AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER , 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
-----------------------------
Commission File No. 0-28223
MERIDIAN USA HOLDINGS, INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
FLORIDA 2000 65-0510294
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification No.)
Organization)
</TABLE>
-----------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Meridian USA Holdings, Inc.
1356 N.W. 2nd Avenue 1356 N.W. 2nd Avenue
Boca Raton, FL 33432 Boca Raton, Boca Raton, FL 33432
(561) 417-6800 (561) 417-6800
---------------------------------------- -----------------------------------
(Address and Telephone Number of (Name, Address and Telephone Number
Principal Executive Offices and of Agent for Service)
Principal Place of Business)
</TABLE>
---------------------------------------------
COPY TO:
Samuel Goldfarb, Esq.
Aronauer, Goldfarb, Sills & Re, LLP
444 Madison Avenue
New York, New York 10022
(212) 755-6000
Approximate Date of Commencement of Proposed Sale to the Public: As soon
as practicable after the effective date of this Registration Statement.
1
<PAGE>
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ X ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
Title of Each Proposed Proposed
Class of Maximum Maximum
Securities to Amount to be Offering Price Aggregate Amount of
be Registered Registered Per Share(1) Offering Registration
Price(1) Fee
<S> <C> <C> <C> <C>
Common Stock, $.001 par value 5,698,948 $ 1.875 $10,685.527.50 $2,821.00
Shares(2)
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(c) of the Securities Act and based on the last trade price reported
on the OTC Bulletin Board on December 4, 2000.
(2) Represents shares of common stock issuable in connection with the
conversion of shares of our Series II Convertible Preferred Stock and exercise
of the 698,948 Common Stock Purchase Warrants issued in connection with the U.S.
Bancorp Investments financing ("U.S. Bancorp Warrants").
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
2
<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not or sale is not
permitted.
----------------------------
PROSPECTUS SUMMARY
------------------
We are registering 5,698,948 shares of our common stock for resale by the
holders obtaining such shares upon conversion of our Series II Convertible
Preferred Stock and upon exercise of common stock purchase warrants issued to
U.S. Bancorp Libra and its designees ("U.S. Bancorp Warrants") in connection
with the U.S. Bancorp Investments, Inc. financing transaction. The selling
price of the common stock will be determined by market factors at the time of
their resale.
-----------------------------
This prospectus relates to the resale by the selling stockholders of up to
5,698,948 shares of common stock. The selling stockholders may sell the stock
from time to time at the prevailing market price or in negotiable transactions.
We will receive no proceeds from the sale of the shares by the selling
stockholders. However, we have received proceeds from the sale of our Series A
Convertible Note to the selling stockholders and we will receive aggregate
proceeds of $1,223,159 upon exercise of the U.S. Bancorp Warrants.
-----------------------------
Our common stock is listed on the OTC-Bulletin Board under the symbol "MUSD".
The last reported sale price of the common stock on December 4, 2000 was $1.875.
-----------------------------
Investing in Meridian's common stock involves risks. See "Risk Factors"
beginning on page 6.
------------------------------
The SEC and state securities regulators have not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
------------------------------
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of the
delivery of this prospectus or of any sale of common stock.
3
<PAGE>
------------------------------
As used in this prospectus, the terms "we", "us", "our", and "Meridian" refer to
Meridian USA Holdings, Inc., and the term "common stock" means our common stock,
par value $.001 per share.
<TABLE>
<CAPTION>
<S> <C>
Common stock offered by the 5,698,948, including an indeterminate
selling stockholders number of shares of common stock that may
become issuable to prevent dilution
resulting from stock splits, stock
dividends and conversion price
adjustments, which are included pursuant
to Rule 416 promulgated under the
Securities Act of 1933.
Common stock currently As of November 30, 2000, we have
outstanding 6,376,399 shares of common stock issued
and outstanding.
Use of Proceeds We will not receive any proceeds from the
resale of shares of common stock by the
selling shareholders. We have received
proceeds from the sale of our Series A
Convertible Note to the selling
shareholders, which Note is convertible
into Series II Preferred Stock, which,
along with the U.S. Bancorp Warrants, are
convertible into the shares of common
stock being registered hereunder. We
will receive proceeds from the exercise
of U.S. Bancorp Warrants, and those
proceeds will be used for general
corporate purposes, including working
capital.
