SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER
Section 12(b) or 12(g) of the
Securities Exchange Act of 1934
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Bullhide Corporation
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(Exact name of Registrant as specified in its charter)
Washington 59-3382592
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
10 Fairway Drive, Suite 211
Deerfield Beach, Florida 33441
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(Address of Principal Executive Officer) Zip Code
(954) 571-2400
Registrant's Telephone Number and Area Code
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
TO BE REGISTERED ON WHICH EACH CLASS IS TO BE REGISTERED
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None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, .001 par value per share
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(Title of Class)
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TABLE OF CONTENTS
<S> <C>
ITEM 1. DESCRIPTION OF BUSINESS........................................................... 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
PLAN OF OPERATIONS AND FINANCIAL CONDITION....... 7
ITEM 3. DESCRIPTION OF PROPERTIES......................................................... 10
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT............................................................. 10
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS..................................................... 11
ITEM 6. EXECUTIVE COMPENSATION............................................................ 13
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS...................................................................... 14
ITEM 8. DESCRIPTION OF SECURITIES TO BE REGISTERED........................................ 15
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE
REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS...................................................... 17
ITEM 2. LEGAL PROCEEDINGS................................................................. 17
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS....................................................................... 17
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES........................................... 18
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS......................................... 19
FINANCIAL STATEMENTS AND EXHIBITS................................................. 19
PART III
ITEM 1. INDEX TO EXHIBITS................................................................. 20
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ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
The Bullhide Corporation ("Bullhide") was established in 1993 to take
advantage of the multiple uses and markets for a patent pending high performance
polyurethane material with superior protective coating properties. Bullhide(R)
products protect metal, wood, fiberglass and concrete from wear and
deterioration. The target markets for the Bullhide products are the pickup truck
protective bedliner market and the industrial flooring market.
Bullhide has established a licensed dealership program. Under its
dealership program, dealers buy Bullhide's equipment and marketing materials as
a system and do not pay a franchise fee. As of July 15, 1999, Bullhide had 56
dealerships and 3 franchises in 25 states and 2 countries. Bullhide also has a
prototype store in Spokane, Washington where it conducts many proprietary
training classes for its dealers.
HISTORY
In 1990, Ronald Grossman started the PolyChem Corporation, a Washington
corporation, ("PolyChem") to research and develop new polyurethane technology.
Mr. Grossman discovered a method of making high performance polyurethane
elastomers out of a unique combination of materials so that the material was
affordable to many previously untapped markets. As Mr. Grossman looked for
applications for this new technology, the automotive/truck accessory industry
expressed a need for the "next generation" pickup truck bedliner to improve on
the shortcomings of drop-in liners.
In January 1992, a prototype shop was established in Spokane,
Washington to enable the development and refinement of the product, application
equipment and marketing methods. On April 2, 1993, Bullhide was incorporated in
the state of Washington as "The Bullhide Corporation and changed its name to
"The Bullhide Liner Corporation" on June 8, 1994. Subsequently, on July 6 1999,
Bullhide changed its name to "Bullhide Corporation." After the initial success
of marketing the spray molded bedliner concept locally, it was decided to expand
the concept and the business nationally.
Bullhide initially granted franchises for spray on liner application
shops, but discontinued that practice in July 1996 and now sells dealerships
under licensing agreements. During its initial four years of operations from
April 1993 until June 1997, Bullhide purchased all of its products under an
exclusive license from Poly Chem Corporation. However, on June 30, 1997,
Bullhide purchased the technology rights from Poly Chem Corporation for
materials used in the pickup bed liner process. Under the terms of the purchase
agreement, Bullhide will pay Poly Chem Corporation, a royalty based on five
percent of total gross revenues of Bullhide up to a
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maximum of $200,000. See "Certain Relationships and Related Transactions."
In October 1998, Bullhide created the QUARRA(R) Coating Division to
market industrial applications of its polyurethane based coatings. Three new
products designed specifically to meet industrial user demand will be marketed
under the registered trademark QUARRA(R).
OPERATIONS AND PRODUCTS
Bullhide has established a licensed dealership program. Bullhide offers
its licensees and customers a turn-key operation that is complete with superior
products and application processes, full training and support, and on-going
research and development. Under its dealership program, dealers buy Bullhide's
equipment and marketing materials as a system and do not pay a franchise fee. As
of July 15, 1999, Bullhide had 56 dealerships and 3 franchises in 25 states and
2 countries. Bullhide also has a prototype store in Spokane, Washington where it
conducts many proprietary training classes for its dealers.
Bullhide markets its dealerships predominately through trade shows and
magazine advertising. When a dealer is signed, it must attend a week of training
at the corporate headquarters, or designated training facility, and purchase
certain equipment and materials from Bullhide. Bullhide's marketing material has
been designed to be a turn-key program for each new licensed dealership. It
includes point-of-purchase displays, finished product samples, color brochures,
nationally-syndicated advertising jingles and other commercially produced
advertising materials for print, radio and TV media. Although offered,
Bullhide's dealers are not required to purchase these marketing materials.
Bullhide developed and conducts its own proprietary training classes
for its dealers, which are designed to enable each shop crew to learn the many
aspects of running its business. The program provides hands-on experience in the
areas of: masking and preparation, spray molding, machine maintenance,
marketing, advertising, shop location, shop layout and design and office support
systems. Advanced training is available for licensees interested in going mobile
or expanding to other applications of the Bullhide(R) family of products.
Advanced training involves learning the basic elements of estimating and
contracting, as well as the legal aspects of getting bonded and complying with
the regulations involved in a particular state, county or city.
The key people within Bullhide have years of experience handling
situations that their licensees and dealers may encounter. Answers to most
operating questions are routinely provided over the phone. Specific product
recommendations for an unusual job can be dealt with quickly by experienced
personnel. More in-depth questions about the equipment or the material can be
referred to in-house equipment engineering and product development departments.
Technical bulletins are sent regularly to all dealers concerning new
product applications,
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equipment developments, production techniques and unique marketing ideas.
PRODUCTS AND MANUFACTURING
Products
The Bullhide(R) system consists of a patent pending proprietary
polyurethane material and certain technologies for the manufacturing and
application of the product. Bullhide's primary products are Bullhide 2000 and
QUARRA 2000.
Bullhide 2000 is the primary product used in the Bullhide(R) system. It
is a two- component fast reacting polyurethane elastomer that is 100% solid,
surpassing all other known 100% solid linings in the "combined toughness index
(PSI tensile strength and elongation). The product is (i) resistant to water,
fuels, oils and most chemicals, (ii) available in a variety of colors, (iii)
available with either a smooth or non-slip surface, (iii) permanently flexible
to -40F, (iv) adheres to virtually anything and (v) retains toughness up to
+250F. Other products include Bullhide 1500 and certain primers used to prepare
the surface for the Bullhide(R) product.
QUARRA 2000 is the primary product in the QUARRA(R) product line, which
markets industrial formulations of the well-established bed liner products.
QUARRA 2000 is a rubbery tough coating (up to 1/4") with extreme abrasion and
impact resistance, stretchability and non- slip properties. Applications include
parking decks, warehouse floors, shipping docks, rail ore cars, secondary
chemical and waste water containment and waterproofing. Other products in the
QUARRA(R) line include QUARRA 1500 and QUARRA 2400.
The heart and the brains of the Bullhide(R) system is the Spray Master
3030. This is a plural component, high volume low pressure spray molding
machine. The electronically controlled metering system assures a perfectly
"on-ratio" application every time. In conjunction with the new Quarra(R)
products, Bullhide developed a high output application machine to shorten the
industrial job times. The Spraymaster 3050 is a high-output application machine
with four times the output of the 3030 machine and the capacity to coat 10,000
square feet of QUARRA coatings.
Manufacturing and Raw Materials
The manufacturing of the products is carried out by utilizing strict
secrecy and non- disclosure, non-compete agreements with a select number of
manufacturers. The manufacturers are involved in producing and marketing other
polyurethane products, such as polyurethane foam, not in competition with the
end use markets of Bullhide's customers. Multiple manufacturers give Bullhide
production capability in various locations and also serve to keep transportation
costs as low as possible
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The primary raw materials used in the manufacture of Bullhide's
products are poly and iso. The raw materials required by Bullhide are obtained
from regular commercial sources of supply and, in most cases, multiple sources.
The capacity, supply and demand for raw materials are subject to cyclical and
other market factors. Under normal conditions, there is no difficulty in
obtaining requirements at competitive price. In addition, no shortages have been
experienced by Bullhide in obtaining its required raw materials.
PROPRIETARY RIGHTS
Bullhide has registered its Bullhide(R) and QUARRA(R) trademarks with
the United States Patent and Trademark Office. In addition, Bullhide has applied
for a patent on its application process.
MARKET AND CUSTOMERS
Pickup Truck Bedliner Market
One of Bullhide's primary target markets is the pickup truck protective
bedliner market. Accordingly to Automotive Week, more than 3 million pickup
trucks were sold in the U.S. in 1997. The market has been growing at an average
of 10% a year since 1991 and estimates indicate that there are an additional 11
million trucks on the U.S. highways today that are less than five years old.
Since initializing its development in 1992, Bullhide has installed more than
4,000 liners in pickup trucks.
The primary wholesale customers for Bullhide's pick-up bed liners are
the are pickup truck/auto dealers. The auto-truck dealers sell the liner as part
of the accessory package at the point of sale of the truck, and can thereby
include it as part of the financing package. It is then installed by the local
Bullhide shop. Bullhide has developed a sales video which is utilized as part of
a point of purchase display. The display contains a photo album, product samples
and brochures as well as a video. Other wholesale customers include leasing
companies that supply the leasing needs of large fleet customers and local
accessory installers. Potential fleet customers include government, businesses
with delivery services such as soft drink distributors, construction companies,
and lawn care services.
Flooring Market
In January 1999, Bullhide announced that it had established a firm
marketing plan for its QUARRA 2000 products which are primarily sold in the
commercial and industrial flooring markets. The potential market is large, being
in the tens of millions of square feet. Applications include warehouse floors,
shipping docks, secondary chemical and waste water containment as well as
waterproofing and more.
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Examples of some of the industrial applications are as follows. In
January 1999, one of Bullhide's distributors in Florida completed the spraying
of a beverage cooler room at Pro Player Stadium in preparation for Super Bowl
XXXIII. Bullhide's QUARRA 2000 was sprayed onto the steel floor and walls of the
room creating a containment barrier which eliminated the problem of liquid
leaking through the floor and onto the seats in the Club Level of the stadium.
The flooring also provided some "give" so that the 160 pound kegs no longer
buckled the floor when dropped. Another completed job in the industrial flooring
arena was the $17,000 slip-resistance kitchen flooring job at a restaurant. This
provided a safer working environment as an anti-fatigue work area for employees.
The City of Spokane, Washington approved the use of Bullhide's Quarra
2000 on pedestrian sidewalks. The approval was based on the anti-skid properties
and positive test results over a 3,800 square foot test area. This was followed
by a recent government coefficient of Friction Test which was performed
according to ASTM (American Standard Testing Method) D 1894. The results show
that Bullhide's QUARRA 2000 meets and exceeds these specifications in both the
static and kinetic state, as well as wet and dry conditions. Through the
American with Disabilities Act, the government stated that flooring materials
with a coefficient of Friction measurement above .60 meet the requirements of
"non-slip" flooring. Bullhide's Quarra 2000 grades out in the mid .90's and
above.
Original Equipment Manufacturers
OEM or Original Equipment Manufacturers, represent a unique market
separate from the bedliner market. At least three potential markets for OEM
applications are manufacturers of prefabricated staircase covers, manufacturers
of trailers for animal transport and metal boat manufacturers.
Manufacturers of Prefabricated Staircase Covers. Bullhide is currently
being used by a manufacturer who produces Tread-Ex(TM) , a prefabricated
staircase cover, designed as a low cost, permanent solution to concrete and wood
stairs that are worn and in disrepair. Tread Ex(TM) , which consists of a steel
base formed to match existing stairs and landings covered with Bullhide 2000, is
applied to existing stairs in multi-family housing condominiums and apartment
complexes.
Horse Trailer and Other Trailer Manufacturers. Bullhide's market
research shows that the best way to achieve penetration into this market is by
selling the Bullhide(R) system directly to those trailer manufacturers or their
largest distributors. There are over 120 trailer manufacturers, excluding
semi-truck trailers, in the United States. As in many industries, the top 20
manufacturers control about 80% of the market.
Cargo trailers and horse trailers can be protected with Bullhide both
inside and out. Bullhide's rock guard protection shields the outside of the
horse trailers while giving anti-slip coating protection to the wheel covers and
fenders. Bullhide has also been used on the trailers'
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floors to give horses and livestock padding which prevents injuries during
transport. Bullhide has demonstrated this application in more than 50 trailers.
On the inside, the floor can be totally sealed, so that it is easier to keep
clean.
Boat Manufacturers. Bullhide's market research shows that there are
about 55 metal boat manufacturers in the United States. Bullhide(R) has
tremendous adhesion to aluminum. It functions as a sound deadener as well as an
easily cleanable, anti-slip covering. Since it is decorative as well as
functional, Bullhide can be installed on the deck, floor and interior of boats.
Bullhide has successfully installed in excess of 30 linings on aluminum boats.
COMPETITION
Competition in the spray on truck bedliner market is highly
concentrated among a small number of suppliers. Management believes that there
is only one major competitor called Rhino Linings. The rest of the market is
fragmented among several start-up companies, who in the opinion of management
have either an inferior product, application equipment and/or technique. All
spray application competitors combined have captured no more than 2% of the new
truck market and a very minimal part (less than 1%) of the used truck market.
Management does not believe that there are direct competitors for industrial
uses of its product. Although, there are apoxy paint manufacturers and other
coating manufacturers, these do not compete directly with the use of Bullhide as
an industrial product.
EMPLOYEES
As of July 19,1999, Bullhide had approximately four (4) full-time
personnel and one (1) part-time employee. Of the full-time personnel, there are
two in management, one in research and development, and one in sales. The
part-time employee is in technical assistance and training.
ENVIRONMENTAL REGULATION
Bullhide's operations are subject to federal, state and local
environmental laws and regulations that impose limitations on the discharge of
pollutants into the environment and establish standards for the handling,
generation, emission, release, discharge, treatment, storage and disposal of
certain materials, substances and wastes. To Bullhide's knowledge, Bullhide's
operations are in substantial compliance with the terms of all applicable
environmental laws and regulations as currently interpreted. In addition to
Bullhide's knowledge, there are no existing or potential environmental claims
against Bullhide, nor has Bullhide received any notification or knowledge of any
allegation of any actual, or potential responsibility for, or for any inquiry or
investigation regarding, any disposal, release, or threatened release at any
location of any hazardous substances generated or transported by Bullhide.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following analysis of Bullhide's results of operation and financial
condition should be read in conjunction with Bullhide's financial statements and
notes thereto included elsewhere in this Form 10-SB.
Results of Operations
Three Months ended June 30, 1999 ("first quarter of 1999") compared with Three
Months ended June 30, 1998 ("first quarter of 1998")
Total revenues were $459,420 in the first quarter of 1999 compared with
$556,823 in the first quarter of 1998, a decrease of 17.5%. This decrease in
revenue is attributable to decreased sales of Bullhide's products.
Costs of sales was $270,384 in the first quarter of 1999 compared with
$447,207 in the first quarter of 1998, a decrease of 39.5%. This decrease in
cost of sales is due to the decreased production of Bullhide's products during
the first quarter of 1999, more efficient operations and more advantageous
chemical pricing from a new supplier. Gross profit as a percentage of sales
increased from 19.7% in the first quarter of 1998 to 41.2% in the first quarter
of 1999.
General and administrative ("G&A") expenses were $228,603 in the first
quarter of 1999 compared with $343,680 in the first quarter of 1998, a decrease
of 33.5%. All G&A line item expenses decreased, except employee benefit expenses
increased. Employee benefit expenses increased from $3,990 in the first quarter
of 1998 to $12,994 in the first quarter of 1999 as a result of Bullhide moving
key personnel from Spokane, Washington to South Florida in May 1999. All other
expenses decreased as a result of a reorganization including moving corporate
headquarters from Spokane, Washington to South Florida in May 1999.
Thus, Bullhide's loss from operations was $39,567 in the first quarter
of 1999 compared with a loss of $234,064 in the first quarter of 1998. Other
income in the first quarter of 1999 consisted of a $7,312 gain on the sale of
certain assets from the Bullhide shop in Spokane and a $47,681 loss on the
abandonment of the Spokane facility.
As a result of the forgoing, Bullhide's net loss in the first quarter
of 1999 was $84,710 compared with a net loss of $238,855 in the first quarter of
1998.
Fiscal Year ended March 31, 1999 ("fiscal 1999") Compared to Fiscal Year Ended
March 31, 1998("fiscal 1998")
Total revenues were $1,686,702 in fiscal 1999 compared with $656,471 in
fiscal 1998, an increase of 157%. This increase in revenue is attributable to
increased sales of Bullhide's
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products to an increased number of dealers, 55 at March 31, 1999 versus 25 at
March 31, 1998. The Company's sale of its QUARRA product line accounted for only
a small portion of the increase in revenues.
Cost of sales was $1,237,756 in fiscal 1999 compared to $427,954, an
increase of 189%. This increase is primarily attributable to the increased sales
and the costs involved in signing up new dealers. Gross profit as a percentage
of sales decreased to 28.9% in fiscal 1999 from 34.8% in fiscal 1998.
General and administrative expenses were $1,400,857 in fiscal 1999
compared to $779,099 in fiscal 1998. Operating expenses consisted mainly of
payroll, advertising, professional fees and royalty payments. The royalty
payments are those due to PolyChem for the purchase of technology rights.
Thus, Bullhide's loss from operations was $951,911 in fiscal 1999
compared with $546,082 in fiscal 1998. Other income in fiscal 1999 consisted of
a $5,000 gain on disposal of certain assets. Other expenses in fiscal 1999
consisted of interest expenses of $30,822.
As a result of the foregoing, Bullhide's net loss in fiscal 1999 was
$977,643 compared with $653,361 in fiscal 1998.
Liquidity and Capital Resources
Bullhide has financed it working capital requirements primarily with
sales of its common stock and by receiving loans from officers, directors and
shareholders. Bullhide had negative working capital of $615,159 at March 31,
1999, compared to negative working capital of $203,232 at March 31, 1998.
Bullhide's working capital deficit increased greatly during fiscal 1999 as a
result of a significant increase in the above-mentioned loans, payroll taxes and
payable and accrued stock compensation due to officers, directors and
shareholders.
During fiscal 1999 and 1998, Bullhide raised approximately
$1,000,000 of net proceeds in private offerings. Bullhide has also received
financing in the form of loans from the Grossman's in the amount of $285,989 in
fiscal 1999 and $373,600 in fiscal 1998.
Net cash used in operating activities increased from $610,033 in fiscal
1998 to $762,743 in fiscal 1999. This increase was primarily due to increased
losses and rapid growth. Net cash used in investing activities decreased from
$27,477 in fiscal 1998 to $7,269 in fiscal 1999. In fiscal 1998, Bullhide
repurchased a franchise for $10,000 and purchased securities for $5,000. Net
cash provided by financing activities increased from $643,359 in fiscal 1998 to
$765,282 in fiscal 1999.
As of June 30, 1999, Bullhide had cash on hand of $28,910 and a
working capital deficit of $217,132. Net cash used in operating activities
during the first quarter of 1999 was $207,349.
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Net cash used in financing activities during the first quarter of 1999 was
$9,460, which resulted from Bullhide's payment of $15,930 of checks in excess of
its bank balance offset by proceeds of $6,470 received from the sale of property
and equipment. Net cash provided from financing activities during the first
quarter of 1999 was $242,844, of which $237,623 came from the sale of common
stock and $7,253 from the borrowings on long term debt.
Going Concern Qualification
Bullhide's financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. Bullhide reported
net losses of $977,643 and $653,361 in fiscal 1999 and fiscal 1998,
respectively. Bullhide has taken several actions to keep itself viable and in
existence as a going-concern. On June 30, 1997, the original founders of
Bullhide converted their long term debt into common stock. Additionally, in June
1997, Bullhide hired W. Gordon Freeman, as executive vice president of sales and
marketing. Mr. Freeman's job was to hire and train a team of independent sale
representatives and develop a national marketing plan. On January 27, 1998, Mr.
Freeman was promoted to President and on October 14, 1998 to Chief Executive
Officer.
In July 1997, Bullhide completed a private placement of its common
stock, which resulted in the issuance of 10,000 units at $5.00 per unit.
Bullhide received its symbol to trade on the OTC Bulletin Board on December 17,
1997.
The expanded marketing efforts of Bullhide resulted in the signing of
55 dealers as of the year ended March 31, 1999, an increase of 30 from March 31,
1998. Recent marketing efforts in the industrial flooring and chemical
containment markets have resulted in positive sales. Generally, jobs in the
flooring and chemical containment markets are much larger than the truck bed
liner market and may result in a higher sales volume of Bullhide materials per
order and per dealer.
During April 1999, Bullhide began the process of restructuring its
operations and administration by moving its corporate office from Spokane,
Washington to South Florida. A fifth master distributorship, serving the
Northwest region, has been established in Spokane by Mr. Grossman, Bullhide's
founder. This restructuring will save the Company in excess of $250,000 in
annualized costs. In April 1999, Bullhide was approved to sell up to 2,000,000
shares of common stock under Rule 504 of Regulation D. Management intends to
raise up to $850,000 net proceeds during the fiscal year ended March 31, 2000.
Year 2000 Readiness
Bullhide has completed an assessment of whether its systems and those
of third parties which could have a material impact on its business will
function properly with respect to dates in 2000 and thereafter. Bullhide has
determined that none of its systems require modification.
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Bullhide believes the only third parties that could have a material impact on
its business are the major financial institutions that process its collections
of accounts receivables and monthly dues by the electronic payment methods.
Bullhide believes these financial institutions are currently working on
modifications to their internal systems to insure these systems will function
properly with respect to dates in 2000 and thereafter and expects these
modifications will be completed in 1999. Bullhide does not anticipate that
noncompliance, if any, with Year 2000 of any non- information technology
systems, such as embedded micro controllers, will materially or adversely affect
its business. Bullhide is currently undertaking an analysis of worst-case
scenarios and developing contingency plans to deal with these scenarios.
ITEM 3. DESCRIPTION OF PROPERTY
Bullhide's corporate offices and conference centers are located in
Deerfield Beach, Florida. Bullhide leases the building facilities from an
unrelated third party at a monthly rental rate of approximately $570 per month.
The lease is a month-to-month lease, and Bullhide can terminate by giving thirty
(30) days written notice.
Bullhide moved its corporate office from Spokane, Washington to
Deerfield Beach, Florida in April 1999. Bullhide is still obligated to make
monthly rental payments in the amount of $4,240.50 per month under its corporate
lease in Spokane, Washington, which expires on November 30, 2000. Bullhide is in
the process of trying to sublease this space.
ITEM 4.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information with respect to the number
of shares of Common Stock beneficially owned by (i) each director of Bullhide,
(ii) the executive officers named in the Summary Compensation Table, (iii) all
directors and officers of Bullhide as a group and (iv) each shareholder known by
Bullhide to be a beneficial owner of more than 5% of any class of Bullhide's
voting securities as of July 15, 1999. Except as otherwise indicated, each of
the shareholders listed below has voting and investment power over the shares
beneficial owned and the address of each beneficial owner is c/of Bullhide, 10
Fairway Drive, Suite 211, Deerfield Beach, Florida 33441. As of July 15, 1999,
Bullhide had 10,612,051 shares of its common stock issued and outstanding. An
asterisk indicates beneficial ownership of less than 1% of the outstanding
Bullhide common stock.
