLOWANCES> 0
<INVENTORY> 188,737
<CURRENT-ASSETS> 673,364
<PP&E> 44,131
<DEPRECIATION> 10,728
<TOTAL-ASSETS> 731,438
<CURRENT-LIABILITIES> 697,867
<BONDS> 0
0
0
<COMMON> 2,338
<OTHER-SE> 31,233
<TOTAL-LIABILITY-AND-EQUITY> 731,438
<SALES> 1,925,332
<TOTAL-REVENUES> 1,928,159
<CGS> 567,472
<TOTAL-COSTS> 1,882,269
<OTHER-EXPENSES> 3,264
<LOSS-PROVISION> 503,839
<INTEREST-EXPENSE> 3,264
<INCOME-PRETAX> 42,626
<INCOME-TAX> 0
<INCOME-CONTINUING> 42,626
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,626
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