OTC Bulletin Board trading MUSD
symbol
</TABLE>
These share numbers are based on shares outstanding as of November 30, 2000 and
exclude:
533,301 shares of common stock issuable upon exercise of outstanding
common stock purchase warrants issued to Cumberland Packing Corp. on
September 24, 1999 (See "Description of Capital Stock - Cumberland
Warrants").
1,155,000 shares of common stock issuable upon conversion of outstanding
shares of our Series I Preferred Stock, without consideration.
425,000 shares of common stock issuable upon exercise of outstanding
common stock options at an exercise price ranging from $.50 to
$1.00 per share.
4
<PAGE>
MERIDIAN USA HOLDINGS, INC.
2000 FORM SB-2
TABLE OF CONTENTS
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PART I PAGE
----------------------------------------------------------- ----
<S> <C>
PROSPECTUS SUMMARY 3
RISK FACTORS 6
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS 10
SUMMARY FINANCIAL INFORMATION 10
USE OF PROCEEDS 12
SELLING STOCKHOLDERS 12
PLAN OF DISTRIBUTION 15
DESCRIPTION OF CAPITAL STOCK 17
DIVIDEND POLICY 19
CAPITALIZATION 19
BUSINESS 20
LEGAL PROCEEDINGS 29
PRICE RANGE OF CAPITAL STOCK 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 30
MANAGEMENT 32
PRINCIPAL STOCKHOLDERS 36
LEGAL MATTERS 37
EXPERTS 37
WHERE YOU CAN FIND MORE INFORMATION 38
ABOUT US
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS F-1 - F-25
PART II
-----------------------------------------------------------
OTHER EXPENSES OF ISSUANCE AND
DISTRIBUTION II-1
INDEMNFIICATION OF DIRECTORS AND OFFICERS II-1
RECENT SALES OF UNREGISTERED SECURITIES II-3
EXHIBITS II-3
UNDERTAKINGS II-4
</TABLE>
5
<PAGE>
RISK FACTORS
------------
Investing in our common stock involves a high degree of risk. You should
carefully consider the risks described below and other information contained in
this prospectus before making an investment decision. Our business, financial
condition or results of operations could be materially adversely affected by
these risks. The trading price of our common stock could decline due to any of
these risks, and you may lose all or part of your investment.
WE WILL HAVE A SUBSTANTIAL AMOUNT OF OUTSTANDING SECURITIES WHICH ARE
CONVERTIBLE INTO COMMON STOCK, WHICH MAY RESULT IN SUBSTANTIAL DILUTION OF NEW
STOCKHOLDERS.
We currently have outstanding: (i) 3,500 shares of Series I Preferred
Stock which are convertible into 1,155,000 shares of common stock; (ii) Common
Stock Purchase Warrants, which the holder may exercise to purchase 533,301
shares of common stock for the greater of $2.50 per share, or 50% of the average
per share trading price for common stock during the 20 days preceding exercise;
and (iii) 425,000 common stock options exercisable at an average exercise price
ranging from $.50 to $1.00 per share. If all of those securities are converted
into common stock, the number of shares of common stock outstanding will
increase from 6,379,399 to 8,492,700, without taking into account the issuance
of the shares covered by this prospectus.
RESTRICTIONS IMPOSED BY OUR SECURITIES HOLDER AGREEMENT WITH U.S. BANCORP
INVESTMENTS, INC. MAY LIMIT OUR ABILITY TO EXECUTE OUR BUSINESS STRATEGY.
Our Securities Holder Agreement with U.S. Bancorp Investments, Inc.
contains provisions which require us to obtain the consent of U.S. Bancorp in
order to be able to:
i) incur any indebtedness;
ii) pay dividends;
iii) issue any additional securities;
iv) make investments;
v) sell assets;
vi) enter new business segments;
vii) enter into certain transactions, including
mergers and certain consolidations; or
viii) create or permit liens on any of our assets.
If we believe such actions are necessary but fail to obtain U.S. Bancorp's
consent, our business may be adversely affected.
WE MAY NOT BE ABLE TO DEVELOP SUCCESSFUL NEW PRODUCTS WHICH ARE IMPORTANT TO OUR
GROWTH.
An important part of our strategy is to increase our sales through the
development of new sugar-free, fat-free food products. We cannot assure you
that we will be able to develop, market and distribute future products that will
enjoy market acceptance. The failure to continue to develop new food products
that gain market acceptance could have an adverse impact on our growth and
materially adversely affect our financial condition. We may have
6
<PAGE>
higher obsolescent product expense if new products fail to perform as expected
due to the need to write off excess inventory of the new products.