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<CAPTION>
Name of Individuals or Number Amount and Nature of
of Persons in Group Beneficial Ownership Percentage of Class
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Ronald Grossman 3,734,580(1) 35.2
Cheryle Hart Grossman 3,684,580(1) 34.7
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W. Gordon Freeman 628,690 5.9
Jeff Welsh 982,574(2) 9.3
Jack Bertoglio 50,000 *
H. Logan Pierson 821,246 35.2
Danny E. Robertson 300,000 2.8
Cecil C. and Judith F. Ram 625,800 5.9
All Officers and Director s
As a Group (7 persons) 6,517,090(3) 61.4
</TABLE>
(1) Ronald Grossman and Cheryle Hart Grossman are husband and wife and 3,684,580
shares of Bullhide's common stock are held in their joint name.
(2) Includes 205,000 shares held by The Southern Companies and 777,574 shares
held by Southern Financial Services, Inc., companies that are controlled by Mr.
Welsh.
(3) The 3,684,580 shares of common stock owned by Ronald Grossman and Cheryle
Hart Grossman referred to in footnote 1 are only counted once in calculating the
total in order to avoid a misleading total.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Bullhide are:
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Name Age Position
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<S> <C> <C>
Ronald Grossman 42 Chairman, Chief Technology Officer
W. Gordon Freeman 55 Chief Executive Officer
Charles Tokarz 53 Chief Financial Officer,Treasurer
Jack Bertoglio 64 Director
Jeffrey Welsh 48 Director
H. Logan Pierson 45 Director
Danny E. Robertson 54 Director
</TABLE>
Ronald Grossman, has served as Chairman of Bullhide since its formation
in April 1993 and as its Chief Technology Officer since October 1998. He also
served as President from April 1993 until January 23, 1998 and as Chief
Executive Officer from April 1993 until October 1998. He has worked in the high
performance coatings field since 1978. Mr. Grossman has developed the current
line of Bullhide's products and is responsible for research and development of
future products. Mr. Grossman has a Master of Science degree in Polymer Science
and Engineering from the University of Massachusetts and a Bachelor of Science
degree in Business Management from Arizona State University.
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W. Gordon Freeman has served as a Director since July 1997 and as
Bullhide's Chief Executive Officer since October 1998. He also served as
Bullhide's Chief Operating Officer from January 1998 to October 1998. Mr.
Freeman started his career in the automotive industry in 1968 with General
Motors. After fifteen years and eight progressive promotions he was the National
Director of Sales for GM's insurance division, Motors Insurance Corporation. He
left GM in 1984 to develop his own consulting firm. In 1992, he became Vice
President of Sales for Jim Moran and Associates, a subsidiary of Southeast
Toyota, where he recruited and developed a sales staff that increased their
customer base from 450 to 1,023 active dealers in five years.
Charles Tokarz has served as the Chief Financial Officer and Treasurer
of Bullhide since October 1998. He is a CPA and has over twenty years of
business, financial and financial planning experience. His prior professional
experience includes responsibilities as Chief Financial Officer and Treasurer
for a publicly traded wholesale distributor, Vice President of Finance for a
developer and manager of elderly housing and nursing home facilities, Vice
President and Controller for two developers of luxury condominiums and office
buildings, Controller of a country club owned by a NYSE company, and as
President of a small NASD broker/dealer specializing in equity funding for real
estate projects. Having served four years as a United States Navy air crewman,
Mr. Tokarz has a BS Degree and an MBA from the University of Massachusetts.
Jack Bertoglio has served as a Director of Bullhide since May 1998. He
has a distinguished 40 year career as an owner of, and investor in, major
corporations. In 1959 he founded Kansas Quality Construction, Inc. and Starlight
Homes, Inc. as vehicles to participate in multi-family residential construction.
When he sold his companies to Redman Industries (a NYSE listed company) in 1969,
he was operating in 25 states and building 2,000 units per year. He has
participated in a many investments in U.S. real estate of every type, including
land development, office, retail, industrial and single use. In the early 1990's
he was a major financial partner with Bankers Services Group, Inc., which
acquired significant loans, real estate and other assets from the Federal
Deposit Insurance Corporation and the Resolution Trust Corporation. He holds (or
has held) Board seats on many prominent Boards of Directors and/or Trustees,
including Eckerd College, the World Business Council, the Young Presidents
Organization, the Forty Niner's Organization, the Boy Scouts of America, Junior
Achievement and most of the public and private companies in which he has
invested.
Jeffrey Dale Welsh has served as a Director of Bullhide since January
1998. Mr. Welsh is the founder and President of Southern Financial Services,
Inc., which facilitates equity financing for small and medium sized companies.
He practiced law in New York for approximately thirteen years, with an emphasis
on securities law. Mr. Welsh is a graduate of the U.S. Naval Academy, having
served in the U.S. Navy for five years. He is also a graduate of the University
of Pittsburgh School of Law.
H. Logan Pierson has served as a Director since March 1997. Mr. Pierson
has over 18 years of experience in the auto industry, including positions as
Vice President of Sales and Leasing and Vice President of Corporate Affairs for
Southeast Toyota, a regional auto
12
<PAGE>
distributorship for 161 Toyota dealerships in the Southeastern U.S. He is also
an owner and operator of Bullhide's first Master Dealership.
Danny E. Robertson has served as a director since June 15, 1999. Mr.
Robertson was the co-founder, director, officer and business advisor of Access
Conference Call Service ("Access"). He is responsible for growing Access from
one employee in 1987 to 120 employees in 1997, with gross sales of $13 million.
Having qualified for Inc.'s list of 500 fastest growing companies, with a growth
rate of 1025% over five (5) years, Access was positioned for the next level of
growth. Recently, Access was sold as part of a roll-up. A certified public
accountant, Mr. Robertson has, from 1971 through 1999, served as Chief Financial
Officers and/or Senior Vice President, Finance & Administration, for the
National Machine Tool Builders' Association, the National Association of Retail
Druggists, the Aluminum Association, Inc. and most recently, the Printing
Industries of American, Inc. At Bullhide, we will use his expertise in the areas
of financial forecasts and the management of liquid and fixed assets. he will
also head Bullhide's Finance and Audit Committee.
Directors serve until the next annual meeting of shareholders or until
their successors are elected and qualified. Officers serve at the discretion of
the Board of Directors. Bullhide intends to institute a program whereby it grant
each Board Member 50,000 shares of Bullhide's common stock and 50,000 shares on
the anniversary date of each year of service.
ITEM 6. EXECUTIVE COMPENSATION
The Summary Compensation Table sets forth compensation paid by Bullhide
for the three fiscal years ended March 31 for services in all capacities for its
CEO and President. No other principal executive officer received a total annual
salary and bonus from Bullhide which exceeded $100,000.
<TABLE>
<CAPTION>
Other
Name and Position Year Salary Bonus Compensation
- ----------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Ronald Grossman 1999 $ 86,500(1) 0 84,265(2)
Chairman and 1998 $ 60,000(1) 0 27,863(2)
1997 $ 0 0 0
W. Gordon Freeman 1999 $170,500(3) $45,050(4) 0
1998 $144,000 0 0
1997 $144,000 0 0
</TABLE>
(1) Includes stock awarded to Mr. Grossman his service as a director of Bullhide
during fiscal 1999. Mr. Grossman received 50,000 shares of Bullhide's common
stock on February 24, 1999 and the fair market value of Bullhide's stock on the
date of the grant was $ 0.53 per share. (2) Represents royalty payments that Mr.
Grossman received in fiscal 1999 and fiscal 1998 under a royalty agreement
between Bullhide and PolyChem corporation, a company which is solely owned by
Mr. Grossman and his wife. (3) Includes stock awarded to Mr. Freeman for his
service as a director of Bullhide during fiscal
13
<PAGE>
1999. Mr. Freeman received 50,000 shares of Bullhide's common stock on February
24, 1999 and the fair market value of Bullhide's stock on such date was $0.53
per share. (4) Includes 85,000 shares awarded to Mr. Freeman as a bonus on
February 24, 1999 and the fair market value of Bullhide's stock on such date was
$0.53 per share.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 30, 1997, Bullhide purchased certain technology rights for the
materials used in the pickup truck bedliner process from PolyChem Corporation, a
company owned solely owned by Ronald Grossman, Bullhide's Chairman and Chief
Technology Officer. Under the terms of the purchase agreement, Bullhide will pay
PolyChem Corporation a royalty based on five percent of total gross revenues of
the Company to a maximum of $200,000. Under the terms of the purchase agreement,
Bullhide is scheduled to make a royalty payments of $166,500 in fiscal 2000.
In June 1997, Bullhide planned to raise capital in a private offering.
Prior to commencing the private offering, Bullhide wanted to covert certain
debts into equity in order to reflect the true financial status of Bullhide. On
October 20, 1993, Ronald Grossman and Cheryle Hart Grossman advanced $352,961 to
Bullhide. The Grossman's converted this debt into restricted common stock at the
rate of $1.00 per share, reflecting a discount over its issue price to reflect
the current risk of collection associated with the debt.
Bullhide was also indebted to various credit card companies in the
total amount of $51,690. Ronald Grossman and Cheryle Grossman assumed the credit
card debt personally in return for Bullhide issuing them 147,686 shares of
restricted common stock valued at $.35 per share.
Bullhide was also indebted to PolyChem Corporation, a company solely
owned by Mr. Grossman, in the amount of $54,270 for previous product purchases.
PolyChem Corporation converted this debt into restricted stock at the rate of
$.35 per share and was issued 155,914 shares of Bullhide's restricted common
stock.
During December 1998, Bullhide borrowed 78,000 shares of Bullhide's
common stock from PolyChem Corporation, a corporation which is 100% owned by Mr.
Grossman. Bullhide sold the stock and received net proceeds of $37,744. As
repayment to Poly Chem Corporation, Bullhide issued 85,800 shares of its common
stock to Poly Chem Corporation on February 24, 1999.
Ron Grossman has advanced an aggregate of $157,405 dollars to Bullhide.
These loans are evidenced in a $118,276 promissory note dated March 31, 1998
bearing interest at the rate of eight (8%) per annum and a $39,129 promissory
note dated December 31, 1998 bearing interest at the rate of twelve (12%) per
annum. The $118,276 promissory note is a demand note and interest
14
<PAGE>
is payable annually on March 31. The principal and interest under the $39,129
promissory note are due on June 30, 2000.
ITEM 8. DESCRIPTION OF SECURITIES
Bullhide's authorized capital stock consists of 50,000,000 shares of
Common Stock, $.001 par value and 5,000,000 shares of Preferred Stock, $1.00 par
value. As of July 15, 1999, 10,612,051 shares of Common Stock and 60,000 of
Preferred Stock were issued and outstanding.
COMMON STOCK
The holders of the Common Stock are entitled to one vote per each share
held and have the sole right and power to vote on all matters on which a vote of
stockholders is taken. Voting rights are non-cumulative. The holders of shares
of Common Stock are entitled to receive dividends when, as and if declared by
the Board of Directors, out of funds legally available therefore and to share
pro rata in any distribution to stockholders. Upon liquidation, dissolution, or
winding up of Bullhide, the holders of the Common Stock are entitled to receive
the net assets of Bullhide in proportion to the respective number of shares held
by them after payment of liabilities which may be outstanding. The holders of
Common Stock do not have any preemptive right to subscribe for or to purchase
any shares of any class of stock. The outstanding shares of Common Stock and the
shares offered hereby will not be subject to further call or redemption and will
be fully paid and nonassessable.
PREFERRED STOCK
Bullhide's Board of Directors has the authority to issue up to
5,000,000 shares of Preferred Stock in one or more series, and to fix by
resolutions, conditional, full, limited or no voting powers and such
designations, preferences and relative, participating, optional or other special
rights, if any, and the qualifications, limitations or restrictions thereof, if
any, including the number of shares in such series (which the Board may increase
or decrease as permitted by Washington law), liquidation preferences, dividends
rates, conversion or exchange rights, redemption provisions of the shares
constituting any series, and such other special rights and protective provisions
with respect to any class or series as the Board may deem advisable without any
further vote or action by the shareholders. Any shares of Preferred Stock so
issued would have priority over the Common Stock with respect to dividend or
liquidation rights or both and could have voting and other rights of
shareholders. Bullhide has no present plans to issue shares of Preferred Stock.
Bullhide has issued one class of Series A Preferred Stock. Holders of
the Series A Preferred Stock have equal voting rights with common stockholders
and is redeemable at the option of Bullhide at $1 per share. As of July 15,
1999, Bullhide has not exercised the option to redeem any of the Preferred
Stock. Upon liquidation, the holders of the Series A Preferred Stock
15
<PAGE>
are entitled to receive, as a preferential distribution, the par value of the
preferred stock before any assets are distributed to the common shareholders.
CERTAIN WASHINGTON LEGISLATION
Washington has enacted legislation that may deter or frustrate
takeovers of Washington corporations. The WBCA imposes restrictions on certain
transactions between a corporation and certain "Interested Shareholders." First,
subject to certain exceptions, a merger, share exchange, sale of assets other
than in the regular course of business or dissolution of a corporation involving
an Interested Shareholder owning beneficially 20% or more of the corporation's
voting securities must be approved by the holders of two-thirds of the
corporation's outstanding voting securities, other than those of the Interested
Shareholder. This restriction does not apply if the consideration received as a
result of the transaction by the noninterested shareholders is not less than the
highest consideration by the Interested Shareholders for shares of the
corporation's stock during the preceding two years or if the transaction is
approved by a majority of directors who are not affiliated with the Interested
Shareholder. A Washington corporation, may, in its articles of incorporation,
exempt itself from coverage of this provision; however, Bullhide has not done
so.
Washington law prohibits a "target corporation," with certain
exceptions, from engaging in certain "significant business transactions" with a
person or group of persons who beneficially own 10% or more of the voting
securities of a target corporation (an "Acquiring Person") for a period of five
years after the acquisition of such securities, unless the transaction or
acquisition of shares is approved by a majority of the members of the target
corporation's board of directors prior to the date of the acquisition.
Significant business transactions include, among others, merger or consolidation
with, disposition of assets to or with, or issuance or redemption of stock to or
from, the Acquiring Person, termination of 5% or more of the employees of the
target corporation employed in Washington State as a result of the Acquiring
Person's acquisition of 10% or more of the shares or allowing the Acquiring
Person to receive any disproportionate benefit as a stockholder. Target
corporations include domestic corporations with their principal executive
offices in Washington, and either a majority or over 1,000 of their employees
resident in Washington. Bullhide does not meet these standards, and is not
subject to this statute. A corporation may not "opt out" of this statute. This
statue exempts shares acquired prior to March 23, 1988.
TRANSFER AGENT
Bullhide's Transfer Agent is Florida Atlantic Stock Transfer, 7130 Nob
Hill Road, Tamarac, Florida 33321.
16
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRATION'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
Bullhide's common stock is traded in the over the counter market under
the symbol "BULH". The following table set forth the high and low bid prices, as
reported by the National Quotation Bureau, Inc. for Bullhide's Common Stock for
the calendar periods indicated. These quotations reflect intermediate prices,
without retail mark-ups, mark-downs or commissions, and may not represent actual
transactions. Bullhide's common stock began trading in the OTC Bulletin Board on
December 11, 1997, so information is provided beginning in the first quarter of
1998.
<TABLE>
<CAPTION>
Quarter Ended High Bid Low Bid
- ------------- -------- -------
<S> <C> <C>
March 31, 1998 1.625 1.0625
June 30, 1998 1.59375 1.0625
September 30, 1998 1.4375 1.01
December 31, 1998 1.25 0.40625
March 31, 1999 0.7813 0.3750
June 30, 1999 0.7900 0.2813
</TABLE>
Prior to December 11, 1997, Bullhide's common stock was traded
privately and there was not active trading market for its common stock.
The approximate number of common stockholders of record of Bullhide's
common stock as of July 15, 1999 was 55.
DIVIDEND POLICY
Bullhide has never paid cash dividends on its Common Stock. Payment of
dividends will be within the sole discretion of Bullhide's Board of Directors
and will depend, among other factors, upon earnings, capital requirements and
the operating and financial condition of Bullhide. At the present time,
Bullhide's anticipated financial capital requirements are such that it intends
to follow a policy of retaining earnings in order to finance the development of
its business.
ITEM 2. LEGAL PROCEEDINGS
Bullhide is involved in one legal proceeding which is incidental to the
conduct of its business. Bullhide does not believe that this proceeding will
have a material adverse effect on Bullhide.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
During the last two fiscal years, Bullhide has not had any changes in
or disagreements
17
<PAGE>
with its accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth the Company's sale of securities during the
last three years, which securities were not registered under the Securities Act
of 1933, as amended (the "Securities Act"). No underwriters were employed with
respect to the sale of any of the securities listed below. All shares were
issued in reliance on Section 4(2) and/or Section 3(b) of the Securities Act.
1. Prior to commencing a private offering of its common stock in 1997,
on June 30, 1997, Bullhide converted certain debts into equity. The Grossmans
converted a loan in the amount of $352,961 into 352,961 shares of Bullhide's
common stock. The conversion rate of $1.00 per share reflected a discount over
Bullhide's issue price to reflect the current risk of collection associated with
the debt. Bullhide also has a debt to certain credit card companies in the total
amount of $51,690. The Grossmans were willing to assume the credit card debt
personally in exchange for 147,686 shares of restricted common stock valued at
$.35 per share. Bullhide was also indebted to PolyChem Corporation in the amount
of $54,270. PolyChem Corporation agreed to convert this debt into restricted
stock at the rate of $.35 per share and issued 155,914 shares of its restricted
common stock to PolyChem.
Inasmuch as the Grossmans were knowledgeable, sophisticated and have
access to comprehensive information about Bullhide, the shares of common stock
were issued to the Grossmans and Poly Chem Corporation in reliance upon Section
4(2) of the Securities Act. A legend was placed on the certificates stating that
the securities were not registered under the Securities Act and set forth the
restrictions on their transferability and sale.
2. The Company completed a private placement of its common stock during
July 1997 which resulted in the issuance of 10,000 units at $5.00 per unit. Each
unit consisted of 50 shares of common stock and 95 redeemable stock purchase
warrants. As of July 10, 1998, all warrants were exercised and the Company
received net proceeds of $783,629. The offering and sale of the units was made
in reliance on Regulation D - Rule 504 of the Securities Act of 1933, as
amended. The Units were only offered and sold to accredited investors or persons
who represented that they had no need for liquidity in their investment and have
adequate financial resources to withstand a total loss on their investment.
3. On March 29, 1999, Bullhide's Directors authorized Bullhide to take
the steps necessary to conduct a Regulation D - Rule 504 Offering, consisting of
2,000,000 shares of free trading common stock at $.50 per share. The offering
was completed on April 5, 1999. Southern Financial Services, Inc. ("SFS")
purchased all 2,000,000 shares in this offering. SFS paid for these shares by
executing a promissory note bearing interest at the rate of 12% per annum which
was originally due and payable on June 29, 1999. Bullhide agreed to extend the
maturity date of the note until December 18, 1999. In connection with this
transaction, SFS also signed a collateral assignment, dated April 1, 1999,
pledging the 2,000,000 shares as collateral. The
18
<PAGE>
offering and sale of the was made in reliance on Regulation D - Rule 504 of the
Securities Act of 1933, as amended.
4. On February 24, 1999, Bullhide issued 736,000 shares of its common
stock to its officers, directors, consultants, employees and lenders as
consideration for services rendered to Bullhide. The shares were issued to:
Number of
Name of Recipient Shares Received
----------------- ---------------
Donald M. Whaley 7,500
Ronald R. Sanders 8,000
Ronald Grossman 50,000
H. Logan Pierson 100,000
Jack Bertoglio 50,000
The Southern Companies, Inc. 205,000
W. Gordon Freeman 135,800
Charles Tokarz 8,700
PolyChem Corporation 85,800
Cecil C. Ram and
Judith F. Ram, joint tenants 85,800
Inasmuch as the officers, directors, consultants, employee and lenders
were knowledgeable, sophisticated or had access to comprehensive information
about Bullhide, such transactions were issued in reliance upon Section 4(2) of
the Securities Act. A legend was placed on the certificates stating that the
securities were not registered under the Securities Act and set forth the
restrictions on their transferability and sale.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Bullhide's Bylaws provide for indemnification of directors, officers
and others. The general effect of the Bylaws provision is to indemnify any
officer, director, employee or agent against any liability arising from any
action or suit to the fullest extent permitted by the WBCA.
FINANCIAL STATEMENTS AND EXHIBITS
AUDITED FINANCIAL STATEMENTS FOR MARCH 31, 1999 AND 1998
Independent Auditors' Report F-2
Balance Sheet F-3-F-4
Statement of Operations F-5-F-6
Statements of Change in Stockholders' Equity F-7
Statements of Cash Flows F-8
Notes to Financial Statements F-9-F-19
19
<PAGE>
UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE 30, 1999
AND JUNE 30, 1998
Balance Sheet F-20-F-21
Statement of Operations F-22
Statements of Cash Flows F-23
Statements of Change in Stockholders' Equity F-24
Notes to Financial Statements F-25-F-33
PART III
ITEM 1. INDEX TO EXHIBITS
2.1 Articles of Incorporation of Bullhide filed with the
Washington Secretary of State on April 2, 1993.
2.2 Amendment to Articles of Incorporation of Bullhide filed with
the Washington Secretary of State on January 24, 1994.
2.3 Amendment to Articles of Incorporation of Bullhide filed with
the Washington Secretary of State on June 8, 1994.
2.4 Amendment to Articles of Incorporation of Bullhide filed with
the Washington Secretary of State on December 26, 1996.
2.5 Amendment to Articles of Incorporation of Bullhide filed with
the Washington Secretary of State on June 8, 1999.
2.6 Bylaws, as amended
10.1 Manufacturing/Licensing Agreement dated January 1, 1994, by
and between PolyChem Corporation and The Bullhide Liner
Corporation.
10.2 Lease for the office and conference center in Spokane,
Washington
10.3 Lease for the East Coast sales office in Boca Raton, Florida
27.1 Financial Data Schedule for the fiscal year ended March 31,
1999
27.2 Financial Data Schedule for the first quarter ended June 30,
1999
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
Bullhide caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized on this 28th day of September, 1999.
THE BULLHIDE CORPORATION.