Our results of operations may be impacted adversely in various ways by the
introduction of new products, even if they are successful. We may incur higher
cost of goods sold and selling, general and administrative expenses in the
periods when we introduce new products due to increased costs associated with
the introduction and marketing of new products, most of which are expensed as
incurred. In addition, when we introduce new product or bottle sizes, we may
experience increased freight and logistics costs as our co-packers adjust their
facilities for the new products.
OUR QUARTERLY OPERATING RESULTS FOR OUR BEVERAGE PRODUCT MAY FLUCTUATE
SIGNIFICANTLY BECAUSE OF THE SEASONALITY OF THAT BUSINESS.
We believe that the market for our isotonic beverage product will achieve
its highest revenues during the spring and summer, the second and third quarters
of each fiscal year. This seasonality may cause our financial performance to
fluctuate. In addition, beverage sales can be adversely affected by sustained
periods of bad weather.
OUR RELIANCE ON CO-PACKERS MAY ADVERSELY AFFECT OUR REVENUES.
All of our products are currently produced for us by co-packers. While
this arrangement permits us to avoid significant capital expenditures, it
exposes us to various risks. One such risk is that one co-packer currently
accounts for all of our Syrup and a separate co-packer is responsible for all of
our refresher drink production. If either co-packer were to terminate or fail
to renew our contract, or have difficulties in producing beverages for us, our
ability to produce our products would be adversely affected until we were able
to make alternative arrangements. Another risk is that our business reputation
would be adversely affected if any of the co-packers were to produce inferior
quality products. Please refer to the section of this prospectus entitled
"Business -- Co-packing Arrangements."
OUR BUSINESS DEPENDS ON A LIMITED NUMBER OF KEY PERSONNEL, THE LOSS OF WHOM
COULD ADVERSELY AFFECT US.
Our senior executives are important to our success. If they become unable
or unwilling to continue in their present positions, our business and financial
results could be materially adversely affected. To address this risk, we have
entered long term employment agreements with each of these executives. However,
there can be no assurance that these individuals will continue in their
employment throughout the terms of those agreements. Please refer to the
section of this prospectus entitled "Management -- Executive Officers, Directors
and Key Employees."
WE MAY INCUR LOSSES AS A RESULT OF PRODUCT LIABILITY CLAIMS THAT MAY BE BROUGHT
AGAINST US OR AS A RESULT OF ANY PRODUCT RECALLS WE HAVE TO MAKE.
We may be liable if the consumption of any of our products causes injury,
illness or death. We may also be required to withdraw or recall some of our
products if they become contaminated or are damaged or mislabeled. Although we
have insurance to cover some of these events, a significant product liability
judgment against us or a widespread product withdrawal or recall could have a
material adverse effect on our business and financial condition.
7
<PAGE>
COMPETITION FROM OTHER BEVERAGE AND SYRUP COMPANIES THAT HAVE GREATER RESOURCES
THAN WE DO COULD ADVERSELY AFFECT US.
The syrup and sports refresher drink industries are highly competitive.
Many of our competitors have substantially greater financial, marketing,
personnel and other resources than we do. Moreover, we expect that competition
will increase as larger beverage and syrup companies seek to compete more
intensely with us in our fat-free, sugar-free end of the market. Please refer
to the section of this prospectus entitled "Business -- Competition."
COMMON STOCK OWNERSHIP BY CURRENT MANAGEMENT MAY HAVE ADVERSE CONSEQUENCES TO
YOU.
After the resale of all shares registered by this prospectus and assuming
conversion of outstanding Preferred Stock and exercise of outstanding stock
options, existing management of Meridian will own approximately 39% of our
outstanding common stock. As such, management will have significant influence
over the election of directors and the outcome of other corporate actions
requiring stockholder approval.
THE PRICE OF OUR COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY AND YOU MAY FIND IT
DIFFICULT TO SELL YOUR SHARES AT OR ABOVE THE PRICE YOU PAID FOR THEM.
There has been a thin trading market in our common stock, with average
daily volume of approximately 1,550 shares in October 2000. We do not know the
extent to which that market will expand or contract upon the resale of the
shares registered under this prospectus. Therefore, your ability to resell your
shares may be limited. Actions or announcements by our competitors, regulatory
developments and economic conditions, as well as period-to-period fluctuations
in our financial results, may have significant effects on the price of our
common stock.
WE DO NOT ANTICIPATE PAYING ANY DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE
FUTURE.
We do not currently intend to pay any cash dividends on our common stock in
the foreseeable future. Moreover, our ability to pay dividends on our common
stock is limited under the terms of our Series II Preferred Stock. (See
"Description of Capital Stock -- Dividend Policy").
SHARES ELIGIBLE FOR PUBLIC SALE IN THE FUTURE COULD ADVERSELY AFFECT THE PRICE
OF COMMON SHARES.
Sales of substantial amounts of our common stock in the public market could
adversely affect the prevailing market prices of our common stock. Although
many shares will not be available for sale shortly after the offering because of
legal restrictions on resale, sales of substantial amounts of our common stock
in the public market after these restrictions end could adversely affect the
prevailing market price and our ability to raise equity capital in the future.
8
<PAGE>
Immediately after the issuance of the shares covered by this Registration
Statement is completed, 11,739,347 shares of common stock will be outstanding,
including 698,948 common stock purchase warrants. Of these shares, all of the
shares sold covered by the Registration Statement will be freely transferable
without restriction or further registration under the Securities Act, except for
any shares purchased by persons who are considered our affiliates under
Rule 144 of the Securities Act. The remaining shares of common stock
outstanding will be considered restricted securities under Rule 144. These
shares may be sold in the future without registration under the Securities Act
only as permitted by Rule 144 or another exemption under the Securities Act.
In addition, we have adopted a stock option plan and have reserved 1,000,000
shares of common stock for issuance under this plan. As of October 31, 2000,
options to acquire 20,000 shares of our common stock were outstanding under our
Stock Option Plan, none of which have been exercised. Additionally, there are
405,000 stock options outstanding which were issued outside of the Stock Option
Plan. We plan to file a registration statement under the Securities Act
covering the shares available under this stock option plan.
We cannot predict the effect, if any, that future sale of restricted
shares, the availability of these restricted shares for sale, the issuance of
shares of common stock upon the exercise of options, or the perceptions that
these sales or exercises could occur, will have on the market price prevailing
from time to time.
WE HAVE A LIMITED OPERATING HISTORY THAT MAKES AN EVALUATION OF OUR BUSINESS
DIFFICULT.
We commenced the sale of our Sweet'N Low(R) syrup products in 1999 and
commenced sale of our ChampionLyte(TM) isotonic beverage in August 2000. As a
result of our limited operating history, we do not have meaningful historical
financial data upon which to forecast quarterly annual revenues and results of
operations. Before investing in us, you should evaluate the risks, expenses and
problems frequently encountered by companies such as ours that are in the early
stages of operation.
We have incurred substantial losses to date and we expect net losses in the
future. From inception through September 30, 2000, we had an accumulated
deficit of $4,554,392. We expect net losses for the next several quarters as we
absorb the costs associated with our U.S. Bancorp transaction and the
development and introduction of our isotonic beverage products. We expect that
our operating expenses will continue to increase during the next 18 months,
especially in sales and marketing. With increased expenses, we will need to
generate significant additional revenues to achieve profitability. As a result,
we may never achieve profitability and, if we do, we may not be able to sustain
or increase it.
IF WE FAIL TO ADEQUATELY MANAGE OUR GROWTH, WE MAY NOT BE SUCCESSFUL.
We expect our business and number of employees to grow over the next 18
months. In particular, we intend to hire additional sales, marketing and
administrative personnel and to increase expenditures for advertising and
marketing. We expect that our growth will place significant stress on our
operation, management and employee base. Any failure to address the needs of
our growing business successfully would have a material adverse effect on our
business.
9
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
-----------------------------------------------------
Some of the statements we have made in this prospectus under the sections
entitled "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Business"
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The words "believe," "anticipate,"
"expect," "intend," "estimate," "plan," "may," "will," "should" and other
similar expressions that are predictions of, or indicate, future events and
future trends identify forward-looking statements. These forward-looking
statements are based on our current expectations and are susceptible to a number
of risks, uncertainties and other factors, and our actual results, performance
and achievements may differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include the factors discussed in the section of the prospectus entitled
"Risk Factors" as well as the following:
development and operating costs,
changing trends in customer tastes and demographic patterns,
changes in business strategy or development plans,
general economic, business and political conditions in the countries
and territories in which we operate,
changes in, or failure to comply with, government regulations,
including accounting standards, environmental laws and taxation
requirements,
costs and other effects of legal and administrative proceedings,
impact of general economic conditions on consumer spending, and other
risks and uncertainties referred to in this prospectus and in our
other current and periodic filings with the Securities and Exchange
Commission, all of which are difficult or impossible to predict
accurately and many of which are beyond our
control.