/s/ W. Gordon Freeman
---------------------
W. Gordon Freeman, Chief Executive Officer
20
<PAGE>
THE BULLHIDE LINER CORPORATION
------------------------------
Financial Statements and
Independent Auditors' Report
March 31, 1999 and 1998
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
Page
----
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Balance sheets F-3 - F-4
Statements of operations F-5 - F-6
Statements of stockholders' equity (deficit) F-7
Statements of cash flows F-8
Notes to financial statements F-9 - F-19
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Bullhide Liner Corporation
Spokane, Washington
We have audited the accompanying balance sheets of The Bullhide Liner
Corporation as of March 31, 1999 and 1998, and the related statements of
operations, stockholders' equity (deficit), and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe 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 The Bullhide Liner Corporation
as of March 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 13 to the
financial statements, the Company's recurring losses from operations and limited
capital resources raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in note 13. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ Le Master & Daniels PPLC
Spokane, Washington
May 28, 1999
- --------------------------------------------------------------------------------
F-2
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Balance Sheets
- --------------------------------------------------------------------------------
March 31,
---------
1999 1998
---- ----
Assets
CURRENT ASSETS:
Cash $ 2,875 $ 7,595
Accounts receivable, net of allowance for doubtful
accounts of $20,000 and $25,000, respectively 111,461 44,116
Inventory 49,219 72,810
Investments -- 5,000
Prepaid expenses and deposits -- 522
-------- --------
Total current assets 163,555 130,043
-------- --------
FURNITURE AND EQUIPMENT:
Cost 147,483 128,517
Less accumulated depreciation 78,177 58,476
-------- --------
69,306 70,041
-------- --------
OTHER ASSETS:
Mississippi franchise repurchase 10,000 10,000
Systems development 46,830 46,830
Trademark 1,450 1,450
-------- --------
58,280 58,280
Less accumulated amortization 25,954 21,235
-------- --------
32,326 37,045
-------- --------
$265,187 $237,129
======== ========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
F-3
<PAGE>
- --------------------------------------------------------------------------------
Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
---------
1999 1998
---- ----
Liabilities and Stockholders' Equity (Deficit)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 195,582 $ 136,749
Checks issued in excess of bank balance 15,930 14,233
Accrued taxes 72,487 14,667
Accrued payroll and employee benefits 4,144 8,560
Accrued expenses 95,960 -
Accrued interest 31,825 7,891
Royalty payable 73,628 22,863
Customer deposits 22,650 66,834
Current obligations under capital lease 7,508 -
Current maturities of long-term debt 259,000 61,478
------------ -------------
Total current liabilities 778,714 333,275
OBLIGATIONS UNDER CAPITAL LEASE 12,119 -
LONG-TERM DEBT, less current maturities 172,921 130,968
------------ -------------
Total liabilities 963,754 464,243
------------ -------------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock--50,000,000 shares, $.002 par value, authorized;
7,875,451 and 7,171,451 shares issued and outstanding, respectively 15,751 14,343
Preferred stock--1,000,000 shares, $1.00 par value, authorized;
60,000 shares issued and outstanding 60,000 60,000
Additional paid-in capital 1,552,872 1,048,090
Retained earnings (deficit) (2,327,190) (1,349,547)
------------ -------------
Total stockholders' equity (deficit) (698,567) (227,114)
------------ -------------
$ 265,187 $ 237,129
============ =============
</TABLE>
- --------------------------------------------------------------------------------
F-4
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended
March 31,
---------
1999 1998
---- ----
<S> <C> <C>
SALES $ 1,686,702 $ 656,471
COST OF SALES 1,237,756 427,954
----------- -----------
GROSS PROFIT 448,946 228,517
CONSULTING FEE REVENUE FROM RELATED PARTY -- 4,500
----------- -----------
448,946 233,017
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
Advertising 85,001 65,869
Trade shows and exhibits 13,477 16,113
Marketing 36,615 13,601
Travel, lodging and auto 40,099 31,235
Travel, meals 7,831 --
Postage and shipping 86,436 21,417
Salaries and wages 492,407 320,915
Payroll taxes 41,737 27,326
Temporary labor 6,158 --
Employee benefits 37,005 18,249
Consulting fees 17,658 --
Taxes and licenses 11,747 647
Vehicle expense 6,328 4,135
Directors' fees 36,000 --
Dues and subscriptions 1,480 1,782
Fines and penalties 14,429 --
Legal and professional fees 99,814 36,353
Dealer training 1,531 --
Office supplies 14,571 11,696
Shop supplies 34,493 23,312
Research and development 55,583 --
Rent 58,844 38,702
Repairs and maintenance 1,703 --
Utilities 51,528 35,717
Insurance 21,869 --
Depreciation 19,701 17,352
Amortization 4,719 4,717
Bad debts 8,172 41,278
Bank fees 8,963 --
Royalties 84,265 27,863
Equipment rental 2,329 --
Other (1,636) 20,820
----------- -----------
1,400,857 779,099
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
F-5
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Statements of Operations (Continued)
- --------------------------------------------------------------------------------
Years Ended
March 31,
---------
1999 1998
---- ----
LOSS FROM OPERATIONS $ (951,911) $ (546,082)
-------- --------
OTHER INCOME (EXPENSE):
Interest income 90 --
Gain (loss) on disposal of assets 5,000 (957)
Loss on franchise repurchase -- (76,203)
Interest expense (30,822) (30,119)
-------- --------
(25,732) (107,279)
NET LOSS $ (977,643) $ (653,361)
============ ==========
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
F-6
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Statements of Stockholders' Equity (Deficit)
- --------------------------------------------------------------------------------
Common Stock
------------
Shares
Issued and
Outstanding Amount
----------- ------
BALANCES (DEFICIT), MARCH 31, 1997 5,618,000 $ 11,236
ADD (DEDUCT):
Issuance of common stock 896,890 1,794
Stock offering costs -- --
Issuance of common stock on conversion of debt 656,561 1,313
Contributed capital -- --
Net loss -- --
--------- ---------
BALANCES (DEFICIT), MARCH 31, 1998 7,171,451 14,343
ADD (DEDUCT):
Issuance of common stock 704,000 1,408
Net loss -- --
--------- ---------
BALANCES (DEFICIT), MARCH 31, 1999 7,875,451 $ 15,751
========= =========
(restubbed table)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Years Ended March 31, 1999 and 1998
- -------------------------------------------------------------------------------------------------------------------
Preferred Stock
---------------
Shares Additional Retained
Issued and Paid-in Earnings
Outstanding Amount Capital (Deficit) Total
----------- ------ ------- --------- -----
<S> <C> <C> <C> <C> <C>
BALANCES (DEFICIT), MARCH 31, 1997 60,000 $ 60,000 $ 172,803 $ (696,186) $ (452,147)
ADD (DEDUCT):
Issuance of common stock -- -- 478,932 -- 480,726
Stock offering costs -- -- (126,254) -- (126,254)
Issuance of common stock on conversion of debt -- -- 457,609 -- 458,922
Contributed capital -- -- 65,000 -- 65,000
Net loss -- -- -- (653,361) (653,361)
----------- ----------- ----------- ----------- -----------
BALANCES (DEFICIT), MARCH 31, 1998 60,000 60,000 1,048,090 (1,349,547) (227,114)
ADD (DEDUCT):
Issuance of common stock
Net loss
-- -- 504,782 -- 506,190
-- -- -- (977,643) (977,643)
BALANCES (DEFICIT), MARCH 31, 1999 -- -- -- -- --
60,000 $ 60,000 $ 1,552,872 $(2,327,190) $ (698,567)
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
F-7
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended
March 31,
---------
1999 1998
---- ----
Increase (Decrease) in Cash
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (977,643) $(653,361)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on sale of investment (5,000) -
Bad debts 8,276 41,278
Loss on disposal of assets - 957
Depreciation and amortization 24,421 22,069
(Increase) decrease in assets:
Receivables (75,621) (1,096)
Inventory 23,591 (69,280)
Prepaid expenses and deposits 522 1,059
Franchise fee receivable - 4,780
Increase (decrease) in liabilities:
Accounts payable 58,833 72,406
Payable to related party - (96,467)
Accrued taxes 57,819 6,317
Accrued expenses 95,960 -
Customer deposits (44,184) 44,984
Royalty payable 50,765 22,863
Accrued payroll and employee benefits (4,416) 7,223
Accrued interest 23,934 (13,765)
----------- ------------
Net cash used in operating activities (762,743) (610,033)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of available-for-sale securities 10,000 -
Checks issued in excess of bank balance 1,697 14,233
Repurchase of franchise - (10,000)
Purchase of available-for-sale securities - (5,000)
Purchases of property and equipment (2,066) (26,710)
----------- ------------
Net cash provided by (used in) investing activities 9,631 (27,477)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock $506,190 $480,726
Stock offering costs paid - (120,266)
Stockholder contributed capital - 65,000
Stockholders' loan 279,415 291,200
Borrowings on long-term debt 6,574 82,400
Principal payments to stockholders - (65,169)
Principal payments on long-term debt and lease obligations (43,787) (90,533)
----------- ------------
Net cash provided by financing activities 748,392 643,358
----------- ------------
NET INCREASE (DECREASE) IN CASH (4,720) 5,848
CASH, BEGINNING OF YEAR 7,595 1,747
----------- ------------
CASH, END OF YEAR $ 2,875 $ 7,595
Supplemental Disclosures:
Cash paid for interest $ 6,888 $ 43,884
Cash paid for income taxes - -
Schedule of Noncash Investing and Financing Activity:
Related-party debt and accrued interest converted to common stock - 458,922
Fixed assets acquired through long-term capital lease 16,900 -
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
F-8
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- --------------------------------------------------------------------------------
Organization:
The Company has granted franchises for the operation of pickup truck bed liner
spray application shops initially targeted for the pickup truck bed liner
market. In July 1996, the Company discontinued the sale of franchises for the
operation of pickup truck bed liner spray application shops. Subsequent to July
1996, the Company commenced selling dealerships under exclusive licensing
agreements and expanded into the industrial flooring market. As of March 31,
1999, the Company has sold fifty-five dealerships and has three operating
franchises. The Company grants credit to customers for sales of equipment and
materials throughout the United States. In addition, the Company operates a
pickup truck bed liner spray application shop in Spokane, Washington.
Summary of Significant Accounting Policies:
a. Method of accounting -- The Company prepares its financial statements on
the accrual method of account ing, recognizing income when earned and
expenses when incurred.
b. Accounts receivable -- The Company provides an allowance for doubtful
accounts based upon historical experience and a review of current
receivables.
c. Inventory -- Inventory is stated at the lower of cost (determined on the
first-in, first-out method) or market.
d. Furniture and equipment -- Furniture and equipment are stated at cost.
Depreciation is computed using the straight-line method for financial
reporting purposes. For federal income tax purposes, accelerated methods
are used.
e. Intangible assets -- Intangible assets subject to amortization include
system development costs and logo/trademark development costs. System
costs are being amortized using the straight-line method over the
estimated life of 10 years. Logo/trademark costs are being amortized on a
straight-line basis over 40 years.
f. Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
g. Sales -- Spray application equipment is manufactured to customer
specifications and is recorded as a sale when the equipment is shipped.
h. Advertising costs -- Advertising (marketing) costs are expensed as
incurred. Advertising expense was $85,001 and $65,869 for the years ended
March 31, 1999 and 1998, respectively.
- --------------------------------------------------------------------------------
F-9
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 2 -- INVENTORIES:
- --------------------------------------------------------------------------------
Inventories consisted of the following:
March 31,
---------
1999 1998
---- ----
Raw materials $ 37,991 $ 50,196
Machine parts 6,398 7,667
Dealer marketing materials 4,830 14,947
--------- ---------
$ 49,219 $ 72,810
========= =========
The Company's raw materials consist of polyurethane resins. There was no work in
process production of materials at year end. Production of spray application
equipment was outsourced during the fiscal year ended March 31, 1999.
NOTE 3 -- FRANCHISING OPERATIONS:
- --------------------------------------------------------------------------------
a. Significant commitments and obligations -- The Company is obligated in
accordance with the terms of each franchisee's respective franchise
agreement to provide the following supervision assistance and services:
site location, spray application training, operations manual, and
advertising literature. In addition, franchisees are required to purchase
inventory from the Company.
b. Franchise activity -- The number of franchises sold and in operation
during each of the years ended March 31, 1999 and 1998, was three. Current
active franchises are located in Colorado, Canada, and Saudi Arabia.
c. Franchise fees -- Initial franchise fees were recorded as revenue when all
the significant services relating to the franchise sale had been performed
by the Company.
d. Royalty -- Each franchisee is required to pay a monthly royalty based on
sales, commencing one year after the franchise opens for business. The
Company has waived its right to receive royalties from franchisees through
March 31, 1999.
- --------------------------------------------------------------------------------
F-10
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 4 -- FURNITURE AND EQUIPMENT:
- --------------------------------------------------------------------------------
A summary of furniture and equipment follows:
March 31,
---------
1999 1998
---- ----
Leasehold improvements $ 20,231 $ 20,231
Office furniture 11,194 11,194
Computer 10,171 8,105
Vehicles 28,200 28,200
Equipment 77,687 60,787
----------- -----------
147,483 128,517
Less accumulated depreciation 78,177 58,476
----------- -----------
Totals $ 69,306 $ 70,041
NOTE 5 -- LONG-TERM DEBT:
- --------------------------------------------------------------------------------
Long-term debt consisted of the following:
March 31,
---------
1999 1998
---- ----
Note payable to bank, due in monthly installments of
$817 including variable interest; collateralized
by substantially all assets and personally
guaranteed by a stockholder* $ 25,303 $ 30,504
Note payable to bank, due in monthly installments of
$367 including interest at 10%, maturing June 20,
1999; collateralized by vehicle and personally
guaranteed by a stockholder 1,128 5,216
Note payable to ex-franchisee, due in monthly
installments of $1,350 including interest at 8.5%,
maturing July 31, 1999, including a $13,000
remaining balance of the down payment on the
franchise repurchase, with no stated interest
rate, and which was due and payable October 15,
1997 (see notes 9 and 15) 33,450 38,450
- --------------------------------------------------------------------------------
F-11
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 5 -- LONG-TERM DEBT (continued):
- --------------------------------------------------------------------------------
March 31,
1999 1998
Note payable to stockholders, interest at 8% and 10% of
the principal balance annually on March 31;
unsecured $ 118,276 $ 118,276
Note payable to stockholders, interest at 12% of the
principal balance. Principal and interest due on
June 30, 2000; unsecured 39,129 -
Note payable to stockholders, interest at 12% of the
principal balance. Principal and interest due on
July 28, 2000; unsecured 20,000 -
Note payable to related party (see notes 7 and 9).
Principal and interest are to be repaid with
85,500 shares of the Company's common stock on or
before February 28, 1999, for the 78,000 shares
previously received; unsecured. Balance was paid
in full on April 13, 1999 37,744 -
Note payable to stockholders. Principal and interest
are to be repaid with 85,500 shares of the
Company's common stock for the 78,000 shares
received. Balance was paid in full on April 13,
1999 36,158 -
Note payable to stockholder. Principal and interest are
to be repaid by 47,850 shares of the Company's
common stock for the 43,500 shares received.
Balance was paid in full on April 13, 1999 14,387 -
Note payable to an unrelated party. Principal and
interest are to be repaid by 211,428 shares of the
Company's common stock for the 192,207 shares
received. Balance was paid in full on April 13,
1999 106,346 -
----------- -----------
431,921 192,446
Less current maturities 259,000 61,478
----------- -----------
Totals $ 172,921 $ 130,968
* The Small Business Administration has guaranteed 90 percent of the
original amount ($50,000) of the note payable.
- --------------------------------------------------------------------------------
F-12
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 5 -- LONG-TERM DEBT (continued):
- --------------------------------------------------------------------------------
Total interest expense for the notes payable to stockholders was $22,525 and
$21,141 for the years ended March 31, 1999 and 1998, respectively.
Maturities of long-term debt are as follows:
Years Ending
March 31, Amount
2000 $ 259,000
2001 163,000
2002 8,800
2003 1,121
----------
$ 431,921
NOTE 6 -- OBLIGATIONS UNDER CAPITAL LEASE:
- --------------------------------------------------------------------------------
Future minimum lease payments under leases capitalized at March 31, 1999,
together with the present value of the minimum lease payments, are as follows:
Years Ending
March 31, Amount
2000 $ 10,186
2001 10,186
2002 3,396
--------
Total minimum payments 23,768
Less amount representing interest (4,141)
---------
Present value minimum lease payments 19,627
Less current portion (7,508)
---------
Long-term obligation $ 12,119
At March 31, 1999, assets under capital lease had a cost of $16,900 and
accumulated depreciation of $1,408.
- --------------------------------------------------------------------------------
F-13
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 7 -- TRANSACTIONS WITH RELATED PARTIES:
- --------------------------------------------------------------------------------
The Company purchases materials used in the pickup bed liner and floor coating
processes from Poly Chem Corporation. Total purchases for the years ended March
31, 1999 and 1998, were $-0- and $38,809, respec tively. Purchases of materials
were discontinued June 30, 1997, per the agreement as identified in note 9.
During December 1998, the Company borrowed 78,000 shares of the Company's common
stock from Poly Chem Corporation which is 100 percent owned by a majority
stockholder of the Company. The Company sold the stock and received net proceeds
of $37,744 (see note 5). The Company has agreed to issue 85,800 shares of common
stock as repayment to Poly Chem Corporation no later than February 28, 1999.
Balance was paid April 13, 1999.
NOTE 8 -- PREFERRED STOCK:
- --------------------------------------------------------------------------------
Holders of the preferred stock have equal voting rights with the common
stockholders. The preferred stock is redeemable at the option of the Company at
$1 per share. As of the reporting date, the Company has not exercised the option
to redeem any of the preferred stock. Upon liquidation, the holders of the
preferred stock are entitled to receive, as a preferential distribution, the par
value of the preferred stock before any assets are distributed to the common
stockholders.
NOTE 9 -- COMMITMENTS:
- --------------------------------------------------------------------------------
On June 30, 1997, the Company purchased the technology rights from Poly Chem
Corporation for the materials used in the pickup bed liner and floor coating
processes as well as other polyurathene technology. Under the terms of the
purchase agreement, the Company will pay Poly Chem Corporation a royalty based
on 5 percent of total gross revenues of the Company to a maximum of $200,000. As
of March 31, 1999, $107,128 of royalties had been accrued, of which $33,500 had
been paid. Upon payment of the full $200,000 in royalties, Poly Chem Corporation
will transfer all of its interests in the formulation and technology including,
but not limited to, all patent rights therein, including the current patent
application 08/493858, and any and all future patent rights to Bullhide, and
shall have no further rights therein. The Company is in the process of obtaining
a patent for the materials used in the pickup bed liner process.
Future minimum royalty payments are as follows:
Year Ending
March 31, Amount
--------- ------
2000 $ 166,500
==========
- --------------------------------------------------------------------------------
F-14
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 9 -- COMMITMENTS (continued):
- --------------------------------------------------------------------------------
On July 31, 1997, the Company repurchased the franchise rights together with
certain assets of an existing franchisee. Under the terms of the repurchase
agreement, the Company was obligated to pay the franchisee $88,700 under the
following terms:
Downpayment $ 2,500
Inventory 6,300
Monthly payments of $5,000 commencing October 15, 1997,
with no stated interest rate 38,200
Consulting services provided by the franchisee payable
at $1,000 per month commencing August 30, 1997 12,000
Remaining balance to be paid in monthly payments
of $1,350 including interest at 8.5%,
commencing August 30, 1997 29,700
---------
$ 88,700
To date, $55,250 has been paid (see note 5).
NOTE 10 -- INCOME TAXES:
- -------------------------------------------------------------------------------
The Company's deferred tax asset was as follows:
March 31,
---------
1999 1998
---- ----
Deferred tax asset arising from net
operating loss carryforwards $ 782,000 $ 458,000
Valuation allowance (782,000) (458,000)
--------- ---------
Net deferred income tax asset $ - $ -
========= =========
At March 31, 1999, the Company had approximately $2,300,000 in net operating
loss carryforwards which is available to reduce future taxable income. The
carryforwards begin to expire in 2011.
For the years presented, the income tax provision (benefit) differs from the
amount expected using statutory tax rates because of the effects of the deferred
tax asset valuation allowance.
- --------------------------------------------------------------------------------
F-15
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 11 -- RECAPITALIZATION:
During the year ended March 31, 1997, the Company recapitalized its common and
preferred stock. Under the terms of the recapitalization, the par values of the
common and preferred stock were changed to $.002 and $1.00, respectively. The
number of authorized shares of common and preferred stock was increased to
50,000,000 and 1,000,000, respectively.
NOTE 12 -- PRIVATE PLACEMENT:
- --------------------------------------------------------------------------------
On December 17, 1996, the Company was authorized to issue a private placement of
common stock. The Company is authorized to issue 10,000 units at $5.00 per unit.
As of July 10, 1998, all warrants were exercised (see note 13, paragraph 3).
Each unit consists of 50 shares of common stock and 95 redeemable stock purchase
warrants. The common stock purchase warrants are exercisable for one share of
common stock at $1.00 per share until December 17, 1998. The Company may redeem
the warrants at $.01 per warrant with 30-day prior written notice if the common
stock bid price equals or exceeds $2.50 per share for ten consecutive trading
days ending on the third day prior to or the date on which such notice was
given.
During the fiscal year ended March 31, 1998, all 10,000 units were sold, and
950,000 and 316,000 stock purchase warrants were exercised as of March 31, 1999
and 1998, respectively.
NOTE 13 -- GOING CONCERN:
- --------------------------------------------------------------------------------
As shown in the Company's financial statements, the Company incurred net losses
of $977,643. In addition, the Company has negative working capital of $615,159
and stockholders' deficit of $698,567. These conditions raise substantial doubt
about the Company's ability to continue as a going concern.
Management is committed to the future of the Company and has taken the following
actions to keep the Company viable and in existence as a going concern:
1. The Company has utilized long-term debt from the original stockholders to
fund the development of several key aspects of the national dealership
system including advertising for both the local and national promo tion,
legal aspects such as state registrations, and improvements in application
equipment, as well as the employment and training of the needed personnel.
These developments are expected to benefit the organization in the future.
In addition, on June 30, 1997, the original stockholders of the Company
converted long-term debt plus accrued interest to common stock.
2. On July 6, 1997, the Company hired an executive vice president of sales
and marketing. The vice president's responsibilities included hiring and
training a team of independent sales representatives and developing a
national marketing plan. On January 27, 1998, he was promoted to president
and on October 14, 1998, to chief executive officer.
- --------------------------------------------------------------------------------
F-16
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 13 -- GOING CONCERN (continued):
- --------------------------------------------------------------------------------
3. The Company completed a private placement of common stock during July 1997
which resulted in the issuance of 10,000 units at $5.00 per unit. Each
unit consisted of 50 shares of common stock and 95 redeemable stock
purchase warrants. The Company received its symbol to trade on the NASD
Bulletin Board on December 17, 1997. A secondary market for the stock was
established. As of July 10, 1998, all warrants were exercised and the
Company received a net total of $783,629. The Company has utilized this
investment capital to expand national advertising and exhibits at national
and regional trade shows. Research and engineering activities have also
been expanded to produce the next generation of application equipment and
coating and lining products.
4. The expanded marketing efforts of the Company have resulted in the signing
of 55 dealers as of the year ended March 31, 1999, an increase of 30 from
March 31, 1998. The costs relating to the signing and setting up the new
dealers significantly contributed to the operating loss for the year ended
March 31, 1999. However, once the Bullhide dealerships are fully
operational, it is expected that sales to the dealers and to new
additional dealers will result in increased revenues for the Company.
5. Recent marketing efforts in the industrial flooring and chemical
containment markets have resulted in positive sales. Generally, jobs in
the flooring and chemical containment markets are much larger than the
truck bed liner market and may result in a higher sales volume of Bullhide
materials per order and per dealer. During August 1998, the Company's
northern Alabama dealer was contracted to spray wood treatment plants in
Alabama and other states. In September 1998, after the successful
completion of three test locations, Jiffy Lube awarded the Company up to
10 additional locations for flooring applications. In May 1999, the
Company's southern Colorado dealer completed a 2,000 square foot area at
the Pueblo Zoo. During May 1999, the Florida master distributor started
coating several seating areas in a major league baseball park.