We will not undertake and specifically decline any obligation to publicly
release the result of any revisions which may be made to any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events. In
addition, it is our policy generally not to make any specific projections as to
future earnings, and we do not endorse any projections regarding future
performance that may be made by third parties.
SUMMARY FINANCIAL INFORMATION
-----------------------------
The following summary of our financial information has been derived from
our consolidated financial statements that are included in this prospectus. The
information for the year ended December 31, 1999 and 1998 are derived from our
audited consolidated financial statements. The information for the nine months
10
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ended September 30, 2000 and 1999, are derived from our unaudited consolidated
financial statements. In the opinion of management, they include all
adjustments consisting of normal recurring adjustments, necessary for the fair
presentation of its financial position and results of operations. This
information should be read in conjunction with such consolidated financial
statements, including the notes thereto.
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Proforma
Nine Months
(in thousands, Ended
except per share Year Ended Nine Months Ended September
data) December 31, September 30, 30,
------------ -------------- -----------
1998 1999 1999 2000 2000(2)
--------------- --------------- -------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net Sales $ 144 $ 396 $ 208 $ 847 $ 847
Gross Profit 38 127 44 319 319
Operating
Expenses 205 1,145 497 2,126 2,126
Other Expenses,
net - - - 506 (390)
Net Loss (167) (1,017) (454) (2,313) (2,196)
Net Loss Per
Share - basic &
diluted (0.04) (0.20) (0.09) (0.38) (0.20)
Weighted Average
Shares
outstanding -
basic & diluted 4,089 5,211 4,804 6,160 10,864
Proforma
September
(in thousands) December 31, September 30, 30,
-------------- --------------- ---------
1998 1999 1999 2000 2000(1)
--------------- --------------- --------
Working Capital
(Deficiency) $ (92) $ (237) $ 221 $ 6,301 $ 6,301
Current Assets 52 257 297 6,677 6,677
Noncurrent
Assets 18 179 187 643 216
Current
Liabilities 144 494 76 376 376
Long-Term Debt - - - 7,038 13
Shareholders'
(Deficiency)
Equity (74) (58) 408 (108) 6,503
</TABLE>
The following unaudited proforma adjustments are included in the accompanying
unaudited summary financial information as of and for the nine months
ended September 30,2000:
(1) To record the conversion of U.S. Bancorp debt into approximately
4,704,000 shares of Meridian's common stock. In addition, To record the write
off of debt discount and deferred financing costs related to the U.S. Bancorp
debt of $961,862 and $426,889, respectively.
(2) To reverse accrued interest expense of $116,667 for the period June 16, 2000
through September 30, 20000.
11
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The following material nonrecurring charges relating to this transaction have
not been reflected on the proforma summary financial information: (1)
write-down of the remaining debt discount of $961,862; (2) write-down of the
remaining deferred financing costs of $426,889.
USE OF PROCEEDS
---------------
We will not receive any proceeds from the sale of the common stock through
this prospectus. We will receive proceeds from the payment of the exercise
price of the U.S. Bancorp Warrants, if any are exercised. The maximum amount of
proceeds from the exercise of these Warrants is $1,223,159. We have agreed to
pay the expenses of the registration of the common stock offered by this
prospectus, including legal and accounting fees, but excluding underwriters'
discounts and commissions, if any. We will use the net proceeds from the
exercise of the U.S. Bancorp Warrants for general corporate purposes.
SELLING STOCKHOLDERS
--------------------
All of the common stock being registered hereunder underlies convertible
securities issued by us in connection with a financing transaction we
consummated in June 2000 with US Bancorp Investments, Inc. ("U.S. Bancorp"). In
that transaction, we received $8,000,000 in exchange for our Series A
Convertible 5% Promissory Note ("Note"). The Note is required to be converted
into Series II Preferred Stock at the rate of one share of Series II Preferred
Stock for each $1,000 of principal and accrued interest under the Note. The
Series II Preferred Stock, which carries a cumulative 5% preferred dividend, is
convertible into our common stock at the rate of one share of common stock for
each $1.70 of conversion value of the Preferred Stock plus the cumulative 5%
dividend.