6. During November 1998, the Company signed a contract with Sears, Roebuck &
Co. to operate Bullhide truck liner facilities in a two-store test market.
This is anticipated to develop into a national arrangement.
7. On May 6, 1999, the Company engaged a law firm to prepare a Registration
Statement on Form 10-SB for the registration of its securities with the
SEC. Beginning in January 1999, the NASD has required all prospective new
listing companies to become registered with the SEC in order to qualify
for listing on the OTC Bulletin Board exchange. Companies already on the
exchange were given deadlines to file a registration statement with the
SEC. The Company's deadline to complete its registration process with the
SEC is October 1999.
8. During April 1999, the Company began the process of restructuring the
Company's operations and administration by moving its corporate office
from Spokane, Washington, to south Florida. A fifth master
distributorship, serving the Northwest region, has been established in
Spokane by the Company's founder. This restructuring will save the Company
in excess of $250,000 in annualized costs.
9. During April 1999, the Company was approved to sell up to 2,000,000 common
shares on the OTC Bulletin Board exchange under its second Regulation D
Rule 504 offering. Management expects to raise $850,000 net proceeds
during the fiscal year ending March 31, 2000.
- --------------------------------------------------------------------------------
F-17
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 14 -- ISSUANCE OF COMMON STOCK ON CONVERSION OF DEBT:
On June 30, 1997, the following liabilities and long-term debt were converted to
common stock:
Notes payable to stockholders $ 378,096
Accrued interest payable to stockholders 26,555
Account payable to Poly Chem Corporation (a related party) 54,271
-----------
$ 458,922
NOTE 15 -- PENDING LITIGATION:
- -------------------------------------------------------------------------------
On June 17, 1998, the holders of the note payable to ex-franchisee initiated
legal action to collect the remaining balance per the agreement. In addition,
the plaintiff has made a formal claim for compensation and lost opportunity to
pursue a successful business venture. The Company agrees to the note payable
liability and intends to vigorously defend the additional claims which the
Company considers groundless. The ultimate resolution of these matters is not
ascertainable at this time. No provision has been made in the financial
statements related to this claim.
On January 21, 1999, a Bullhide dealer initiated legal action for breach of
contract, fraud, and violation of the Tennessee Consumer Protection Act.
Plaintiff is seeking damages incurred. The Company intends to vigorously defend
the substantive claims in this case and is unable to estimate the success or the
amount or range of potential loss, if any.
NOTE 16 -- LEASE COMMITMENT:
- --------------------------------------------------------------------------------
The Company leases the building facilities from an unrelated third party. Rent
expense for the years ended March 31, 1999 and 1998, was $58,844 and $38,702,
respectively. Future minimum lease payments under the noncancellable operating
lease, with an option to renew, are as follows:
Years Ending
March 31, Amount
2000 $ 50,886
2001 33,924
----------
Total future minimum lease payments $ 84,810
- --------------------------------------------------------------------------------
F-18
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 17 -- YEAR 2000:
- --------------------------------------------------------------------------------
Like all entities, the Company is exposed to risks associated with Year 2000
dating problems which affect computer software and hardware; transactions with
customers, vendors, and other entities; and equipment dependent upon microchips.
The Company has begun but not yet completed the process of identifying and
remediating potential Year 2000 problems. It is not possible for any entity to
guarantee the results of its own remediation efforts or to accurately predict
the impact of Year 2000 dating problems on third parties with which the Company
does business. If remediation efforts of the Company or third parties with which
the Company does business are not successful, it is possible the Year 2000
dating problem could negatively impact the Company's financial condition and
results of operations.
- --------------------------------------------------------------------------------
F-19
<PAGE>
<PAGE>
THE BULLHIDE LINER CORPORATION
Financial Statements
(Unaudited)
June 30, 1999 and 1998
<PAGE>
<TABLE>
<CAPTION>
The Bullhide Liner Corporation
Balance Sheets
(Unaudited)
June 30, 1999 and 1998
1999 1998
--------------- ---------------
<S> <C> <C>
Assets
CURRENT ASSETS:
Cash $ 28,910 $ 74,521
Accounts receivable, Net of allowance for doubtful
accounts of $19,746 and $25,000, respectively 238,274 165,384
Inventory 23,395 79,863
Investments 0 5,000
Prepaid expenses and deposits 753 0
--------------- ---------------
Total current assets 291,332 324,768
--------------- ---------------
FURNITURE AND EQUIPMENT:
Cost 24,805 128,517
Less accumulated depreciation 18,977 62,976
--------------- ---------------
5,828 65,541
--------------- ---------------
OTHER ASSETS:
Mississippi Franchise 10,000 10,000
Deposits 3,730 0
Systems development 46,830 46,830
Trademark 1,450 1,450
--------------- ---------------
62,010 58,280
Less accumulated amortization 27,154 22,435
--------------- ---------------
34,856 35,845
--------------- ---------------
$ 332,016 $ 426,154
=============== ===============
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
<TABLE>
<CAPTION>
The Bullhide Liner Corporation
Balance Sheets
(Unaudited)
June 30, 1999 and 1998
1999 1998
--------------- ---------------
<S> <C> <C>
Liabilities and Stockholders' Equity (Deficit)
CURRENT LIABILITIES:
Accounts payable $ 253,170 $ 138,574
Accrued taxes 65,329 28,705
Accrued payroll and employee benefits 0 9,742
Accrued expenses 29,045 0
Accrued interest 24,287 10,256
Royalty payable 91,881 35,863
Customer deposits 4,700 56,750
Current obligations under capital lease 0 0
Current maturities of long-term debt 40,052 61,691
--------------- ---------------
Total current liabilities 508,464 341,581
OBLIGATIONS UNDER CAPITAL LEASE
LONG-TERM DEBT, less current maturities 100,803 129,630
--------------- ---------------
Total liabilities 609,267 471,211
--------------- ---------------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock - 50,000,000 shares,$.002 par value, authorized;
7,746,451 and 9,444,478 shares issued and outstanding,
respectively 18,889 15,493
Preferred stock - 1,000,000 shares, $1.00 par value,
authorized; 60,000 shares issued and outstanding 60,000 60,000
Additional paid-in capital 2,055,760 1,467,852
Retained earnings (deficit) (2,411,900) (1,588,402)
--------------- ---------------
Total stockholders' equity (deficit) (277,251) (45,057)
--------------- ---------------
$ 332,016 $ 426,154
=============== ===============
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
<TABLE>
<CAPTION>
The Bullhide Liner Corporation
Statement of Operations
(Unaudited)
For the Three Months Ended June 30, 1999 amd 1998
1999 1998
---------- -----------
<S> <C> <C>
SALES $ 459,420 $ 556,823
COST OF SALES 270,384 447,207
---------- -----------
---------- -----------
GROSS PROFIT 189,036 109,616
---------- -----------
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
Advertising 8,234 17,997
Trade shows and exhibits 0 350
Marketing 0 15,852
Travel 1,673 14,479
Postage and shipping 2,516 9,552
Salaries and wages 104,601 153,165
Payroll taxes 8,537 13,448
Employee benefits 12,994 3,990
Taxes and Licenes (134) 4,499
Vehicle expense 523 875
Dues and subscriptions 321 1,010
Legal and professional fees 32,990 21,843
Office supplies 1,049 4,508
Shop supplies 2,056 10,849
Rent 18,143 21,000
Utilities 9,442 12,920
Depreciation 2,100 4,500
Amortization 1,200 1,200
Royalties 18,254 28,000
Other 4,104 3,643
---------- -----------
228,603 343,680
---------- -----------
LOSS FROM OPERATIONS (39,567) (234,064)
GAIN ON THE SALE OF SPOKANE SHOP ASSETS 7,312 0
LOSS ON ABANDONMENT OF SPOKANE FACILITY (47,681) 0
OTHER EXPENSE, interest (4,774) (4,791)
---------- -----------
NET LOSS $ (84,710) $ (238,855)
========== ===========
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
<TABLE>
<CAPTION>
The Bullhide Liner Corporation
Statement of Cash Flows
(Unaudited)
For the Three Months Ended June 30, 1999 amd 1998
1999 1998
---------- ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $ (84,710) $ (238,855)
Adjustments to reconcile net loss to net cash
used in operating activities:
Net loss on sale and disposition of fixed assets 40,369 0
Depreciation and amortization 3,300 5,700
Sale of master distributorship for debt reduction (75,000)
(Increase) decrease in assets:
Receivables (126,813) (121,268)
Inventory 25,824 (7,053)
Prepaid expenses and deposits (753) 522
Security deposits (3,730) 0
Increase (decrease) in liabilities:
Accounts payable 27,588 1,825
Accrued taxes (7,158) 14,037
Accrued payroll and employee benefits (4,144) 1,182
Accrued expenses (6,507) 0
Accrued interest 4,082 2,365
Royalty payable 18,253 13,000
Customer deposits (17,950) (10,084)
---------- ------------
Net cash used in operating activities (207,349) (338,629)
---------- ------------
Cash Flows From Investing Activities:
Purchase of property and equipment 0 0
Checks issued in excess of bank balance (15,930) (14,233)
Sale of property and equipment 6,470 0
Abandonment of leasehold improvements 0 0
Proceeds from sale of investment 0 0
---------- ------------
Net cash provided by investing acrtivities (9,460) (14,233)
---------- ------------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock 237,623 420,912
Stock offering costs paid (513) 0
Borrowings on long term debt 7,253 0
Principal payments on long-term debt and lease obligations (1,519) (1,125)
---------- ------------
Net cash provided by financing activities 242,844 419,787
---------- ------------
Net Increase in Cash 26,035 66,925
Cash at the Beginning of the Period 2,875 7,595
Cash at the End of the Period $ 28,910 $ 74,520
========== ============
Supplemental Disclosures:
Cash paid for interest 694 694
Cash paid for income taxes 0 0
Supplemental Disclosures:
Debt converted to common stock 196,888 0
Accrued expenses and interest converted to common stock 72,028 0
Shop assets sold for assumption of notes payable 44,539 0
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
<TABLE>
<CAPTION>
The Bullhide Liner Corporation
Statement of Stockholders' Equity (Deficit)
(Unaudited)
For the Three Months Ended June 30, 1999 amd 1998
Common Stock Preferred Stock
-----------------------------------------------------------------------------------------------
Shares Shares Additional Retained
Issued and Issued and Paid-in Earnings
Outstanding Amount Outstanding Amount Capital (Deficit) Total
----------- ----------- ----------- ----------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances (Deficit), March 31, 1999 7,875,451 $ 15,751 60,000 $ 60,000 $ 1,552,872 $ (2,327,190) $ (698,567)
ADD (DEDUCT):
Issuance of common stock 606,000 1,212 0 0 236,411 237,623
Stock offering costs (513) (513)
Issuance of common stock
on conversion of debt 483,827 968 207,540 208,508
Officer and director stock awards 479,200 958 59,450 60,408
Net loss (84,710) (84,710)
---------- ----------- -------- --------- ------------- ----------------- -----------
Balances (Deficit), June 30, 1998 9,444,478 $ 18,889 60,000 $ 60,000 $ 2,055,760 $ (2,411,900) $ (277,251)
========== =========== ======== ========= ============= ================= ===========
Common Stock Preferred Stock
-----------------------------------------------------------------------------------------------
Shares Shares Additional Retained
Issued and Issued and Paid-in Earnings
Outstanding Amount Outstanding Amount Capital (Deficit) Total
----------- ---------- ----------- ---------- ------------- ----------------- ------------
Balances (Deficit), March 31, 1998 7,171,451 $ 14,343 60,000 $ 60,000 $ 1,048,090 $ (1,349,547) $ (227,114)
ADD (DEDUCT):
Issuance of common stock 575,000 1,150 0 0 419,762 420,912
Net loss (238,855) (238,855)
---------- ----------- -------- --------- ------------- ----------------- -----------
Balances (Deficit), June 30, 1998 7,746,451 $ 15,493 60,000 $ 60,000 $ 1,467,852 $ (1,588,402) $ (45,057)
========== =========== ======== ============ ============= ================= ===========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements
(Unaudited)
Three Months Ended June 30, 1999 and 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization:
The Company has granted franchises for the operation of pickup truck bed liner
spray application shops initially targeted for the pickup truck bed liner
market. In July 1996, the Company discontinued the sale of franchises for the
operation of pickup truck bed liner spray application shops. Subsequent to July
1996, the Company commenced selling dealerships under exclusive licensing
agreements and expanded into the industrial flooring market. As of June 30,
1999, the Company has sold fifty-six dealerships and has three operating
franchises. The Company grants credit to customers for sales of equipment and
materials throughout the United States. In addition, the Company operates a
pickup truck bed liner spray application shop in Spokane, Washington.
Summary of Significant Accounting Policies:
a. Method of accounting - The Company prepares its financial statements
on the accrual method of accounting, recognizing income when earned and
expenses when incurred.
b. Accounts receivable - The Company provides an allowance for doubtful
accounts based upon historical experience and a review of current
receivables.
c. Inventory - Inventory is stated at the lower of cost (determined on
the first-in, first-out method) or market.
d. Furniture and equipment - Furniture and equipment are stated at cost.
Depreciation is computed using the straight-line method for financial
reporting purposes. For federal income tax purposes, accelerated
methods are used.
e. Intangible assets - Intangible assets subject to amortization include
system development costs and logo/trademark development costs. System
costs are being amortized using the straight-line method over the
estimated life of 10 years. Logo/trademark costs are being amortized on
a straight-line basis over 40 years.
f. Amortization - System development and trademark costs are amortized by
the straight-line method over periods of ten and forty years,
respectively.
g. Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
(continued)
F-25
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(continued)
h. Sales - Spray application equipment is manufactured to customer
specifications and is recorded as a sale when the manufacturing process
is complete.
i. Advertising costs - Advertising (marketing) costs are expensed as
incurred. Advertising Expense was $8,234 and $17,997 for the three
months ended June 30, 1999 and 1998, respectively.
NOTE 2 - INVENTORIES:
<TABLE>
<CAPTION>
June 30,
--------
1999 1998
---- ----
Inventories consisted of the following:
<S> <C> <C>
Raw materials $ 19,470 $ 36,488
Machine parts 1,180 24,500
Dealer marketing materials 2,745 18,875
---------- ----------
$ 23,395 $ 79,863
========== ==========
</TABLE>
The Company's raw materials consist of polyurethane resins. There was no work in
process production of materials at June 30, 1999. Production of spray
application equipment was outsourced during the three months ended June 30,
1999.
NOTE 3- FRANCHISING OPERATIONS:
a. Significant commitments and obligations - The Company is obligated
in accordance with the terms of each franchisee's respective franchise
agreement to provide the following supervision assistance and services:
site location, spray application training, operations manual, and
advertising literature. In addition, franchisees are required to
purchase inventory from the Company.
b. Franchise activity - The number of franchises sold and in operation
during the three months ended June 30, 1999 and 1998 was three. Current
active franchises are located in Colorado, Canada, and Saudi Arabia.
(continued)
F-26
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 3 - FRANCHISING OPERATIONS: (continued)
c. Franchise fees - Initial franchise fees were recorded as revenue
when all the significant services relating to the franchise sale had
been performed by the Company.
d. Royalty - Each franchisee is required to pay a monthly royalty based
on sales, commencing one year after the franchise opens for business.
The Company has waived its right to receive royalties from franchisees
through June 30, 1999.
NOTE 4- FURNITURE AND EOUIPMENT:
A summary of furniture and equipment follows:
<TABLE>
<CAPTION>
June 30,
--------
1999 1998
---- ----
<S> <C> <C>
Leasehold improvements $ - $ 20,231
Office furniture - 11,194
Computer 2,064 8,105
Vehicles - 28,200
Equipment 22,741 60,787
---------- -----------
24,805 128,517
Less accumulated depreciation 18,977 62,976
---------- -----------
Total $ 5,828 $ 65,541
========== ===========
</TABLE>
NOTE 5- LONG-TERM DEBT:
<TABLE>
<CAPTION>
Long-term debt consisted of the following: June 30,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Note payable to bank, due in monthly installments
of $817 including variable interest; collateralized
by substantially all assets and personally guaranteed
by a stockholder* $ - $ 30,382
Note payable to bank, due in monthly installments of $367 including interest
at 10%, maturing June 20, 1999; collateralized by vehicle and
personally guaranteed by a stockholder - 4,213
Note payable to ex-franchisee, due in monthly installments of $1,350
including interest at 8.5%, maturing July 31, 1999, including a $13,000
remaining balance of the down payment on the franchise repurchase, with no
stated interest rate, and which was due and payable
October 15, 1997 (see notes 8 and 15) 38,450 38,450
(continued)
</TABLE>
F-27
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 5 - LONG-TERM DEBT: (continued)
<TABLE>
<CAPTION>
June 30,
--------------------------
1999 1998
---- ----
<S> <C> <C>
Note payable to stockholders, interest at 8% and 10% of the
principal balance annually on March 31; unsecured $102,405 $118,276
----------- ----------
140,855 191,321
Less current maturities 71,815 61,691
----------- ----------
Total $ 100,803 $129,630
=========== ==========
</TABLE>
* The Small Business Administration has guaranteed 90 percent of the
original amount ($50,000) of the note payable.
Total interest expense for the notes payable to stockholders was $4,082
and $2,336 for the three months ended June 30, 1999 and 1998, respectively.
Maturities of long-term debt are as follows:
Three months ending
June 30, Amount
-------- ------
2000 $ 60,923
2001 79,932
2002 ----------
$ 140,855
==========
NOTE 6- TRANSACTIONS WITH RELATED PARTIES:
During December the Company borrowed 78,000 shares of the Company's common stock
from Poly Chem Corporation which is 100% owned by a majority stockholder of the
Company. The Company sold the stock and received net proceeds of $37,744 (see
note 5). The Company has agreed to issue 85,800 shares of common stock as
repayment to Poly Chem Corporation no later than February 28, 1999. The shares
were issued April 13, 1999.
During May 1999, the Company sold a master dealership for the northwestern
United States and Western Canada to its' chairman (a majority stockholder) in
exchange for $75,000 of notes payable to him:
Note payable due June 30, 2000 $39,129
Note payable due July 28, 2000 20,000
A portion of note payable due March 31, 2001 15,871
---------
$75,000
=========
(continued)
F-28
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 7- PREFERRED STOCK:
Holders of the preferred stock have equal voting rights with the common
stockholders. The preferred stock is redeemable at the option of the Company at
$1 per share. As of the reporting date, the Company has not exercised the option
to redeem any of the preferred stock. Upon liquidation, the holders of the
preferred stock are entitled to receive, as a preferential distribution, the par
value of the preferred stock before any assets are distributed to the common
stockholders.
NOTE 8- COMMITMENTS:
On June 30, 1997, the Company purchased the technology rights from Poly Chem
Corporation for the materials used in the pickup bed liner and floor coating
processes as well as other polyurethane technology. Under the terms of the
purchase agreement, the Company will pay Poly Chem Corporation a royalty based
on five percent of total gross revenues of the Company to a maximum of $200,000.
As of June 30, 1999, $125,381 of royalties had been accrued, of which $33,500
had been paid. Upon payment of the full $200,000 in royalties, Poly Chem
Corporation will transfer all of its interests in the formulation and technology
including, but not limited to, all patent rights therein, including the current
patent application 08/493858, and any and all future patent rights to Bullhide,
and shall have no further rights therein. The Company is in the process of
obtaining a patent for the materials used in the pickup bed liner process.
Future minimum royalty payments are as follows:
Year ending
June 30, Amount
-------- ------
2000 $166,500
=========
On July 31, 1997, the Company repurchased the franchise rights together with
certain assets of an existing franchisee. Under the terms of the repurchase
agreement, the Company was obligated to pay the franchisee $88,700 under the
following terms:
<TABLE>
<CAPTION>
<S> <C>
Downpayment $ 2,500
Inventory 6,300
Monthly payments of $5,000 commencing October 15, 1997,
with no stated interest rate 38,200
Consulting services provided by the franchisee payable
at $1,000 per month commencing August 30, 1997 12,000
Remaining balance to be paid in monthly payments
of $1,350 including interest at 8.5%,
commencing August 30, 1997 29,700
---------
$ 88,700
=========
To date, $45,250 has been paid (see note 5).
(continued)
</TABLE>
F-29
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 9- INCOME TAXES:
<TABLE>
<CAPTION>
The Company's deferred tax asset was as follows: June 30,
- ------------------------------------------------ --------
1999 1998
---- ----
<S> <C> <C>
Deferred tax asset arising from net operating loss carryforwards $816,000 $477,000
Valuation allowance (816,000) (477,000)
--------- --------
Net deferred income tax asset $ - $ -
========= ========
</TABLE>
At June 30, 1999, the Company had approximately $2,400,000 in net operating loss
carryforwards which are available to reduce future taxable income. The
carryforwards begin to expire in 2011.
For the years presented, the income tax provision (benefit) differs from the
amount expected using statutory tax rates because of the effects of the deferred
tax asset valuation allowance.
NOTE 10- RECAPITALIZATION:
During the year ended March 31, 1997, the Company recapitalized its common and
preferred stock. Under the terms of the recapitalization, the par value of the
common and preferred stock were changed to $.002 and $1.00, respectively. The
number of authorized shares of common and preferred stock was increased to
50,000,000 and 1,000,000, respectively.
NOTE 11 - PRIVATE PLACEMENT:
On December 17, 1996, the Company was authorized to issue a private placement of
common stock. The Company is authorized to issue 10,000 units at $5.00 per unit.
As of July 10, 1998, all warrants were exercised (see note 12, paragraph 3).
Each unit consists of 50 shares of common stock and 95 redeemable stock purchase
warrants. The common stock purchase warrants are exercisable for one share of
common stock at $1.00 per share until December 17, 1998. The Company may redeem
the warrants at $.01 per warrant with 30-day prior written notice if the common
stock bid price equals or exceeds $2.50 per share for ten consecutive trading
days ending on the third day prior to or the date on which such notice was
given.
During the fiscal year ended March 31, 1998, all 10,000 units were sold, and
950,000 and 316,000 stock purchase warrants were exercised as of March 31, 1999
and March 31, 1998, respectively.
(continued)
F-30
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 12 - SUBSCRIBED STOCK:
On April 1, 1999 an entity entered into an agreement with the Company to acquire
common stock at the stated price of $.50 per share by signing a note receivable
to the Company. The purchase agreement is for 2,000,000 shares of common stock
for which the entity has signed a note payable to the Company for $1,000,000
with the stated interest rate of twelve percent, and the unpaid principal and
any earned interest due and payable September 29, 1999. Subsequently, as the
market price of the common stock decreased, the agreement was periodically
modified to amounts less than $.50 per share.
Under Emerging Issues Task Force (EITF) Issue 85-1, notes receivable for
subscribed stock may not be recorded as an asset. If such notes were recorded as
of June 30, 1999, assets and stockholders' equity would be increased by
$583,787.
Sales of the subscribed stock have been recorded as the proceeds were received
through June 30, 1999.
NOTE 13- GOING CONCERN:
As shown in the Company's financial statements, the Company incurred net losses
of $84,710 for the three months ended June 30, 1999. In addition, the Company
has negative working capital of $217,132 and stockholders' deficit of $277,251.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern.