As part of this financing transaction, we also issued 698,948 common stock
purchase warrants to US Bancorp Libra, a division of U.S. Bancorp, and certain
designees of US Bancorp Libra ("US Bancorp Warrants"). Each common stock
purchase warrant is exercisable at $1.75 per common share.
The shares being registered hereunder are the common shares underlying both
the Series II Preferred Stock and the US Bancorp Warrants. All of the shares
will be issued to the selling shareholders upon: (i) the conversion of our
Series II Preferred Stock; and (ii) the exercise of the U.S. Bancorp Warrants.
None of the selling stockholders is an affiliate of us. However, under the
terms of the Note, the Series II Preferred Stock and the related Security
Holders Agreement, Investor Rights Agreement and Registration Rights Agreement,
we have granted certain rights to U.S. Bancorp and other holders of the Note or
Series II Preferred Stock as follows:
1. We agreed to file a shelf registration of the common stock underlying
the Series II Preferred Stock covering a resale of that stock by the selling
stockholders and granted the stockholders certain piggyback registration rights
in the event of an underwritten public offering of shares of common stock by us.
12
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2. We have agreed to provide monthly, quarterly and annual financial
information to the Noteholders and Series II Preferred Stockholders so long as
any portion of the principal of the Series A Convertible Note or any shares of
Series II Preferred Stock remain outstanding.
3. All members of current management have agreed not to sell or transfer
any of their shares of our common stock until after the Noteholders have sold
shares of common stock yielding aggregate proceeds to the holders at least
equal to $8,000,000 plus an annual internal rate of return of 12%, and have
agreed thereafter not to sell or transfer any of their shares without providing
the Holders the right to participate in such sale on a pro rata basis.
These restrictions shall remain in effect until the earlier of: (i) all shares
of Series II Preferred Stock having been converted into common stock, or (ii)
three (3) years after the Noteholders have received the return on investment
described above.
4. So long as $1,000,000 aggregate principal amount of the Note remains
outstanding, the Noteholders may nominate one person to serve as a director of
the Company and all members of current management have agreed to vote their
shares in favor of the election of that nominee.
5. So long as any principal amount of the Note or Series II Preferred
Stock are outstanding, we may not, without the approval of the majority
of the Noteholders, do any of the following:
a) amend, alter or repeal our Articles of Incorporation or bylaws;
b) create or assume any indebtedness in excess of $5,000,000;
c) purchase or redeem any of our securities;
d) declare or pay any dividends on any of our securities;
e) sell, lease or assign any material assets or enter into any
merger, material reorganization or recapitalization;
f) enter into any transactions for the benefit of any of our
affiliates;
g) enter into any line of business unrelated to the food
and beverage business or otherwise substantially modify our
current lines of business;
13
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h) make any acquisitions of assets or capital expenditures in
excess of $750,000 in any fiscal year;
i) increase the salaries of any employees or officers, except
pursuant to existing employment contracts, ordinary course of
business increases for employees other than Mark Streisfeld
or Alan Posner, and annual bonuses not to exceed, in the
aggregate, 7.5% of EBITDA;
j) make any investments in excess of $50,000 in any fiscal year;
k) effect any liquidation, dissolution or winding up of our
business; or
l) issue any equity security other than under our 1999 Stock
Incentive Plan.
The table below sets forth the beneficial ownership of our common stock by
the selling stockholders:
<TABLE>
<CAPTION>
MAXIMUM #
BENEFICIAL OF SHARES
OWNERSHIP OF OF COMMON SHARES
COMMON STOCK STOCK OWNED % OWNED
AS OF OFFERED FOR AFTER AFTER
NAME AND ADDRESS 10/13/00 SALE OFFERING OFFERING
<S> <C> <C> <C> <C>
U.S. Bancorp Investments, Inc. 4,647,619 4,647,619 0 0
11766 Wilshire Blvd.
Suite 870
Los Angeles, CA 90025
U.S. Bancorp Libra 279,580 279,580 0 0
11766 Wilshire Blvd.
Suite 870
Los Angeles, CA 90025
Ravich Revocable Trust of 1989 307,537 307,537 0 0
201 Alma Real Drive
Pacific Palisades, CA 90272-4414
Eben Paul Perison 35,724 35,724 0 0
2529 Via Carillo
Palos Verdes Estates, CA 90274
Jeff Kirt 13,979 13,979 0 0
19 West 70th Street, #3R
New York, NY 10023
14
<PAGE>
Robert G. Morrish 7,766 7,766 0 0
982 Linda Vista Avenue
Pasadena, CA 91103
Upchurch Living Trust 7,766 7,766 0 0
U/A/D 12/14/90
215 Georgina Avenue
Santa Monica, CA 90402
Richard Coppersmith 7,766 7,766 0 0
25 Great Hills Farms Road
Bedford, NY 10506
Steven F. Mayer 7,766 7,766 0 0
10981 Bellagio Road
Los Angeles, CA 90077
Jean Smith 7,766 7,766 0 0
130 East 12th Street, #5B
New York, NY 10003
Charles Yamarone 7,766 7,766 0 0
10414 Sylvia Avenue
Northridge, CA 91326
Caroline Sykes 7,766 7,766 0 0
200 West 60th Street, #28A
New York, NY 10023
Rachael Simonoff 3,883 3,883 0 0
2700 Neilson Way, #327
Santa Monica, CA 90405
Charles Thurnher 3,883 3,883 0 0
6754 East Caron Street
Paradise Valley, AZ 85253
TOTAL 5,346,567 5,346,567 0 0
</TABLE>
PLAN OF DISTRIBUTION
--------------------
We will not receive any proceeds from the sale of the common stock through
this prospectus. We have received proceeds from the sale of our Series A
Convertible Note to the selling shareholders. We will also receive proceeds
from the exercise of the U.S. Bancorp Warrants. We have agreed to pay the
expenses of registration of the common stock offered hereby, including legal and
accounting fees, but excluding underwriters' discounts and commissions, if any.
The offered shares may be sold by selling stockholders from time to time, at
negotiated prices, fixed prices which may be changed, market prices prevailing
at the time of sale, or prices related to prevailing market prices.
Such sales may be executed by the selling stockholders: (i) in privately
negotiated sales in the over-the-counter market or any exchange on which the
securities are listed; (ii) by selling the shares to or through broker-dealers,
15
<PAGE>
including block trade in which brokers or dealers will attempt to sell the
shares as agent but may position and resell such block as principal; or (iii) in
one or more underwritten offerings on a firm commitment or best efforts basis.
To the extent required under the Securities Act, the following information
will be set forth in an accompanying prospectus supplement:
1) the aggregate amount of selling stockholders' shares being
offered and the terms of the offering;
2) the names of any agents, brokers, dealers, transferees or
underwriters involved in such offering of shares; and
3) any applicable fees or commissions with respect to a
particular offer.
Each selling stockholder will be responsible for paying compensation owed
by it to any underwriters, dealers, brokers or agents participating in the
distribution of its shares, regardless of whether such compensation is in the
form of underwriting discounts, concessions, commission or fees. This
compensation might be in excess of customary commissions. The aggregate
proceeds to a selling stockholder from the sale of its shares offered by this
prospectus will be the purchase price of such shares less any discounts or
commissions.
If selling stockholders pledge, hypothecate or grant a security interest in
some or all of the shares, then the pledgees, secured parties or persons to whom
such securities have been hypothecated shall, upon foreclosure in the event of
default, be deemed to be selling stockholders under this prospectus. Similarly,
if the selling stockholders transfer, pledge, donate or assign shares to lenders
or others, then each of such persons will be deemed to be a selling stockholder
for purposes of this prospectus. The number of shares beneficially owned by the
selling stockholders will decrease if and when a selling stockholder transfers,
pledges, donates or assigns shares. The plan of distribution for selling
stockholders' shares sold by this prospectus will otherwise remain unchanged,
except that the transferees, pledgees, donees or other successors will be
selling shareholders under this prospectus. There is, however, no assurance
that any selling stockholder will sell any or all of the shares described in
this prospectus, and any selling stockholder may transfer, devise or gift such
securities by other means not described in this prospectus.
A selling stockholder may also use this prospectus in the following ways:
1) to sell short, from time to time, shares of our common stock
and, in such instances, this prospectus may be delivered in
connection with such short sales and the shares offered hereby
may be used to cover such short sales;
2) to enter into hedging transactions with broker-dealers, and
the broker-dealers may engage in short sales of the shares in
the course of holding the positions they assume with such
selling stockholder, including, without limitation, in connection
with distribution of the shares by such broker-dealers;
16
<PAGE>
3) to enter into option or other transactions with broker-dealers
that involve the delivery of the shares to the broker-dealers,
who may then resell or otherwise transfer such shares; and
4) to loan or pledge the shares to a broker-dealer and the broker-
dealer may sell the shares as loaned or upon a default may sell
or otherwise transfer the pledge shares.