Management is committed to the future of the Company and has taken the following
actions to keep the Company viable and in existence as a going concern:
1. The Company has utilized long-term debt from the original stockholders
to fund the development of several key aspects of the national
dealership system including advertising for both the local and national
promotion, legal aspects such as state registrations, and improvements
in application equipment, as well as the employment and training of the
needed personnel. These developments are expected to benefit the
organization in the future. In addition, on June 30, 1997, the original
stockholders of the Company converted long-term debt plus accrued
interest to common stock.
2. On July 6, 1997 the Company hired an executive vice president of sales
and marketing. The vice president's responsibilities included hiring
and training a team of independent sales representatives and developing
a national marketing plan. On January 27, 1998 he was promoted to
president and on October 14, 1998 to chief executive officer.
(continued)
F-31
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 13- GOING CONCERN (continued):
3. The Company completed a private placement of common stock during July
1997 which resulted in the issuance of 10,000 units at $5.00 per unit.
Each unit consisted of 50 shares of common stock and 95 redeemable
stock purchase warrants. The Company received its symbol to trade on
the NASDAQ Bulletin Board on December 17, 1997. A secondary market for
the stock was established. As of July 10, 1998 all warrants were
exercised and the company received a net total of $783,629. The Company
has utilized this investment capital to expand national advertising and
exhibits at national and regional trade shows. Research and engineering
activities have also been expanded to produce the next generation of
application equipment and coating and lining products.
4. Recent marketing efforts in the industrial flooring and chemical
containment markets have resulted in positive sales. Generally, jobs in
the flooring and chemical containment markets are much larger than the
truck bed liner market and may result in a higher sales volume of
Bullhide materials per order and per dealer.
5. During April 1999, the Company began the process of restructuring the
Company's operations and administration by moving its corporate office
from Spokane, Washington, to south Florida. A fifth master
distributorship, serving the Northwest region, has been established in
Spokane by the Company's founder. This restructuring will save the
Company in excess of $250,000 in annualized costs.
6. On May 6, 1999, the Company engaged a law firm to prepare a
Registration Statement on Form 10-SB for the registration of its
securities with the SEC. Beginning in January 1999, the NASD has
required all prospective new listing companies to become registered
with the SEC in order to qualify for listing on the OTC Bulletin Board
exchange. Companies already on the exchange were given deadlines to
file a registration statement with the SEC. The Company's deadline to
complete its registration process with the SEC is October 1999.
NOTE 14 - ISSUANCE OF COMMON STOCK ON CONVERSION OF DEBT:
On April 13, 1999, the following liabilities were converted to common stock:
Notes payable to stockholders and officers $122,986
(related parties)
Note payable to stockholders 36,158
Note payable to Poly Chem Corporation
(a related party) 37,744
---------
$196,888
=========
(continued)
F-32
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 15- PENDING LITIGATION:
On June 17, 1998, the holders of the note payable to ex-franchisee initiated
legal action to collect the remaining balance per the agreement. In addition,
the plaintiff has made a formal claim for compensation and lost opportunity to
pursue a successful business venture. The Company agrees to the note payable
liability and intends to vigorously defend the additional claims which the
Company considers groundless. The ultimate resolution of these matters is not
ascertainable at this time. No provision has been made in the financial
statements related to this claim.
On January 21, 1999, a Bullhide dealer initiated legal action for breach of
contract, fraud, and violation of the Tennessee Consumer Protection Act.
Plaintiff is seeking damages incurred. The Company intends to vigorously defend
the substantive claims in this case and is unable to estimate the success or the
amount or range of potential loss, if any.
NOTE 16- LEASE COMMITMENT:
The Company leases the building facilities in Spokane, Washington from an
unrelated third party. During May, 1999, the Company moved its administrative
and accounting offices from the leased facilities to South Florida. The third
party lessor, the Company's Spokane dealer and the Company's officer remaining
in Spokane are exerting their best efforts to locate a suitable replacement
lessee or sub-lease The Company has accrued an expense, which management
believes is adequate to cover future payments related to this lease, during the
three months ended June 30, 1999 as part of the loss on the abandonment of the
Spokane facility. Future minimum lease payments under the noncancellable
operating lease, with an option to renew, are as follows:
Year ended June 30, 2000 50,886
Year ended June 30, 2001 21,202
---------
Total future minimum lease payments $72,088
=========
NOTE 17 - YEAR 2000:
Like all entities, the Company is exposed to risks associated with Year 2000
dating problems which affect computer software and hardware; transactions with
customers, vendors, and other entities; and equipment dependent upon microchips.
The Company has begun but not yet completed the process of identifying and
remediating potential Year 2000 problems. It is not possible for any entity to
guarantee the results of its own remediation efforts or to accurately predict
the impact of Year 2000 dating problems on third parties with which the Company
does business. If remediation efforts of the Company or third parties with which
the Company does business are not successful, it is possible the Year 2000
dating problem could negatively impact the Company's financial condition and
results of operations.
F-33
ARTICLES OF INCORPORATION
OF
THE BULLHIDE CORPORATION
The undersigned person of legal age, as incorporator of a corporation
under the Washington Business Corporation Act, hereby adopts the following
Articles of Incorporation for such corporation:
ARTICLE 1. NAME
The name of the corporation is THE BULLHIDE CORPORATION.
ARTICLE 2. DURATION
The period of its duration is perpetual.
ARTICLE 3. PURPOSES
This corporation is organized for the following purposes:
(a) To engage in the business of manufacture and sale of truck
liners and related products.
(b) To engage in any business, trade or activity which may
lawfully be conducted by a corporation organized under the Washington Business
Corporation Act.
(c) To engage in all such activities as are incidental or
conducive to the attainment of the purposes of this corporation or any of them
and to exercise any and all powers authorized or permitted to be done by a
corporation under any laws that may be now or hereafter applicable or available
to this corporation.
The foregoing clauses of this Article 3 shall each be construed as
purposes and powers, and the matters expressed in each clause shall be in no way
limited or restricted by reference to or inference from the terms of any other
clauses, but shall be regarded as independent purposes and powers; and nothing
contained in these clauses shall be deemed in any way to limit or exclude any
power, right or privilege given to this corporation by law or otherwise.
ARTICLE 4. SHARES
This corporation shall have authority to issue 50,000 shares of common
stock, and each share shall have a par value of $1.00.
1
<PAGE>
ARTICLE 5. PRE-EMPTIVE RIGHTS
The pre-emptive rights of the shareholders to acquire additional shares
or treasury shares of the corporation shall be denied.
ARTICLE 6. REGULATION OF INTERNAL AFFAIRS
The provisions for the regulation of the internal affairs of the
corporation shall be set forth in the Bylaws.
ARTICLE 7. AMENDMENTS TO ARTICLES OF INCORPORATION
This corporation reserves the right to amend or repeal, by the
affirmative vote of the holders of two-thirds of the shares entitled to vote
thereon, any of the provisions contained in these Articles of Incorporation, and
the rights of the shareholders of this corporation are granted subject to this
reservation.
ARTICLE 8. BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal
the Bylaws for this corporation, subject to the power of the shareholders to
amend or repeal such Bylaws.
ARTICLE 9. REGISTERED OFFICE, AGENT
The address of the initial Registered Office of this corporation is N.
221 Wall Street, #500, Spokane, Washington 99201 and the name of its initial
Registered Agent is ALAN L. RUBENS.
ARTICLE 10. DIRECTORS
The number of directors of this corporation shall be fixed by the
Bylaws and may be increased or decreased from time to time in the manner
specified herein. The initial Board of Directors shall consist of one (1)
director, and the name and address of the person who shall serve as director
until the First Annual Meeting of Shareholders and until his successors are
elected and qualify unless they resign or are removed:
RON GROSSMAN
North 523 Ella Road
Spokane, WA 99212
2
<PAGE>
ARTICLE 11. INCORPORATOR
The name and address of the incorporator is:
RON GROSSMAN
North 523 Ella Road
Spokane, WA 99212
IN WITNESS WHEREOF, the undersigned, being the incorporator of this
corporation, executed these Articles of Incorporation and certified to the truth
of the facts herein stated this 23rd day of March, 1993.
/s/ Ron Grossman
----------------
RON GROSSMAN, Incorporator
STATE OF WASHINGTON)
)ss.
County of Spokane )
I, the undersigned, a Notary Public duly commissioned to take
acknowledgments and administer oaths in the State of Washington, certify that
RON GROSSMAN, being the incorporator referred to in the foregoing Articles of
Incorporation, personally appeared before me and swore to the truth of the facts
therein stated.
WITNESS my hand and notarial seal this 23rd day of March, 1993.
/s/ Lisa A. Plue
----------------
Notary Public in and for the
State of Washington,
residing at Spokane
My Commission Expires: 5/31/93
3
ARTICLES OF AMENDMENT
Articles of Amendment of the Articles of Incorporation of THE BULLHIDE
CORPORATION, are herein executed by said Corporation pursuant to provisions of
RCW 23B.10.050 as follows:
1. The name of the Corporation is The Bullhide Corporation.
2. Article I to the Articles of Incorporation shall be amended to read
as follows:
The name of the Corporation shall be "The Bullhide
Liner Corporation."
3. The date of the adoption of said Amendment by the Shareholders of
said Corporation is January 10, 1994. In accordance with provisions of RCW
23B.10.030 and RCW 23B.10.040.
4. The number of shares outstanding of said Corporation is 10,000. The
number of shares entitled to vote on said Amendment was 10,000.
5. The number of shares voted for and against said Amendment,
respectively, were as follows:
For Amendment 10,000 shares
Against Amendment -0- shares
DATED as of the 10th day of January, 1994.
THE BULLHIDE CORPORATION
By:/s/ Ron Grossman
-------------------
President
By:/s/ Ron Grossman
-------------------
Secretary
ARTICLES OF AMENDMENT
Articles of Amendment of the Articles of Incorporation of THE BULLHIDE
LINER CORPORATION, are herein executed by said Corporation pursuant to
provisions of RCW 23 B.10.060 as follows:
1. The name of the Corporation is THE BULLHIDE LINER CORPORATION.
2. Article 4 to the Articles of Incorporation shall be amended to read
as follows:
ARTICLE 4 - SHARES
The total number of shares of capital stock which the
Corporation is authorized to issue is Sixty Thousand (60,000) shares.
Fifty Thousand (50,000) of such shares will be Common Stock having a
par value of $1.00 (the "Common Stock"); and Ten Thousand (10,000) of
such shares will be Preferred Stock having a par value of $100 per
share (the "Preferred Stock").
The designations and the preferences, limitations and rights,
in respect of the different classes of capital stock of the
Corporation, and the authority granted to the Board of Directors to fix
by resolution or resolutions any thereof which are not fixed in this
Article 4 are as follows:
A. Definitions
1. Preferred Stock. The term "Preferred Stock" means all or
any shares of any series of Preferred Stock described in Section (B) of this
Article 4.
2. Junior Stock. The term "Junior Stock" means the Common
Stock.
B. Preferred Stock
1. Issue in Series. The authorized but unissued shares of
Preferred Stock may be divided into and issued in designated series from time to
time by one or more resolutions adopted by the Board of Directors. Each share of
any particular series will be identical to all other shares of the same series,
except that the date or dates from which dividends win accumulate may vary as
provided in Paragraph 2 of this Section (B). Except as prohibited by law or the
provisions of this Article 4, the Board of Directors will have complete
authority to define the powers, rights, and preferences of the shares of each
series, as well as qualifications, limitations, and restrictions thereof. Each
resolution of the Board of Directors designating and defining a series of
Preferred Stock must (a) designate the series to which such shares will belong,
using the words "Preferred Stock, Series"
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followed by a distinguished capital letter; (b) fix the number of shares of
Preferred Stock that will be issued as part of the particular series; (c)
identify the times, if any, at which share of such series will be redeemable and
the redemption price and other terms that will apply in the event of a
redemption. In addition, to the extent permitted by law and the provisions of
this Article 4, the designating or defining resolution may grant to the holders
of shares of the series such other special rights, and impose on such holders
such other special conditions and restrictions, as the Board of Directors thinks
necessary or appropriate.
2. Liquidation Rights.
(a) Involuntary Liquidation. If the Corporation is
involuntarily liquidated, dissolved, or wound up, before any assets of the
Corporation may be distributed in respect of the shares of any class of Junior
Stock, each holder of shares of Preferred Stock of any series will be entitled
to receive, as a preferential distribution, the par value of each share of
Preferred Stock held by such holder.
(b) Voluntary Liquidation. If the Corporation is
voluntarily liquidated, dissolved, or wound up, before any assets of the
Corporation may be distributed in respect of the shares of any class of Junior
Stock, each holder of shares of Preferred Stock of any series will be entitled
to receive, as a preferential distribution, an amount per share equal to the
then applicable current redemption price fixed for such series.
(c) Residue. A holder of Preferred Stock will not be
entitled to receive, in respect of such shares, any distribution of assets of
the Corporation following liquidation, dissolution, or winding up of the
Corporation to any greater extent than is expressly provided in subparagraphs
(a) through (c) above.
(d) Nonliquidation Events. For purposes of this
Paragraph 2, a merger or consolidation of this Corporation with or into any
other Corporation or Corporations will not be considered a liquidation,
dissolution, or winding up of the Corporation.
3. Redemption and Repurchase Provisions. At any time it may
lawfully do so, if it is not then in default of any obligation it has to
contribute sums to a sinking fund for the redemption or repurchase of any series
of Preferred Stock, this Corporation may, at the option of its Boards of
Directors, redeem all, or from time to time any portion, of the outstanding
shares of Preferred Stock of any series or of all series.
(a) Exercise of Option. To exercise its redemption
option, the Corporation must mail a notice of the redemption to be affected (the
"Redemption Notice") to each holder of record of one or more shares of Preferred
Stock of any series. For these purposes, the record holders will be determined
as of the business day next preceding the day of mailing. The Redemption Notice
must be transmitted by either mail, private carrier or personal delivery, at
least 30 days but not more than 90 days prior to the date fixed by the Board of
Directors as the date on
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which the redemption will take place (the "Redemption Date"). If mailed, the
Redemption Notice will be effective when mailed, with first-class postage
prepaid, correctly addressed to the address shown for the holder in the
Corporation's current record of shareholders. The Redemption Notice must specify
the Redemption Date, the price which the Corporation will pay for each share to
be redeemed (the "Redemption Price") and the place at which payment may be
obtained. The Redemption Price for shares of each series will be the price fixed
for the redemption of shares of that series in the applicable provisions of
these Articles of Incorporation, or the resolution of the Board of Directors
which defines and designates the series.
(b) Redemption of Less Than all Series. If, at any
time, the Corporation redeems fewer than all of the shares of Preferred Stock of
any series then outstanding, it win effect the redemption either among the
holders of the Preferred Stock or such series, as determined by the Board of
Directors.
(c) Surrender of Certificates. On or after the
Redemption Date, each holder of shares to be redeemed must surrender to the
Corporation the certificate or certificates representing such shares. Surrender
must be in the manner and at the place designated in the Redemption Notice. Upon
surrender of the appropriate certificate or certificates, the holder will be
entitled to receive payment of the Redemption Price for the redeemed shares. If
all of the shares of Preferred Stock represented by a surrendered certificate
are to be redeemed, then following surrender the certificate win be canceled and
no new certificate will be issued. If fewer than all of the shares of Preferred
Stock represented by a surrendered certificate are to be redeemed, then
following surrender the certificate will be canceled and a new certificate
representing the unredeemed share will be issued to the holder of record.
(d) Retirement of Shares. If the Corporation has
properly mailed the Redemption Notice as required in this Paragraph 4, and if on
the Redemption Date the Corporation has available the funds necessary to pay the
Redemption Price with respect to all shares to be redeemed, then notwithstanding
the fact that certificates representing some or all of the shares to be redeemed
shall not yet have been surrendered, the shares designated to be redeemed in the
Redemption Notice will cease accruing all other rights with respect to such
shares (other than the right of the holders to receive the Redemption Price,
without interest, upon surrender of the appropriate certificates).
(e) Further Rights. After the Redemption Date, the
shares designated for redemption in the Redemption Notice will no longer be
transferable on the books of the Corporation, and will no longer be deemed to be
outstanding for any purpose whatsoever. The shares redeemed will be canceled and
will not be reissued. The shares of Preferred Stock not redeemed will remain
outstanding and entitled to all of the rights an preferences provided for in the
designation and definition of the series of shares which they belong.
4. Voting Rights. The holders of shares of Preferred Stock
will be entitled to one vote for each share of Preferred Stock held. In all
matters affecting the rights of the holders of
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the Preferred Stock, class voting will be mandatory with all of the various
series of outstanding Preferred Stock treated as separate classes of
shareholders for this purpose. In all other matters, including the election of
the Board of Directors, shareholders of the Preferred Stock shall vote on par
with the Common Shareholders.
C. Common Stock. If the Corporation is liquidated, dissolved, or wound
up, whether voluntarily or involuntarily, after there shall have been paid to or
set aside for the holders of all series of Preferred Stock; the full
preferential amounts, which they are respectively entitled, the holders of the
Common Stock will be entitled to receive, pro rata, all of the remaining assets
of the Corporation available for distribution to its shareholders. The Board of
Directors, by majority vote, may distribute any remaining assets in kind to the
holders of the Common Stock, or may sell or otherwise dispose of all or any of
the remaining assets and receive payment for such assets in cash, stock or debt
obligations, or any combination thereof, and may sell all or any part of that
consideration or distribute the same, or the balance, in kind to the holders of
the Common Stock.
3. The date of the adoption of said Amendment by the Shareholders of
said Corporation is March 30, 1994, in accordance with provisions of RCW 23
B.10.030 and RCW 23 B.10.040.
4. The number of share outstanding of said Corporation is 10,000. The
number of shares entitled to vote on said Amendment was 10,000.
5. The number of shares voted for and against said Amendment,
respectfully, were as follows:
For Amendment: 10,000 shares
Against Amendment: 0 shares
Dated as of the 30th day of March, 1994.
THE BULLHIDE LINER CORPORATION
By: /s/ Ron Grossman
---------------------
Its: President
By: /s/ Cheryle Hart-Grossman
-----------------------------
Its: Secretary
4
ARTICLES OF AMENDMENT
Articles of Amendment of the Articles of Incorporation of THE BULLHIDE
LINER CORPORATION, are herein executed by and said Corporation pursuant to
provisions of RCW 23B.10.060 as follows:
1. The name of the Corporation is THE BULLHIDE LINER CORPORATION.
2. Article 4 to the Articles of the Incorporation shall be amended to
read as follows:
ARTICLE 4-SHARES
The total number of shares of Common Stock which the
Corporation is authorized to issue shall be increased by 50,000 shares
to 100,000 shares of $1.00 par value stock. Thereafter, the Common
Stock shall be split forward on a 500 to 1 ratio so that the total
authorized Common shares shall be 50,000,000 at $.002 par value. The
Preferred Stock shall be split forward on a 100 to 1 ratio so that the
total authorized Preferred shares shall be 1,000,000 at $1.00 par
value. All current Shareholders shall exchange their current Stock
Certificates for new Stock Certificates to reflect the foregoing
forward splits.
The designations and the preferences, limitations and rights,
in respect of the different classes of capital stock of the Corporation
shall in all other respects remain the same as described in the
Articles of Amendment filed on June 8, 1994.
3. The date of the adoption of said Amendment by the Shareholders of
said Corporation is the 1st day October, 1996, in accordance with provision of
RCW Section 23B.10-030 and RCW Section 23B.10.040.
4. The number of shares outstanding of said Corporation is 10,000
Common and 600 Preferred. The number of shares entitled to vote on said
Amendment was 10,000 Common and 600 Preferred.
5. The number of shares voted for and against said Amendment,
respectively, were as follows:
For Amendment: 10,000 Common
600 Preferred
Against Amendment: -0- shares
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DATED this 30th day of October, 1996.
THE BULLHIDE LINER CORPORATION
By:/s/ Ron Grossman
-------------------
President
By:/s/ Charyle Hart-Grossman
----------------------------
Secretary
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<CAPTION>
<S> <C>
STATE OF WASHINGTON ARTICLES OF AMENDMENT
SECRETARY OF STATE WASHINGTON PROFIT CORPORATION
Ralph Munro, Secretary of State (Per Chapter 23B. 10 RCW)
Please PRINT or TYPE in black ink FEE: $30
Sign, date and return original AND ONE COPY to:
CORPORATIONS DIVISION EXPEDITED (24-HOUR) SERVICE AVAILABLE - $20 PER ENTITY
505 E. UNION, PO BOX 40234 INCLUDE FEE AND WRITE "EXPEDITE" IN BOLD LETTERS
OLYMPIA, WA 98504-0234 ON OUTSIDE OF ENVELOPE
BE SURE TO INCLUDE FILING FEE. Checks
should be made payable to "Secretary of State" FOR OFFICE USE ONLY
-------------------------------------------------------
FILED: / /
-------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
IMPORTANT! Person to contact about this filing Daytime Phone Number (with area code)
Gerald W. Gritter, Esq. 954-462-3300
- ------------------------------------------------------------------------------------------------------------------------------------
AMENDMENT TO ARTICLES OF INCORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
NAME OF CORPORATION (As currently recorded with the Office of Secretary of State)
The Bullhide Liner Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
UBI NUMBER CORPORATION NUMBER (If known) AMENDMENTS TO ARTICLES OF INCORPORATION WERE ADOPTED ON
601 456 104 Date: June 8, 1999
------------
- ------------------------------------------------------------------------------------------------------------------------------------
EFFECTIVE DATE (Specified effective date may be up to 30 days AFTER receipt of the document by the Secretary of State)
OF ARTICLES OF
AMENDMENT |_| Specific Date: |X| Upon filing by the Secretary of State
---------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
ARTICLES OF AMENDMENT WERE ADOPTED BY (Please check ONE of the following)
|_| Incorporators. Shareholders action was not required
|_| Board of Directors. Shareholders action was not required
|X| Duly approved shareholder action in accordance with Chapter 23B. 10 RCW
- ------------------------------------------------------------------------------------------------------------------------------------
AMENDMENTS TO THE ARTICLES OF INCORPORATION ARE AS FOLLOWS
If amendment provides for an exchange, reclassification, or
cancellation of issued shares, provisions of implementing the
amendment must be included. If necessary, attach additional
amendments or information.
Article I of the Articles of Incorporation shall be amended to read:
The name of the Corporation shall be "Bullhide Corporation."
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
SIGNATURE OF OFFICER
This documents is hereby executed under penalties of perjury, and is, to the
best of my knowledge, true and correct.
/s/ Gordon Freeman W. Gordon Freeman June 8, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Signature of Officer Printed Name Date
Chief Executive Officer
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BYLAWS
OF
THE BULLHIDE CORPORATION
ARTICLE I. OFFICES
The principal office of the Corporation shall be located at North 523
Ella Rd., Spokane, WA 99212. The Corporation may have such other offices, either
within or without the State of Washington, as the Board of Directors ("Board")
may designate or as the business of the Corporation may require from time to
time.
ARTICLE II. SHAREHOLDERS
2.1 Annual Meeting. The annual meeting of the Shareholders shall be
held on the second Monday of September in each year at the hour of 10:00 a.m.
for the purpose of electing directors and transacting such other business as may
come before the meeting. If the day fixed for the annual meeting is a legal
holiday at the place of the meeting, the meeting shall be held on the next
succeeding business day. If the election of directors is not held on the date
designated for the annual meeting of the Shareholders, or at any adjournment
thereof, the election shall be held at a special meeting of the Shareholders
called as soon thereafter as practicable.
2.2 Special Meeting. Special meetings of the Shareholders for any
purpose or purposes, may be called by the President, the Board of Directors, or
the holders of not less than one-tenth of all the shares entitled to vote at the
meeting.
2.3 Place of Meetings. Meetings of the Shareholders shall be held at
the principal office of the Corporation or at such other place within or without
the State of Washington as stated in the notice of meeting or in a waiver of
notice.
2.4 Notice of Meeting. Written notice stating the place, day and hour
of the meeting and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten (10) nor more
than sixty (60) days before the date of the meeting, either personally or by
mail, by or at the direction of the President, the Secretary, or the officer or
persons calling the meeting, to each Shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States Mail, addressed to the Shareholder at his address
as it appears on the stock transfer books of the Corporation, with postage
thereon prepaid.
2.5 Action by Shareholders without a Meeting. Any action required by
statute to be taken at a meeting of the Shareholders of the Corporation, or any
action which may be taken at a meeting of the Shareholders, may be taken without
a meeting if a consent in writing, setting forth the action
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so taken, is signed by all Shareholders entitled to vote with respect to the
subject matter thereof. Such consent shall have the same force and effect as a
unanimous vote of Shareholders. The consent may be in one or more than one
counterpart so long as each Shareholder signs one of the counterparts. The
signed consent, or a signed copy shall be placed in the Minute Book.
2.6 Quorum. The holders of a majority of the shares issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall be requisite and shall constitute a quorum at meetings of the
Shareholders for the transaction of business. If a quorum is not present or
represented at a meeting of the Shareholders, the Shareholders entitled to vote,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At an adjourned meeting at
which a quorum is present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
2.7 Majority Vote - Withdrawal of Quorum. When a quorum is present at a
meeting, the vote of the holders of the majority of the shares having voting
power, present in person or represented by proxy, shall decide any question
brought before the meeting, unless the question is one on which, by express
provision of the statutes, the Articles of Incorporation, or these Bylaws, a
higher vote is required, in which case the express provision shall govern. The
Shareholders present at a duly constituted meeting may continue to transact
business until adjournment, despite the withdrawal of enough Shareholders to
leave less than a quorum.
2.8 Proxies. At all Shareholders' meetings, a Shareholder may vote
either in person or by proxy executed in writing by the Shareholder or by his
duly authorized attorney-in-fact. No proxy shall be valid after eleven (11)
months from the date of its execution, unless otherwise provided in the proxy.
Each proxy shall be revocable unless expressly provided therein to be
irrevocable and unless otherwise made irrevocable by law. Each proxy shall be
filed with the Secretary of the Corporation prior to or at the time of the
meeting.
2.9 Voting of Shares. At any meeting of the Shareholders at which a
quorum is present, the affirmative vote of the holders of a majority of the
shares entitled to vote thereat shall be had on any matter coming before such
meeting in order to constitute such action a valid act of the Shareholders
thereon. Each outstanding share entitled to vote shall be entitled to one vote
upon each matter submitted to a vote at a meeting of Shareholders.
2.10 Cumulative Voting. Each Shareholder entitled to vote at an
election of directors may vote in person or by proxy the number of shares owned
by him for as many persons as there are directors to be elected and for whose
election he has the right to vote, or he may cumulate his votes by distributing
among one or more candidates as many votes as are equal to the number of such
directors multiplied by the number of his shares.
2.11 Closing of Transfer Books and Fixing Record Date. For the purposes
of determining Shareholders entitled to notice of or to vote at any meeting of
Shareholders, or any adjournment
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thereof, or entitled to receive payment of any dividend, the Board may provide
that the stock transfer books shall be closed for a stated period not to exceed
fifty (50) days nor be less than ten (10) days preceding such meeting. In lieu
of closing the stock transfer books, the Board may fix in advance a record date
for any such determination of shareholders, such date in any case to be not more
than fifty (50) days and, in case of a meeting of Shareholders, not less than
ten (10) days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken.
2.12 Telephone and Similar Meetings. Shareholders may participate in
and hold a meeting by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time. Participation in such a meeting shall constitute
presence in person at the meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
ARTICLE III. BOARD OF DIRECTORS
3.1 Management. The business and affairs of the Corporation shall be
managed by the Board of Directors who may exercise all such powers of the
Corporation and all such lawful acts and things as are not (by statute or by the
Articles of Incorporation or by these Bylaws) directed or required to be
exercised or done by the Shareholders.
3.2 Number; Qualification; Election; Term. The Board of Directors of
the Corporation shall consist of not less than two (2) nor more than five (5)
directors, provided, however, that the number of directors may be changed from
time to time by an amendment to these Bylaws, but no decrease shall have the
effect of shortening the term of any incumbent director. Each director shall
hold office for the term for which he is elected and until his successor shall
have been elected and qualified.
3.3 Regular Meetings. A regular Board Meeting shall be held without
notice immediately after and at the same place as the annual meeting of
Shareholders. By resolution, the Board may provide the time and place either
within or without the State of Washington for holding additional regular
meetings without other notice than such resolution.
3.4 Special Meetings. Special meetings of the Board may be called by
the President on three (3) days notice to each director, either personally or by
mail or by telegram. Special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of two
directors. Except as otherwise provided by statute, Articles of Incorporation,
or these Bylaws, neither the business to be transacted at, nor the purpose of,
any special meeting need be specified in a notice or waiver of notice.
3.5 Quorum. At meetings of the Board, a majority of the number of
directors fixed by these Bylaws shall constitute a quorum for the transaction of
business. The act of the majority of the directors present at a meeting at which
a quorum is present shall be the act of the Board, except
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<PAGE>
as otherwise specifically provided by statute, the Articles of Incorporation, or
these Bylaws. If a quorum is not present at a meeting of the Board, the
directors present may adjourn the meeting from time to time, without further
notice other than announcement at the meeting, until a quorum is present.
3.6 Vacancies. Any vacancy occurring on the Board may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board. A director elected to fill a vacancy shall be elected for
the unexpired term of his predecessor in office. Any directorship to be filled
by reason of an increase in the number of directors may be filled by the Board
for a term of office continuing only until the next election of directors by the
Shareholders.
3.7 Removal. At a meeting of Shareholders called expressly for that
purpose, one or more members of the Board (including the entire Board) may be
removed, with or without cause, by a vote of the holders of a majority of the
shares then entitled to vote on election of directors. If less than the entire
Board is to be removed, no one of the directors may be removed if the votes cast
against his removal would be sufficient to elect him if then cumulatively voted
at an election of the entire Board.
3.8 Compensation. By Board resolution, directors may be paid their
expenses, if any, of attendance at each Board meeting of a fixed sum for
attendance at each Board meeting or a stated salary as director or any
combination of the foregoing. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
3.9 Presumption of Assent. A director of the Corporation present at a
Board Meeting at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless his dissent is entered in the
minutes of the meeting or unless he files his written dissent to such action
with the person acting as the Secretary of the meeting before the adjournment
thereof or unless he forwards such dissent by registered mail to the Secretary
of the Corporation immediately after the adjournment of the meeting. A director
who voted in favor of such action may not dissent.
3.10 Action by Directors without a Meeting. Any action required or
permitted to be taken at a meeting of the Board may be taken without a meeting
if a consent in writing, setting forth the action so taken, is signed by all the
directors. Such consent shall have the same effect as a unanimous vote. The
signed consent, or a signed copy, shall be placed in the Minute Book. The
consent may be in or more than one counterpart so long as each director signs
one of the counterparts.
3.11 Telephone and Similar Meetings. Directors may participate in and
hold a meeting by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time. Participation in such a meeting shall constitute
presence in person at the meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
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3.12 Performance of Duties. A director shall perform the duties of a
director, including the duties of a member of any committee of the Board upon
which the director may serve, in good faith, in a manner such director believes
to be in the best interests of the Corporation, and with such care, including
reasonable inquiry, as an ordinarily prudent person in a like position would use
under similar circumstances.
In performing the duties of a director, a director shall be entitled to
rely on information, opinions, reports, or statements, including financial
statements and other financial data, in each case prepared or presented by:
1. One or more officers or employees of the Corporation whom
the director believes to be reliable and competent in the matter presented;
2. Counsel, public accountants, or other persons as to matters
which the director believes to be within such person's professional or expert
competence; or
3. A committee of the Board upon which the director does not
serve, duly designated in accordance with the provision in the Articles of
Incorporation or Bylaws, as to matters within its designated authority, which
committee the director believes to merit confidence; so long as in any such
case, the director acts in good faith, after reasonable inquiry when the need
therefore is indicated by the circumstances and without knowledge that would
cause such reliance to be unwarranted.
3.13 Executive and Other Committees. The Board, by resolution adopted
by a majority of the full Board of Directors, may designate from among its
members an executive committee and one or more other committees, each of which,
to the extent provided in such resolution, shall have and may exercise all the
authority of the Board of Directors, except that no such committee shall have
the authority to perform those certain acts as specified in RCW 23B.08.250.
ARTICLE IV. OFFICERS
4.1 Number. The officers of the Corporation shall be a President, one
or more Vice- Presidents (one or more of whom may be Executive Vice-Presidents),
a Secretary, and a Treasurer, each of whom shall be elected by the Board. Such
other officers and assistant officers as may be deemed necessary may be elected
or appointed by the Board. Any two or more offices may be held by the same
person, except the offices of President and Secretary, except that when all of
the issued and outstanding stock of the Corporation is owned of record by one
Shareholder, one person may hold all or any combination of offices.
4.2 Election and Term of Office. The officers of the Corporation shall
be elected annually by the Board at the Board meeting held after the annual
meeting of the Shareholders. If the election of officers is not held at such
meeting, such election shall be held as soon thereafter as a
5
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Board meeting conveniently may be held. Each officer shall hold office until the
next annual meeting and until his successor shall have been elected and
qualified unless he resigns or is removed.
4.3 Removal. Any officer or agent elected or appointed by the Board may
be removed by the Board whenever in its judgment the best interests of the
Corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
4.4 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the Board for the
unexpired portion of the term.
4.5 President. The President shall be the Chief Executive Officer of
the Corporation, and shall preside over all meetings of the Shareholders and the
Board. He shall perform such other duties and have such other authority and
powers as the Board may from time to time prescribe.
4.6 Vice-President. During the absence or disability of the President,
the Executive Vice- Presidents, if any, and the Vice-Presidents in the order
designated by the Board, shall perform the duties and have the authority and
exercise the powers of the President. They shall perform such other duties and
have such other authority and powers as the Board may from time to time
prescribe, or as the President may from time to time delegate.
4.7 Secretary. The Secretary shall: (a) keep the minutes of officers'
and Board meetings in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these Bylaws or
as required by law; (c) be custodian of the corporate records and of the seal of
the Corporation; (d) keep a register of the post office address of each
Shareholder as furnished to the Secretary by each Shareholder; (e) sign with the
President or a Vice-President certificates for shares of the Corporation, the
issuance of which has been authorized by resolution of the Board; (f) have
general charge of the stock transfer books of the Corporation; and (g) in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the President or by the
Board.
4.8 Treasurer. If required by the Board, The Treasurer shall give a
bond for the faithful discharge of his duties in such sum and with such surety
or sureties as the Board shall determine. He shall have charge and custody of
and be responsible for all funds and securities of the Corporation; receive and
give receipts for monies due and payable to the Corporation from any source
whatsoever, and deposit all such monies in the name of the Corporation in such
banks or other depositories as shall be selected in accordance with the
provisions of these Bylaws; and in general perform all of the duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned to him by the President or by the Board.
4.9 Salaries. The salaries of the officers shall be fixed from time to
time by the Board, and no officer shall be prevented from receiving such salary
by reason of the fact that he is also a director of the Corporation.
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ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
5.1 Contracts. The Board may authorize any officer or officers, agent
or agents, to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Corporation, and such authority may be general
or confined to specified instances.
5.2 Loans. No loans shall be contracted on behalf of the Corporation
and no evidence of indebtedness shall be issued in its name unless authorized by
a resolution of the Board. Such authority may be general or confined to specific
instances.
5.3 Loans to Officers and Directors. No loans shall be made by the
Corporation to its officers or directors, unless first approved by the holders
of two-thirds of the voting shares, and no loans shall be made by the
Corporation secured by its shares.
5.4 Checks, Drafts. etc.. All checks, drafts, or other orders for the
payment of money, notes, or other evidences of indebtedness issued in the name
of the Corporation, shall be signed by such officer or officers, agent or
agents, of the Corporation and in such manner as is from time to time determined
by resolution of the Board.
5.5 Deposits. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation in such banks or
other depositories as the Board may select.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 Certificates for Shares. Certificates representing shares of the
Corporation shall be signed by the President or the Vice-President and by the
Secretary or Assistant Secretary and shall include on their face written notice
of any restrictions which the Board may impose on the transferability of such
shares. All certificates shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the stock transfer books of the Corporation. All certificates
surrendered to the Corporation for transfer shall be canceled and no new
certificate shall be issued until the former certificates for a like number of
shares shall have been surrendered and canceled, except that in case of a lost,
destroyed, or mutilated certificate, a new one may be issued therefor upon such
terms and indemnity to the Corporation as the Board may prescribe.
6.2 Transfer of Shares. Transfer of shares of the Corporation shall be
made only on the stock transfer books of the Corporation by the holder of record
thereof or by his legal representative, who shall furnish proper evidence of
authority to transfer, or by his attorney-in-fact authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and on
surrender for cancellation of the certificates for such shares. The person in
whose name shares stand on the
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books of the Corporation shall be deemed by the Corporation to be the owner
thereof for all purposes.
ARTICLE VII. FISCAL YEAR
The fiscal year of this Corporation shall be determined by the Board.
ARTICLE VIII. SEAL
The seal of this Corporation shall consist of the name of the
Corporation, the state of its incorporation, and the year of its incorporation.
ARTICLE IX. WAIVER OF NOTICE
Whenever any notice is required to be given to any Shareholder or
director of the Corporation under the provisions of these Bylaws or under the
provisions of the Articles of Incorporation or under the provisions of the
Washington Business Corporation Act, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
ARTICLE X. INDEMNIFICATION
10.1 Indemnification. The Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any civil, criminal,
administrative or investigative action, suit or proceeding by reason of the fact
that he is or was a director, or acted in any other capacity as an agent of the
Corporation, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding, to the full extent permitted by the Washington Business Corporation
Act. The Board of Directors may, at any time, approve indemnification of any
other person which the Corporation has the power to indemnify under the
Washington Business Corporation Act.
10.2 Other Rights. The indemnification provided by this Bylaw shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any bylaws, agreement, vote of Shareholders, or disinterested
directors or otherwise, both as action in his or her official capacity and as to
action in another capacity while holding such office, and shall continue as to
person who ceased to be director, trustee, officer, employee or agent, and shall
inure to the benefit of the heirs, executors and administrators of such person.
10.3 Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer or acted in any other
capacity as an agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer or agent of another Corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity or
arising out of his or her status as such,
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whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of this section.
ARTICLE XI. AMENDMENT OF BYLAWS
11.1 Directors. These Bylaws may be altered, amended or repealed at any
meeting of the Board of Directors (subject to repeal or change by action of the
Shareholders) at which a quorum is present, by the affirmative vote of the
majority of the directors present at such meeting, provided notice of the
proposed alteration, amendment, or repeal is contained in the notice of the
meeting.
11.2 By Shareholders. These Bylaws may also be altered, amended or
repealed at any meeting of the Shareholders at which a quorum is present or
represented, by the affirmative vote of the holders of a majority of the shares
present or represented at the meeting and entitled to vote thereat, provided
notice of the proposed alternation, amendment or repeal is contained in the
notice of the meeting.
ARTICLE XII. TRANSACTION IN WHICH DIRECTORS ARE INTERESTED
No director of the Corporation shall be disqualified from deliberating
upon, voting upon, or having his presence counted for the purpose of quorum by
reason of the fact that he may either directly or indirectly have an interest,
whether pecuniary or otherwise, in any transaction to be considered by or voted
upon by the Board of Directors, so long as the director shall make a prior
disclosure of his interest to the Board of Directors.
ARTICLE XIII. RULES OF ORDER
The rules contained in the most recent edition of Robert's Rules of
Order Revised shall govern all meetings of Shareholders and directors where
those rules are not inconsistent with the Articles of Incorporation, Bylaws, or
special rules of order of the Corporation.
EXECUTED as of the 2nd day of April, 1993.
The undersigned, constituting all of the officers, directors, and
Shareholders, have read the foregoing Bylaws of the Corporation, and understand
all of the provisions, including the provision restricting the transferability
of shares and the reimbursement of disallowed expenses, and agree to be bound by
all of said provisions.
__________________________
RON GROSSMAN
9
COMMERCIAL LEASE AGREEMENT
CARSTENS COMPANY, INC.
"Lessor"
BULLHIDE LINERS, INC.
"Lessee"
DATE: December 16, 1997
<PAGE>
COMMERCIAL LEASE AGREEMENT
THIS COMMERCIAL LEASE AGREEMENT ("Lease"), made and effective this
______ day of December, 1997, by and between CARSTENS COMPANY, INC., a
Washington Corporation (hereinafter "Lessor"), and BULLHDE LINERS, CORP., a
Washington corporation (hereinafter "Lessee"), with reference to the following
facts:
A. Lessor owns certain real property and improvements located in
Spokane County, Washington, commonly known as 525 N. Fancher Road, Spokane,
Washington, which property is more fully described on Exhibit "A" attached
hereto and made a part hereof. The improvements to the property consist of a
five separate standing buildings.
B. Lessee desires to lease from Lessor for the rent and term, and
subject to the terms set forth in this Lease, one of the buildings above
described having approximately 12,500 square feet of leasable space, including a
portion of the real property surrounding said building, said building and
property more particularly depicted on Exhibit "B" attached hereto and made a
part hereof (hereinafter referred to as the "Premises" or "Leased Premises").
NOW, THEREFORE, Lessor and Lessee agree as follows:
1. Lease of Premises. Lessor hereby leases the Premises to Lessee for
the purpose of conducting its lawful business, and Lessee hereby leases the
Premises from Lessor, for the rent and term, and subject to the terms set forth
in this Lease. Lessee shall be responsible to comply with all fire and other
city, county, state, or federal laws and ordinances and, as a condition of
maintaining this Lease, comply with the terms of ally such inspections and/or
requirements at the sole cost and expense of Lessee.
2. Term of Lease.
2.1 Original Term. The term of this Lease shall commence on
December 1 , 1997, ("Commencement Date"), and shall continue for three (3)
years, terminating at midnight on November 30, 2000.
2.2 Holding Over. Should Lessee, or any of its successors in
interest, hold over the Premises, or any part thereof, after the expiration of
the term of this Lease, unless otherwise agreed in writing, such holding over
shall constitute and be construed as a tenancy from month to month only. The
inclusion of the preceding sentence shall not be construed as Lessor's
permission for Lessee to hold over. All provisions of this Lease except those
pertaining to term and option to extend (and including the adjustment of minimum
rent) shall apply to the month-to-month tenancy.
2.3 Option to Renew. If Lessee is not substantially in default
under this Lease, Lessor grants Lessee an option to renew this Lease for one (1)
additional three (3) year term, under the same terms and conditions herein,
excluding monthly rent, Lessee shall give Lessor written
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notice of its election to exercise this option at least six (6) months' prior to
the expiration of the current Lease term. The monthly rental shall be
established by mutual agreement in order for, and as a condition precedent to,
the option to renew and the exercise thereof, subject to Paragraph 2.4 below. If
Lessee has not substantially complied with the terms of this Lease for the
original then current term, then any such written notice of its election to
exercise the option hereunder shall be ineffective, and this Lease shall expire
at the end of the original then current term.
2.4 Adjusted Rent. In the event the parties hereto are unable
to mutually agree on an adjusted rent ("Adjusted Rent") for the option period
exercised pursuant to Paragraph 23 above, then the Adjusted Rent will be
determined as follows:
(a) Lessee and Lessor will mutually agree upon and
hire an independent appraiser, qualified to appraise commercial rental
properties, to appraise the fair market rental value of the Premises. The cost
of such appraisal shall be born equally by Lessee and Lessor. The appraised
value received by said independent appraiser shall become the Adjusted Rent for
the option period exercised under Paragraph 23.
(b) In the event Lessee and Lessor cannot mutually
agree upon an independent appraiser as set forth in subparagraph (a) above, then
Lessee and Lessor, at each respective party's cost, shall individually hire an
independent appraiser, qualified to appraise commercial rental properties, to
appraise the fair market rental value of the Premises. The resulting two
appraisal values shall then be added together, then divided by two, in order to
obtain the average appraised value. This resulting average value shall become
the Adjusted Rent, for the option period exercised under Paragraph 2.3.
(c) Notwithstanding the foregoing, however, the
Adjusted Rent shall in no event be less than the rent set forth in paragraph
3.2.
3. Rent.
3.1 Place of Payment. Until Lessee receives notice from
Lessor, or its successor in interest to do otherwise, ail rental payments shall
be paid to Lessor at c/o Carstens Management Company, 1636 W. 1st Avenue,
Spokane, Washington 99204, or as otherwise designated in writing by Lessor.
3.2 Rental Payment. Lessee shall pay to Lessor as Tent
hereunder for the original term of this Lease without deduction, set-off, prior
notice or demand, the monthly rental set forth below in advance on the first day
of each calendar month, beginning on December 1, 1997, and continuing to
November 30, 2000:
December 1, 1997 to November 30, 2000; $4,240.50/month
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3.3 Late Charges. Any minimum monthly rental, not received on
or before 12 midnight on the fifth (5th) day of each month shall be subject to a
late charge of One Hundred Dollars ($100.00), and shall constitute additional
rental due to the Lessor under this Lease. All late charges specified hereunder
are to be compounded monthly and added upon any late charges previously assessed
for prior delinquencies as provided under this Paragraph 33.
3.4 Payment of Minimum Monthly Rent. Lessee's rental
obligation shall consist of the minimum monthly rent provided for above,
together with such additional amounts to be paid by Lessee under the terms of
this Lease in connection with Lessee's occupancy of the Premises, including
without limitation, taxes and assessments, insurance premiums, and/or
maintenance expenses, plus all costs incurred by Lessor to cure any default by
Lessee.
4. Real Property Taxes and Assessments/Utilities/Operating Expenses.
4.1 Real Property Taxes and Assessments. Lessee shall pay its
pro rata share of all real property taxes and general and special assessments
levied and assessed against the Premises during the Lease term (prorated for any
partial tax year at the beginning and end of the Lease term). For purposes of
determining the amount payable by Lessee resulting from a general or special
assessment, the payment for such assessment shall be amortized over the longest
period authorized tinder applicable law. Lessee shall reimburse Lessor its pro
rata portion of the real property taxes in twelve (12) equal monthly
installments. Lessor shall notify Lessee of its pro rata portion of the real
property taxes and immediately upon receipt of the tax bill shall furnish Lessee
with a copy of the tax bill. If payment of the tax is not received by Lessor
pursuant to the foregoing. Lessor, at its option, may assess to Lessee a ten
percent (10%) penalty on the tax payment due, which penalty will be deemed
additional rent.
4.2 Personal Property Taxes. Lessee shall pay prior to
delinquency all taxes assessed against and levied upon trade fixtures,
furnishings, equipment and all other Personal property of Lessee contained in
the Premises or elsewhere. When possible, Lessee shall cause said trade
fixtures, furnishings, equipment and all other personal property to be assessed
and billed separately from the real property of Lessor.
If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall likewise pay Lessor the taxes attributable
to Lessee's personal property in twelve (12) equal monthly installments. If
payment of the personal property tax is not received by Lessor pursuant to the
foregoing, Lessor, at its option, may assess to Lessee a ten percent (10%)
penalty on the tax payment due, which penalty will be deemed additional rent.
4.3 Utilities. Lessee shall make all arrangements for and pay
for all utilities and services furnished to or used by it, including without
limitation, gas, electricity, water, telephone service, garbage collection,
sewer and outside lighting, and for all Lessee initiated connection charges.
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5. Use of Premises. Lessee shall use the Premises for the business of
the manufacture, sales and installation of truck bed liners and related
products, including the sales and installation of related products in the
general truck business, and for no other use without Lessor's prior written
consent. Lessee shall not do or permit anything to be done in or about the
Premises, nor bring or keep anything on the Premises which will in any way
increase the existing rate of or affect any fire or other insurance policy upon
the building located on the Premises or any of its contents, or cause
cancellation of any insurance policy covering said buildings on the Premises or
any part thereof or any of its contents. Lessee shall not use or allow the
Premises to be used for any noxious, immoral, or unlawful purposes as determined
by Lessor; nor shall Lessee cause, maintain or permit any nuisance in or about
the Premises.
6. Maintenance.
6.1 Lessor's Maintenance. Except as specifically provided
elsewhere in this Lease, Lessor, at its cost, shall maintain, in good condition,
the following: The structural parts of the building located on the Premises,
which structural parts include only the foundations, bearing and exterior walls
(excluding glass and doors), subflooring, and roof (excluding skylights).
6.2 Lessee's Maintenance. Except as specifically provided in
Paragraph 6.1, or elsewhere in this Lease, Lessee, at its cost, shall maintain,
in clean, good condition, all portions of the Premises, including without
limitation, all Lessee's personal property, signs, storefronts, plate glass,
show windows, yard maintenance. snow removal in front of and about said
Premises, parking areas, loading and unloading areas, trash areas, roadways,
sidewalks, walkways, driveways, landscaped areas, striping, bumpers, irrigation
systems, outside lighting, fences and gates; fire detection systems, sprinkler
systems; the interior of the Premises, heating, ventilation, plumbing, and air
conditioning systems. Notwithstanding the foregoing, Lessor agrees that Lessee,
during the initial three (3) year term of this Lease only, shall be responsible
for the cost of any repair on the HVAC system of an aggregate up to and
including one thousand dollars ($1,000.00). Lessor agrees to pay for the cost of
repair on the HVAC system in excess of said one thousand dollars ($1,000.00)
during the initial three (3) year term of this Lease only. Lessee agrees that,
at the expiration or sooner termination of this Lease, Lessee will quit and
surrender said Premises in a neat and clean condition, will remove all scrap
material, metal, junk, wreckage, and debris, and will deliver all keys belonging
to said Premises to Lessor or Lessor's agent.
7. Alterations and Improvements.
7.1 Lessee's Alterations and Improvements. Lessee shall not
make any alterations to the Premises without Lessor's prior written consent,
which consent shall not be unreasonably withheld as to intended use. All
alterations or modifications performed on the Premises by Lessee, subsequent to
Lessor approval, shall be performed only after requisite city or county building
permits have been received, shall be paid for in cash to the end that no
mechanics' liens are placed against the Premises for work authorized Or
completed by Lessee. All alterations shall be performed by
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licensed contractors and shall comply with city or county building ordinances
and permit requirements.
Any alterations made shall remain on and be surrendered with the
Premises on expiration or termination of the term. If Lessor so elects, Lessee,
at its cost, shall restore the Premises to the condition designated by Lessor in
its election, before the last day of the term.
7.2 Mechanic's Liens. Lessee shall pay all costs for
construction done by it, or caused to be done by it, and for all materials
furnished to it, or caused to be furnished to it, on the Premises after the
commencement date. Lessee shall keep the Premises free and clear from any liens
arising out of construction done by or for Lessee or materials furnished to or
for Lessee.
Lessee shall have the right to contest the correctness or the validity
of any such lien if, immediately on demand by Lessor, Lessee procures a lien
release bond meeting the requirements of Washington law respecting the release
of mechanic's liens and providing for the payment of any sum that the claimant
may recover on the claim (together with costs (if suit, if the claimant recovers
in the action).
8. Insurance Requirements.
8.1 Hazard Insurance/Loss of Rents. At all times during the
period for which rent is due hereunder, Lessor shall maintain in full force and
effect a policy or policies of casualty insurance. Lessee shall reimburse to
Lessor on a pro rata basis for said casualty insurance, payable upon demand from
Lessor when accompanied with a copy of said insurance bill, said pro rata
payments to be deemed as additional rent. Lessee's, liability for any such
reimbursement shall be prorated on the basis of a 365-day year to account for
any fractional portion of an insurance year included in the term at its
commencement and expiration. Lessor shall advise Lessee of any change in the
amount of insurance and Lessee's portion of said charges. All insurance payments
made hereunder shall be treated for purposes of this Lease as additional rent.
Notwithstanding the foregoing, the casualty insurance provided by the Lessor
shall not provide coverage for Lessee's personal property.
The casualty insurance shall cover loss or damage to the Premises
(extended coverage including fixtures) providing protection against all perils
included within the special form, including theft, in the amount of the full
replacement value of the Premises. The casualty insurance policy shall contain
loss of rents insurance coverage for the Premises in the amount of rent,
assessments and taxes payable by Lessee hereunder. The insurance policy shall be
issued in the name of Lessor, with Lessee as an additional insured.
The "full replacement value" of the Premises shall be determined by the
company issuing the insurance policy at the time the policy is initially
obtained. Not more frequently than once every three (3) years, either party
shall have the right to notify the other party that it elects to have the
replacement value re-determined by the insurance company. The redetermination
shall be made
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promptly and in accordance with the rules and practices of the Board of Fire
underwriters, or a like board recognized and generally accepted by the insurance
company, and each party shall be promptly notified of the results. The insurance
policy shall be adjusted according to the redetermination.
8.2 Personal Property. The Lessee shall, at all times during
the terms of this Lease, maintain a policy or policies of insurance with
premiums thereon fully paid in advance, insuring its fixtures, furniture,
equipment, machinery, inventory, goods, supplies and any leasehold improvements
Lessee constructs on the Premises.
8.3 Liability Insurance. Lessee shall, during the entire term
as extended at Lessee's expense, obtain and keep in force during the term of
this Lease a policy of combined single- limit bodily injury and property damage
insurance insuring Lessee and Lessor against any liability arising out of the
use, occupancy, or maintenance of the Premises. Such insurance shall be in an
amount not less than One Million Dollars ($1,000,000.00) per occurrence. The
limits of said insurance shall not, however, limit the liability of Lessee
hereunder, Lessee shall provide Lessor with a Certificate of Insurance showing
Lessor as an additional insured.
8.4 Waiver of Subrogation. The parties hereby release each
other, and their respective authorized representatives, from all claims and
liabilities for damage to any person or to the Premises and to the fixtures,
personal property, Lessee's improvements, and alterations of either Lessor or
Lessee in or on the Premises, that are caused by or result from risks insured
against under any insurance policies, carried by the parties and in force at the
time of any such damage. Each insurance policy required under this Lease shall
provide that the insurance company waives all right of recovery by way of
subrogation against either party in connection with any damage covered by such
policy.
8.5 Miscellaneous Insurance Provisions. All insurance required
under this Lease shall:
(a) Be issued by insurance companies authorized to do
business in the State of Washington, with a financial rating of A+ status as
rated in the most recent edition of Best's Insurance Reports.
(b) Be issued as a primary policy.
(c) Contain an endorsement requiring twenty (20)
days' written notice from the insurance company to both parties and Lessor's
lender before expiration, cancellation or change in the coverage, scope, or
amount of any policy.
Each policy of Lessee, or a certificate of such policy, together with
evidence of payment of premiums, shall be deposited with Lessor at, the
commencement of the term, and on renewal of the policy, not less than twenty
(20) days before the expiration of the term of the policy.
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Each policy owned by Lessor covering the Premises, or a certificate of
such policy, including liability and hazard insurance, shall be provided to
Lessee at the commencement of the term, and yearly thereafter during the term of
this Lease.
9. Damage and Restoration. In the event the Premises are destroyed or
damaged by fire or other casualty to such an extent as to render the Premises
untenantable in whole or in a substantial part thereof, it shall he optional
with Lessor to rebuild or repair the Premises; and after the happening of any
such contingency, Lessee shall give Lessor or Lessor's agent immediate written
notice thereof. Lessor shall have thirty (30) days after the date of such
notification to notify Lessee in writing of Lessor's intentions to rebuild or
repair the Premises, or the part so damaged ("Lessor's Notice"), and if Lessor
elects to rebuild or repair the Premises, Lessor shall prosecute the work of
such rebuilding or repairing without unnecessary delay, and during such period,
the rent of the Premises shall be abated in the same ratio that the portion of
the Premises rendered temporarily untenantable shall bear to the whole of the
Premises. If Lessor shall fail to give Lessor's Notice, and/or, if Lessor is
unable to rebuild or repair the Premises within ninety (90) days, Lessee shall
have the right to declare this Lease terminated by written notice served upon
Lessor or Lessor's agent within ten (10) days of receipt of Lessor's Notice, or
prior to the expiration of thirty (30) days from Lessor's failure to give
Lessor's Notice. Except for abatement of rent, if any, Lessee shall have no
claim against Lessor for any damage suffered by reason of any such damage,
repair or restoration.
10. General Indemnity. Except for the negligence of Lessor, Lessee
shall indemnify and hold harmless Lessor from and against any and all claims
arising from Lessee's use of the Premises, or from the conduct of Lessee's
business or from ally activity, work, or things done, permitted, or suffered by
Lessee in or about the Premises or elsewhere and shall further indemnify and
hold harmless Lessor from and against any and all claims arising from any breach
or default in the performance of any obligation on Lessee's part to be performed
under the terms of this Lease, or arising from any negligence of the Lessee, or
any of Lessee's agents, contractors, or employees, and from and against all
costs, attorney's fees, expenses and liabilities incurred in the defense of any
such claim or any action or proceeding brought thereon; and in case any action
or proceeding be brought against Lessor by reason of ally such claim, Lessee,
upon notice from Lessor, shall defend the same at Lessee's expense.
11. Obligation to Indemnify, Defend, or Hold Harmless as to Hazardous
Substance. Lessee agrees to indemnify and hold Lessor harmless from and against
any and all claims, demands, damages, losses, liens, liabilities, penalties,
remediation orders, fines, lawsuits, and any other proceedings and costs and
expenses (including attorney's fees), arising directly or indirectly from or out
of, or in any way connected with Lessee's activities on the Leased Premises
which directly or indirectly result in the Premises or any other property
becoming contaminated with Hazardous Substances, the discovery of Hazardous
Substances on the Premises, or the clean-up of Hazardous Substances from the
Premises. Lessee shall not be responsible for the past, current or future
activities, beyond its control, of any third party of an adjacent property which
directly or indirectly result in the Premises becoming contaminated with
Hazardous Substances. The foregoing sentence shall not be construed to exclude
responsibility for the employees, agents and invitees of Lessee.
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Lessee acknowledges that it is solely responsible for all costs and
expenses related to the clean-up, remediation, or monitoring of Hazardous
Substances from the Premises or any other properties which become contaminated
with Hazardous Substances as a result of activities of Lessee on the Premises.
Lessee's obligations are unconditional and shall survive anti continue
in effect after the termination of this Lease, or the transfer of the Premises
voluntarily or involuntarily, as a result of the activity of Lessee during its
occupation of the Premises under the Lease.
Lessee shall not be responsible for contamination from uses prior to
the time Lessee occupied the Premises.
As used in this Paragraph, "Hazardous Substances" shall mean: any
substance or material defined or designated as hazardous or toxic, hazardous or
toxic material, a hazardous, toxic substance, or any singular term, by any
federal, state, or local environmental statute, regulation, or ordinance
presently in effect or that may be promulgated in the future, as said statutes,
regulations, and ordinances may be amended from time to time, including, but not
limited to, the statutes listed below:
11.1 Federal Rule Resource Conservation and Recovery Act of
1979 (RCRA), 42 U.S.C. Section 6901 et seq.;
11.2 Federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1990 (CERCLA) and Superfund Amendments and
Reauthorization Act of 1986 (SARA), 42 U.S.C. Section 9601 et seq.;
11.3 Federal Clean Air Act, 42 U.S.C. Section 7401 et seq.;
11.4 Federal Toxic Substances Control Act, 15 U.S.C. Section
2601 et seq.;
11.5 Washington Water Pollution Control Act, RCW Ch. 90.48;
11.6 Washington Clean Air Act, RCW Ch. 70.94;
11.7 Washington Solid Waste Management--Recovery and Recycling
Act, RCW Ch. 70.95;
11.8 Washington Model Toxic Control Act, RCW Ch. 70, 105D;
or any substance which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, or otherwise hazardous or the presence of which on
the Premises causes or threatens to cause a nuisance upon the Premises or to
adjacent properties or poses or threatens to pose a hazard to the health or
safety of persons on or about the Premises, or surrounding property; and,
without
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limitation, which contains gasoline, diesel fuel, or other petroleum
hydrocarbons, or which contains polychlorinate bipheynoles (PCBs), asbestos, or
urea formaldehyde foam insulation.
12. Condemnation.
12.1 Definitions.
(a) "Condemnation" means (1) the exercise of any
governmental power by a condemnor to condemn all or any portion of the Premises,
whether by legal proceedings or otherwise, or (2) a voluntary sale or transfer
by Lessor to any condemnor, either under threat of condemnation or while legal
proceedings for condemnation are pending.
(b) "Date of Taking" means the date the condemnor has
the right to possession of the property being condemned.
(c) "Award" means all compensation, sums, or anything
of value awarded, paid, or received on a total or partial condemnation.
(d) "Condemnor" means any public or quasi-public
authority, or private corporation or individual. having the power of
condemnation.
12.2 Total Taking. If the Premises are substantially taken by
condemnation, and thereby rendered totally untenantable, this Lease shall
automatically terminate as of the date of taking.
12.3 Partial Taking. If any portion (but not all) of the
Premises is taken by condemnation, this Lease shall remain in effect, except
that Lessee may elect (subject to Paragraph 12.4) to terminate this Lease if any
part of the Premises shall be taken so as to render the remainder thereof
unusable for the purposes for which the Lessee leased the Premises. If Lessee
elects to terminate this Lease, Lessee must exercise its right to terminate
pursuant to this Paragraph by giving notice to Lessor within ten (10) days after
the nature and extent of the taking have been finally determined. If Lessee
elects to terminate this Lease as provided in this Paragraph, Lessee shall also
notify Lessor of the date of termination, which date shall not be earlier than
sixty (60) days, nor later than one hundred twenty (120) days after Lessee has
notified Lessor of its election to terminate; except that this Lease shall
terminate on the date of taking if the date of taking falls on a date before the
date of termination as designated by Lessee. If Lessee does not terminate this
Lease within the ten (10) day period, this Lease shall continue in full force
and effect.
12.4 Lessor's Election to Prevent Termination. If, within
twenty (20) days after receipt of the termination notice described in Paragraph
12.3, Lessor notifies Lessee that Lessor at its cost will add on to the
remaining Premises so that the area and the approximate layout of the Premises
will be substantially the same after the date of taking as they were before the
date of taking,
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and Lessor commences the restoration immediately and substantially completes the
restoration within ninety (90) days after Lessor notifies Lessee, this Lease
shall continue in full force and effect.
12.5 Restoration of Premises; Abatement or Reduction of Rent.
If there is a partial taking of the Premises and this Lease remains in full
force and effect pursuant to Paragraph 12.3 Lessor shall at its cost accomplish
all necessary restoration within a period of ninety (90) days from the date of
taking. If Lessee elects to terminate under Paragraph 12.3 but Lessor elects to
restore under Paragraph 12.4 then Lessor shall at its cost accomplish all
necessary restoration within a period of ninety (90) days pursuant to Paragraph
12.4, Rent shall be abated or reduced during the period from the date of taking
until the completion of restoration, but all other obligations of Lessee under
this Lease shall remain in full force and effect. The abatement or reduction of
rent shall be abated or reduced proportionately based on the square footage of
the Premises rendered untenantable or unusable during the period of restoration.
12.6 Award. The award shall belong to and be paid to Lessor,
except that Lessee shall receive from the award the value specifically allocated
by the condemnor to the partial or total loss of the unexpired term of this
Lease.
13. Assignment.
13.1 Voluntary Assignment, Subletting, and Encumbering by
Lessee. Lessee shall not voluntarily assign or encumber its interest in this
Lease or in the Premises, or sublease all or any part of the Premises, or allow
any other person or entity to occupy or use all or any part of the Premises,
without first obtaining Lessor's written consent. This Lease shall not be
assignable by operation of law, any assignment, encumbrance, or sublease without
Lessor's prior consent shall be voidable and, at Lessor's election, shall
constitute a default. In the event of any assignment so consented to by Lessor,
five hundred dollars ($500.00) shall be paid by Lessee for Lessor's time and
attorney's fees, in consenting to the transfer or assignment of this Lease. No
consent to any assignment, encumbrance, or sublease shall constitute a further
waiver of the provisions of this Paragraph.
13.2 Involuntary Assignment by Lessee. No interest of Lessee
in this Lease shall be assignable by operation of law, such as (but not limited
to) by becoming bankrupt or insolvent, making an assignment for the benefit of
creditors, failing to remove an attachment or execution levied on this Lease
with thirty (30) days of such levy, or of a receiver who is appointed to take
possession of the premises is not removed within thirty (30) days of such
appointment.
An involuntary assignment shall constitute a default by Lessee and
Lessor shall have the right to elect to terminate this Lease, in which case this
Lease shall not be treated as an asset of Lessee.
13.3 Assignment by Lessor. Lessor shall have the right to
sell, assign, hypothecate, pledge, or otherwise transfer or encumber
(collectively "transfer") all or any portion of its interest in the Premises of
this Lease, without Lessee's, consent, and Lessee shall, upon notice of such
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transfer, execute a written amendment to this Lease acknowledging and consenting
to such transfer. If the entire Leased Premises are transferred, and the
transferee assumes in writing all of Lessor's obligation under this Lease,
Lessee agrees that Lessor shall be released from any further obligations under
this Lease.
13.4 Subordination of Lease. This Lease, at Lessor's option,
shall be subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation for security now or hereafter placed upon the real property of
which the Premises are a part and to any and all advances made on the security
thereof and to all renewals, modifications, consolidating, replacements and
extensions thereof. Notwithstanding such subordination, Lessee's rights to quiet
possession of the Premises shall not be disturbed if Lessee is not in default
and so long as Lessee shall pay the rent and observe and perform all of the
provisions of this Lease, unless this Lease is otherwise terminated pursuant to
its terms. If any mortgagee, trust beneficiary or ground lessor shall elect to
have this Lease prior to the lien of its mortgage, deed of trust or ground
lease, and shall give written notice thereof to Lessee, this Lease shall be
deemed prior to such mortgage, deed of trust, or ground lease, whether this
Lease is dated prior or subsequent to the date of said mortgage, deed of trust
or ground lease or the date of recording thereof. Lessee agrees to execute any
documents required to effectuate such subordination or to make this Lease prior
to the lien of any mortgage, deed of trust or ground lease, as the case may be,
and failing to do so within ten (10) days after written demand, does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney in fact and
in Lessee's name, place and stead, to do so.
14. Lessee's Default. The occurrence of any of the following shall
constitute a default by Lessee:
14.1 Failure to pay rent or taxes when due, or any other
prepayment or reimbursement required to be paid if the failure continues for ten
(10) days after notice has been given to Lessee;
14.2 Abandonment and vacation of the Premises (failure to
occupy and operate the Premises for thirty (30) consecutive days shall be deemed
an abandonment and vacation);
14.3 Insolvency of Lessee, or Lessee's transfer in fraud of
creditors, or Lessee's assignment for the benefit of creditors;
14.4 Lessee shall file a petition under any section or chapter
of the National Bankruptcy Act, as amended, or under similar laws of the United
States or any state thereof; or Lessee becoming adjudged bankrupt or insolvent
in proceedings filed against Lessee thereunder;
14.5 A receiver or trustee becoming appointed for all or
substantially all of the assets of Lessee;
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14.6 Violation of or failure to perform any other provision of
this Lease if the violation or failure to perform is not cured within twenty
(20) days after notice has been given to Lessee. If the default cannot
reasonably be cured within twenty (20) days, Lessee shall not be in default of
this Lease if Lessee commences to cure the default within the twenty (20) day
period and diligently and in good faith continues to cure the default.
Notice as given under this Paragraph shall specify the alleged default
and the applicable Lease provisions, and shall demand that Lessee perform the
provisions of this Lease within the applicable period of time, or quit the
Premises. Such notice may serve both as a notice of the default under this
Paragraph and as any statutory notice required as a condition precedent to an
action in unlawful detainer or for damages, or otherwise. No such notice shall
be deemed a forfeiture or a termination of this Lease unless Lessor so elects in
the notice.
15. Lessor's Remedies. Upon the occurrence of any of such events of
default described in Paragraph 14 hereof, Lessor shall have the option to pursue
any one or more of the following remedies without any notice or demand
whatsoever:
15.1 Lessor may accelerate all rent payments due hereunder
which shall then become immediately due and payable.
15.2 Terminate this Lease, in which event Lessee shall
immediately surrender the Premises to Lessor, and if Lessee fails so to do,
Lessor may, enter and take possession of the Premises pursuant to legal
proceedings or pursuant to any notice or remedy provided for by law, and Lessee
agrees to pay to Lessor on demand the amount of all loss and damage which Lessor
may suffer by reason of such termination, whether through inability to relet the
Premises on satisfactory terms or otherwise.
15.3 Whether or not Lessor retakes possession or relets the
Premises, Lessor shall have the right to recover unpaid rent and all damages
caused by Lessee's default, including attorney's fees. Damage shall include,
without limitation: all rentals lost, all legal expenses and other related costs
incurred by Lessor following Lessee's default, all costs incurred by Lessor in
restoring the Premises to good order and condition, all costs (including without
limitation any brokerage commissions and the value of Lessor's time) incurred by
Lessor, plus interest thereon from the date of expenditure until fully repaid at
the rate of eighteen percent (18%) per annum.
15.4 Pursuit of any of the foregoing remedies shall not
preclude pursuit of any of the other remedies herein provided or any other
remedies provided by law, such remedies being cumulative and non-exclusive, nor
shall pursuit of any remedy herein provided constitute a forfeiture or waiver of
any rent due to Lessor hereunder or of any damages accruing to Lessor by reason
of the violation of any of the terms, provisions, and covenants herein
contained. No act or thing done by the Lessor or its agents during the Lease
Term hereby granted shall be deemed a termination of this Lease or an acceptance
of the surrender of the Premises, and no agreement to terminate this Lease or
accept a surrender of said Premises shall be valid unless in writing signed by
Lessor. No waiver
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by Lessor of any violation or breach of any of the terms, provisions, and
covenants herein contained shall be deemed or construed to constitute a waiver
of any other violation or breach of any of the terms, provisions, and covenants
herein contained. Lessor's acceptance of the payment of rental or other payments
hereunder after the occurrence of an event of default shall not be construed as
a waiver of such default, unless Lessor so notifies Lessee in writing.
Forbearance by Lessor to enforce one or more of the remedies herein provided
upon an event of default shall not be deemed or construed to constitute a waiver
of such default or of Lessor right to enforce any such remedies with respect to
such default or any subsequent default. If, on account of any breach or default
by Lessee in Lessee's obligations under the terms and conditions of this Lease,
it shall become necessary or appropriate for Lessor to employ or consult with an
attorney concerning or to enforce or defend any of Lessor's rights or remedies
hereunder, Lessee agrees to pay any reasonable attorney's fees so incurred.
16. Lessor's Right of Entry. Lessor shall have the right to enter the
Premises at all reasonable times in order to inspect the Premises or to
otherwise insure compliance with the provisions of this Lease.
17. Surrender of Premises. Prior to expiration or immediately upon
termination of the term, Lessee shall surrender to Lessor the Premises and all
Lessee's improvements and alterations in good condition (except for ordinary
wear and tear occurring after the last necessary maintenance made by Lessee and
destruction to the Premises covered hereunder), except for alterations that
Lessee has the right to remove or is obligated to remove. Lessee shall remove
all its personal property within the above-stated time. Lessee shall perform all
restoration made necessary by the removal of any alterations or Lessee's
personal property. Lessor may elect to retain or dispose of in any manner any
alterations or Lessee's personal property that Lessee does not remove from the
Premises on expiration or termination of the term as allowed or required by this
Lease by giving at least twenty (20) days' notice to Lessee. Title to any such
alterations or Lessee's personal property that Lessor elects to retain or
dispose of on expiration of the twenty (20) day period shall vest in Lessor.
Lessee waives all claims against Lessor for any damage to Lessee resulting from
Lessor's retention or disposition of any such alterations or Lessee's personal
property. Lessee shall be liable to Lessor for Lessor's costs for storing,
removing, and disposing of any alterations or Lessee's personal property. If
Lessee fails to surrender the Premises to Lessor on expiration or termination of
the term as required by this Paragraph, Lessee shall indemnify, defend and hold
Lessor harmless from all claims and damages resulting from Lessee's failure to
surrender the Premises, including, without limitation, claims made by a
succeeding tenant resulting from Lessee's failure to surrender the Premises.
18. Estoppel Certificates. Either party shall, within ten (10) days
after request from the other, execute and deliver to the requesting party, in
recordable form, a certificate stating: (1) that this Lease is unmodified and in
full force and effect, or in full force and effect as modified, and stating the
modifications; and (2) that the requesting party is not in substantial default
of the provisions of the Lease, or stating the nature and extent of any claimed
default. The certificate also shall state the amount of minimum monthly rent,
the dates to which the rent has been paid in
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advance, and the amount of any security deposit or prepaid rent. Failure to
deliver the certificate within the ten (10) days shall be conclusive for the
benefit of the requesting party that this Lease is in full force and effect and
has not been modified, and that the requesting party is not in substantial
default of the provisions of this Lease, except as may be represented by the
requesting party
19. Signs. Lessee, at its cost, shall have the right to place,
construct, and maintain an exterior sign on the Premises, advertising its
business; provided, however, that the size, design and construction of the sign
shall first be approved by Lessor giving written consent thereof. All signs must
comply with the sign ordinances as established by the local municipalities and
shall be placed in accordance with required permits.
20. Miscellaneous and Procedural.
20.1 Time of the Essence. Time is of the essence of each and
every provision of this Lease.
20.2 Attorney's Fees. If legal action (including, without
limitation, litigation and/or arbitration) is required or deemed necessary to
enforce or interpret any of the provisions of this Lease, the prevailing party
shall be entitled to recover its costs of suit, including reasonable attorney's
fees, incurred in connection therewith.
If either Lessee or Lessor becomes a party to any litigation or
arbitration concerning this Lease or the subject matter of this Lease, by reason
of any act or omission of the other, or its authorized representatives
("Negligent Party"), and not by its own act or omission, or that of its
authorized representatives ("Non-Negligent Party"), then the Negligent Party
shall he liable to the Non-Negligent Party for reasonable attorney's fees and
court costs incurred by the Non-Negligent Party in any such litigation or
arbitration.
20.3 Consent of Parties. Whenever consent or approval of
either party to this Lease is required, such consent or approval shall not be
unreasonably withheld.
20.4 Binding Effect. Subject to the restrictions on assignment
set forth above, this Lease shall be binding upon and shall inure to the
benefit, of the parties and their respective successors and assignees.
20.5 Corporate Authority. Each corporate party to this Lease
certifies that at the execution of this Lease, such corporation is a valid
corporation organized under the laws of the state of Washington, and each
individual signing on behalf of the corporate party is duly authorized to sign
on behalf of such corporation.
20.6 Governing Law, Venue and Jurisdiction. This Lease shall
be interpreted and governed according to the laws of the State of Washington.
Jurisdiction and venue in any action to interpret or enforce any provisions of
this Lease shall lie in Spokane County, Washington.
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20.7 Memorandum of Lease. At the request of either party to
this Lease, a memorandum of this Lease shall be executed, acknowledged, and
recorded with the official records of Spokane County, Washington.
20.8 Captions. The captions of paragraphs within this Lease
are included for convenience only and shall have no effect on its
interpretations.
20.9 Severability. The unenforceability, invalidity, or
illegality of any provision of this Lease shall not render any other provision
unenforceable or illegal.
20.10 Notices . Any notice given under this Agreement shall be
sufficient if in writing and mailed by either registered or certified mail,
return receipt requested, postage prepaid to the following addresses:
If to Lessor: CARSTENS COMPANY, INC
c/o Carstens Management Company
1636 W. 1st Avenue
Spokane, Washington 99204
If to Lessee: BULLHIDE LINERS, INC.
c/o Mr. Ron Grossman
525 N. Fancher Road
Spokane, Washington 99212
Any such notice shall be deemed delivered within forty-eight (48) hours from the
time of mailing if mailed as provided in this subparagraph. Either party may
change its address by delivering notice of the change of address in the manner
prescribed in this subparagraph.
20.11 Non-Waiver of Breach. The waiver by any party hereto of
a breach or any provision of this Lease shall not operate or be construed as a
waiver of any subsequent breach by any party.
20.12 Entire Agreement. This instrument contains the entire
Agreement of the parties and may not be changed except by written agreement duly
executed by the parties hereto.
20.13 Counterparts. This Agreement may be signed in
counterpart signatures.
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day
and year first above written.
CARSTENS COMPANY, INC.
By: /s/ Peter Carstens
-----------------------
Name: __________________
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BULLHIDE LINERS, INC.
By: /s/ Ron Grossman
--------------------
Title:President
---------------
STATE OF WASHINGTON )
) ss:
COUNTY OF SPOKANE )
On this day Personally appeared before me Peter Carstens , to me known
to be the individual described in and who executed the within and foregoing
instrument, and acknowledge that he signed the same as his lice and voluntary
act and deed, for the uses and purposes therein mentioned.
GIVEN under my hand and official seal this 17th day of December, 1999.
/s/ John W. Rigsby
------------------
Notary Public in and for the
State of Washington,
residing in Spokane
My Commission expires: 4/21/98
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STATE OF WASHINGTON)
) ss:
COUNTY OF SPOKANE )
On this 16th day of December, 1997, before me personally appeared Ron
Grossman, to me known to be the President of BULLHIDE LINERS, INC, the
corporation that executed the foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act of said corporation, for the uses
and purposes therein mentioned, and on oath stated that he was authorized to
execute the said instrument on behalf of said corporation.
GIVEN UNDER MY HAND AND OFFICIAL SEAL the day and year in this
certificate first above written.
/s/ Linda M. Klein
------------------
Notary Public in and for the
State of Washington,
residing in Spokane
My Commission expires: 9/27/00
17
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LIST OF EXHIBITS
EXHIBIT "A" Legal Description
EXHIBIT "B" Depiction of Leased Premises
EXHIBIT "C" Improvements to be complete when weather permits.
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EXHIBIT "A"
That part of a building and premises outlined in yellow on the
attachment hereto, which building and premises are located within the southern
portion of the following legally described property, Warehouse #101:
That portion of the N 1/2 of the SF 1/4 of Section 14,
Township 25 North, Range 43 E.W.M., Spokane County,
Washington, described as follows: Beginning at a point on the
west line of Fancher Road which is 870.00 feet north of the
north line of the right of way of Chicago, Milwaukee, St. Paul
& Pacific Railway Company; thence westerly, parallel to said
north right of way line, 317.00 feet; thence northerly,
parallel to the cast line of said SE 1/4 of Section 14, 180.00
feet; thence easterly, 317.00 feet to the west line of Fancher
Road; thence southerly, 180.00 feet to the POB.
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EXHIBIT "B"
Depiction of Leased Premises
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EXHIBIT "C"
IMPROVEMENTS TO BE COMPLETED:
1) Finish the planting of sod on the east side of the building, between
the building and Fancher Rd.
2) Install a curb-cut in the south parking lot in front of the overhead
door.
3) Lessor to pay for crack repair maintenance on the south parking lot as
part of an overall repair and asphalt scalant project. Lessee will pay
for the top coat sealant and striping.
21
MANUFACTURING/LICENSING AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of January,
1994, by and between PolyChem Corporation, a Washington corporation ("PolyChem"
herein), and The Bullhide Liner Corporation, a Washington corporation
("Bullhide" herein).
RECITALS
A. PolyChem has developed a variety of polyurethane formulations and
products therefrom for use in the transportation industry as well as other
industries, which products currently include Bullhide 2000, Bullhide 1500,
Bullhide 600, Primer 350 and Bullhide Colorants; (referred to collectively
herein as "Technology").
B. PolyChem maintains manufacturing operations for the production of
the foregoing products, and continues to conduct research and development to
expand the applications of the Technology.
C. Bullhide operates a business which sell products manufactured by
PolyChem in the transportation industry, and desires to obtain an exclusive
license from PolyChem with respect to its products and Technology developed for
the transportation industry, and a non-exclusive license for products and
Technology developed and manufactured for other industries.
D. PolyChem is willing to grant the foregoing licenses, pursuant to the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the promises contained herein and
the mutual benefit to be derived herefrom, the parties hereto agree as follows:
1. Grant of Licenses by PolyChem. PolyChem hereby grants to Bullhide
the exclusive license to sell products manufactured by PolyChem for use in the
transportation industry, which shall include but be limited to trucks,
automobiles, boats, trains, planes, helicopters, shipping vessels and so forth.
This license shall apply to the United States, North America and the world.
PolyChem further grants to Bullhide the non-exclusive license to sell products
manufactured by PolyChem in other industries. The foregoing licenses are granted
pursuant to the terms and conditions set forth herein.
2. PolyChem to be Sole Manufacturing Source. Bullhide agrees to
purchase all of its polyurethane related products from PolyChem exclusively, and
not from any other manufacturer, provided that PolyChem can meet the
manufacturing requirements of Bullhide within a reasonable time frame. In
addition, Bullhide agrees to grant to PolyChem a first right of refusal to
develop and produce new products from related Technology as requested by
Bullhide, provided that said new
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products can be developed within a reasonable time frame. Any products developed
pursuant to this Right of First Refusal shall be manufactured exclusively for
Bullhide, as long as Bullhide continues to sell such products at reasonable
volumes.
3. Assignment to Franchisees. It is hereby acknowledged and agreed by
the parties, that Bullhide is in the process of establishing franchisees who
will sell similar products in different regions of the country and the world.
The license agreements contained herein shall be assignable by Bullhide to its
franchisees, provided that said franchisees shall specifically be required to be
bound by the terms of the this Agreement in all respects. Bullhide shall be
responsible for assuring that its franchisees comply with the terms of this
Agreement. Upon the termination of any such franchisee relationship, all rights
under this Agreement must revert to Bullhide.
4. Price; Payment. All products to be purchase by Bullhide pursuant to
this License Agreement, shall be at prices established by PolyChern from time to
time, representing approximately the total manufacturing costs plus twenty
percent (20%). For this purpose, total manufacturing costs shall include cost of
raw materials, packaging, labeling, labor and a reasonable allocation of
overhead. Costs of shipment shall be in addition to the foregoing purchase
price. All purchases shall be paid for within thirty (30) days of invoice,
unless otherwise mutually agreed by the parties.
5. Manufacturing Parameters; Quality Control. PolyChem shall be
responsible for all aspects of the manufacturing of the products and the
development of the Technology, so as to meet Bullhide's specifications.
PolyChem's responsibilities shall include, but not be limited to, ordering and
purchasing raw materials from sources it determines, oversight of the
manufacturing process, oversight of quality assurance process, packaging and
labeling of the finished components pursuant to Bullhide's specifications, and
shipment of the finished product to locations specified by Bullhide.
6. Limitation of Warranties. PolyChem warrants that it shall produce
products which meets the quality assurance parameters and specifications that
are established by Bullhide and are agreed to by both parties. POLYCHEM SHALL
MAKE NO OTHER WARRANTIES AS TO FITNESS FOR A PARTICULAR USE, WARRANTIES OF
MERCHANTABILITY OR WARRANTIES ARISING FROM A COURSE OF DEALING OR USAGE AND ANY
SUCH WARRANTIES ARE SPECIFICALLY EXCLUDED. POLYCHEM'S LIABILITY TO BULLHIDE AND
BULLHIDE'S CUSTOMERS SHALL BE LIMITED SOLELY TO THE REPLACEMENT OF OR CREDIT FOR
MATERIALS PROVEN TO BE DEFECTIVE.
7. Indemnification; Hold Harmless. Bullhide agrees to indemnify and
hold PolyChem harmless for any and all liability whatsoever arising out of the
use of the components of the Technology in a finished product, product failure
with respect to any use whatsoever, or any other liability related to the use of
products manufactured by PolyChem.
8. Term of Agreement; Termination. This Agreement shall be effective
immediately upon execution by the parties. The Agreement shall continue in
effect for as long as Ron Grossman
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is actively working at least twenty (20) hours per week on average, for either
PolyChem, Bullhide or both combined, and for a period of five (5) years
thereafter. Upon termination of this Agreement, Bullhide shall have no further
rights to products or Technology unless the parties otherwise agree.
9. Dispute Resolution; Arbitration; Venue. In the event that either
party breaches this Agreement, the other party shall provide the breaching party
with written notice of such breach which specifically describes the breach and
the corrective action required, and the breaching party shall have thirty (30)
days to cure the breach. If the breach is not cured within the thirty (30) day
period, or there is a dispute as to whether there has been a breach or whether
the breach has been satisfactorily cured, the parties agree to follow the
following dispute resolution procedures: If the parties do not agree, in
writing, within the allowed time period that the alleged default has been
corrected to the satisfaction of both parties, either party may demand that the
dispute be settled by arbitration and the parties do hereby agree to binding
arbitration in accordance with the provisions of RCW 7.04 et seq. Venue for any
such arbitration shall be Spokane County, Washington. The prevailing party in
any such arbitration shall be entitled to recover reasonable attorney's fees and
cost incurred.
10. Miscellaneous Provisions.
10.1 Entire Agreement. This Agreement shall constitute the
entire Agreement between the parties with respect to the subject matter hereof,
and shall supersede, cancel and replace all other prior negotiations, agreements
and writings. This Agreement may not be released, discharged, abandoned, changed
or modified in any manner except by an instrument in writing signed by the
parties.
10.2 Waive. The failure of either party at any time to require
performance of any provision hereof shall not affect the right to require full
performance hereof at any time thereafter, and waiver by either party of a
breach of any provision of this Agreement shall not constitute a waiver by that
party of its rights to enforce that provision in accordance with the terms in
the event of any subsequent breach of that provision, nor shall it nullify such
provisions.
10.3 Successors in Interest. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and the respective
successors and assigns.
10.4 Headings. The headings herein are for convenience of
reference only and shall in no way affect the interpretation of this Agreement
or any part hereof.
10.5 Governing Law. This Agreement shall be interpreted and
construed according to the laws of the State of Washington.
10.6 Attorney's Fees. Either party hereto shall be entitled to
collect reasonable attorney's fees and costs from the other party resulting from
any action taken to enforce provisions of this Agreement.
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10.7 Counterpart Signatures. For the convenience of the
parties hereto, this Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, and all of which together shall constitute
one and the same instrument.
POLYCHEM CORPORATION: THE BULLHIDE LINER CORPORATION:
By: /s/ Ron Grossman By: /s/ Ron Grossman
- ------------------------ ----------------------
Its: President Its: President
- ----------------- ---------------
4
EXECUTIVE SUITES
FAIRWAY FINANCIAL CENTER
THIS LEASE is entered into this17th day of May, 1999, between FAIRWAY
FINANCIAL CENTER ("Lessor") and BULLHIDE LINERS CORP. ("Lessee"). In
consideration of the mutual promises, covenants and conditions contained herein,
and other good and valuable consideration, the receipt of which is hereby
acknowledged, Lessor and Lessee agree as follows:
ARTICLE I - PREMISES
Lessor hereby leases to Lessee the following:
1. Description. The premises covered by this lease are that office
designated as Suite 211 ("Leased Premises") in the FAIRWAY FINANCIAL CENTER
("Center") located at 10 Fairway Drive, Deerfield Beach, Florida. Rental
payments are to be made to:
Fairway Financial Center
10 Fairway Drive, Suite 114
Deerfield Beach, FL 33441
2. Use of the Leased Premises. The Lessee shall use the leased premises
only as a professional office. Lessee shall also be entitled to use the
conference room.
ARTICLE II - TERM
The term of this lease shall be for Month-to-Month commencing on June
1, 1999.
ARTICLE III - RENT
1. Basic Rent. Rental shall be due on the first of the month in the
amount $570.00 per month plus tax for the lease term.
2. Late Charge. A five percent (5%) late charge shall be owed in the
event any rental payment is made after the third of the month.
3. Sales Tax. Lessee agrees to pay applicable sales tax.
4. Deposit and Prepaid Rent. Lessee has this date paid to Lessor a
deposit of prepaid rent of $_________, plus a charge of $65.00 for the internal
hook-up of the telephone. In the event Lessee fully complies with all the terms
of this lease, the deposit shall be returned to Lessee upon
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expiration of the lease. In the event Lessee does not fully comply with terms of
this lease the security deposit shall be retained by the Lessor.
ARTICLE IV - ASSIGNMENT AND SUBLETTING
1. No assignment and/or subletting shall be permitted without the prior
written consent of the Lessor.
ARTICLE V - SERVICES PROVIDED TO LESSEE
1. Lessor shall provide phones for the leased premises. Lessee shall be
responsible for the monthly phone service to the phone company and any long
distance charges. In the event Lessee fails to timely pay any amounts which may
be due under this lease, Lessor reserves the right to remove the phones (which
are Lessor's property) and/or terminate receptionist services.
2. Lessor shall provide a receptionist from the hours of 8:30 am to
5:00 p.m. to answer phone and take messages.
3. Lessor shall provide electricity service for the leased premises.
4. Lessor shall provide five nights of janitorial cleaning of the
leased premises.
5. Lessor shall provide adequate parking.
6. Lessor shall provide one phone. In the event Lessee needs additional
phones, the charge is $15.00 per month per phone; for more than two lines, the
charge is $15.00 per month per line.
7. Lessor shall not be liable for any damage to property of Lessee or
of others located on the Leased Premises, nor for the loss of or damage to any
property of Lessee of or others by theft or otherwise. Lessor shall not be
liable for any injury or damage to persons or property and Lessee agrees to
indemnify and hold Lessor harmless from any claims arising out of damage to such
person or property, including subrogation claims by Lessee's insurance carriers.
<TABLE>
<CAPTION>
8. Lessor shall provide the following services at an additional cost:**
<S> <C>
(a) Copies (self service)......................................................$.10 per page
(b) Notary Public..................................................................NO CHARGE
(c) Secretarial Service......................................................$18.00 per hour
(d) Fax - Incoming.............................................................$.25 per page
Outgoing (local)..........................................................$1.00 per page
Outgoing (long distance- domestic)........................................$2.00 per page
(e) Postage (Metered Mail).....................................................Cost plus 20%
</TABLE>
2
<PAGE>
(f) Overnight Delivery Service - Boxes located at entrance.
Contact UPS or Federal Express for account information.
**All prices quoted are subject to change.
9. Litigation. In the event any portion or all of this lease becomes
the subject of a lawsuit, the prevailing party shall be entitled to attorney's
fees.
10. Rules and Regulations. Lessee agrees to comply with all rules and
regulations upon notice to Lessee from Lessor.
11. 30-Day Notice. A 30 day written notice is required to terminate
this lease, if it is a month-to-month lease. For any notice given after the
first of the month, rent will not be prorated and rent shall be owed for the
entire following month.
ARTICLE VI - SUBORDINATION
1. Lessee covenants and agrees that this Lease shall not be a lien
against the Leased Premises with respect to any mortgage that is presently or
may hereafter be placed on the Leased Premises. The recording of such mortgage
or mortgages shall have preference and precedence and be superior and prior in
lien to this Lease, irrespective of the date of recording, and Lessee agrees to
execute any instruments, without cost, which may be deemed necessary and
desirable, to further effect the subordination of this Lease to any such
mortgage of mortgages. A refusal by Lessee to execute such instrument shall
entitle Lessor to the option of terminating this Lease, and the term hereof is
hereby expressly limited accordingly. This clause of this Lease shall,
nevertheless, be deemed to be self-executing.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
instrument on this 17th day of May, 1999.
LESSOR:
Witness: FAIRWAY FINANCIAL CENTER
_________________________________ By: /s/ Eileen Cassidy
-----------------------
4
<PAGE>
LESSEE:
Witness:
By: /s/ Illegible
_________________________________ -----------------------
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,875
<SECURITIES> 0
<RECEIVABLES> 111,461
<ALLOWANCES> 20,000
<INVENTORY> 49,219
<CURRENT-ASSETS> 163,555
<PP&E> 147,483
<DEPRECIATION> 78,177
<TOTAL-ASSETS> 265,187
<CURRENT-LIABILITIES> 778,714
<BONDS> 0
0
60,000
<COMMON> 7,857,451
<OTHER-SE> (698,567)
<TOTAL-LIABILITY-AND-EQUITY> 265,187
<SALES> 1,686,702
<TOTAL-REVENUES> 1,686,702
<CGS> 1,237,756
<TOTAL-COSTS> 2,638,613
<OTHER-EXPENSES> 25,732
<LOSS-PROVISION> (951,911)
<INTEREST-EXPENSE> 30,822
<INCOME-PRETAX> (951,911)
<INCOME-TAX> (951,911)
<INCOME-CONTINUING> (951,911)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (977,643)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
accompanying financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 28,910
<SECURITIES> 0
<RECEIVABLES> 238,274
<ALLOWANCES> 19,746
<INVENTORY> 23,395
<CURRENT-ASSETS> 291,332
<PP&E> 24,805
<DEPRECIATION> 18,977
<TOTAL-ASSETS> 332,016
<CURRENT-LIABILITIES> 508,464
<BONDS> 0
0
60,000
<COMMON> 7,746,451
<OTHER-SE> (277,251)
<TOTAL-LIABILITY-AND-EQUITY> 332,016
<SALES> 459,420
<TOTAL-REVENUES> 459,420
<CGS> 270,384
<TOTAL-COSTS> 498,987
<OTHER-EXPENSES> 4,774
<LOSS-PROVISION> (39,567)
<INTEREST-EXPENSE> 4,774
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (39,567)
<DISCONTINUED> (47,681)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (84,710)
<EPS-BASIC> (.00)
<EPS-DILUTED> (.00)
</TABLE>