The selling stockholders, any underwriter, any broker-dealer or any agent
that participates with the selling stockholders in the distribution of the
shares may be deemed to be "underwriters" within the meaning of the Securities
Act. As a result thereof, any discounts, commissions or concessions received by
them and any profit on the resales of the shares purchased by them may be deemed
to be underwriting commissions under the Securities Act.
To comply with securities laws of certain states, if applicable, the shares
will be sold in such jurisdictions only through registered or licensed brokers
or dealers. In addition, in certain states the shares may not be sold unless
they have registered or qualified for sale in the applicable state or an
exemption from the registration or qualification requirement is available.
Pursuant to a Registration Rights Agreement entered into in connection with
our U.S. Bancorp financing, we have agreed to keep the registration statement of
which this prospectus is a part continuously effective until the earlier of: (i)
the date that all of the shares of common stock issued upon the conversion of
the Series II Preferred Stock or exercise of the U.S. Bancorp Warrants have been
resold, or (ii) until three (3) years from the effective date of the
registration statement of which this prospectus is a part. In this regard, we
are required to supplement and/or amend the registration statement of which this
prospectus is a part if more shares than are registered for resale hereby are
issued upon exercise of the warrants or to supplement or change the list of
selling stockholders hereunder.
DESCRIPTION OF CAPTIAL STOCK
----------------------------
Meridian's authorized capital stock consists of 40,000,000 shares of common
stock, $.001 par value per share, and 1,000,000 shares of Preferred Stock, of
which 100,000 have been designated as Series I, par value $1.00, and 8,500 have
been designated as Series II, par value $.01 and as to the balance of which, the
Board has the power to designate the rights, terms and preferences.
COMMON STOCK. As of November 30, 2000, 6,376,399 shares of $.001 par value
common stock were issued and outstanding. Holders of common stock are entitled
to one vote for each share of common stock owned of record on all matters to be
voted on by stockholders, including the election of directors. The holders of
common stock are entitled to receive such dividends, if any, as may be declared
from time to time by the Board of Directors, in its discretion, from funds
legally available. The common stock has no preemptive or other subscription
rights, and there are no conversion rights or redemption provisions. All
17
<PAGE>
outstanding shares of common stock are validly issued, fully paid and
non-assessable.
PREFERRED STOCK. Meridian is authorized to issue up to 1,000,000 shares of
preferred stock upon such terms and conditions as the Board of Directors may
determine at the time of issuance, without further action of the stockholders
being required. Such preferred shares may or may not be: issued in series,
convertible into shares of common stock, redeemable by the corporation and
entitled to cumulative dividends. Other terms and conditions may be imposed at
the time of issuance. In the event that some or all of the preferred stock is
issued with a conversion privilege, any future conversion will cause an increase
in the number of issued and outstanding shares of common stock, and may or may
not have a depressive effect on the market value of the common stock. The
following series of preferred stock have been designated by the Board of
Directors:
SERIES I PREFERRED STOCK. In January 1999, 100,000 shares of
Preferred Stock were designated as $1.00 Par Value Series I Convertible
Preferred Stock, and a total of 3,500 of such shares were issued to new
management in consideration for their efforts in developing the business
operations from inception. Each outstanding share of Series I Preferred Stock
is convertible into 330 shares of common stock (increased from 300 as a result
of the September 1999 stock dividend), without further condition or
consideration.
SERIES II PREFERRED STOCK. In June 2000, Meridian designated 8,500
shares of Preferred Stock as $.01 par value Series II Convertible Preferred
Stock. Each share of Series II Preferred Stock is convertible into common stock
at the rate of one share of common stock for each $1.70 of the purchase price
of the preferred stock (equal to the principal and accrued interest under the
Note at the time of conversion into Series II Preferred Stock) plus the 5%
cumulative dividend under the Preferred Stock at the time of conversion into
common stock. The Series II Preferred Stock has priority over all other
classes of our securities in the event the Company is liquidated. In
addition, there is mandatory redemption of the Series II Preferred Stock in the
event of a sale of all or substantially all the shares or assets of the Company,
the acquisition by the Company by another entity through merger, reorganization
or consolidation, or a change in control of the Company. There is also
mandatory redemption of all shares of Series II Preferred Stock still
outstanding on June 30, 2010. There are certain adjustments to the conversion
ratio if the market price of Meridian's common stock is less than $1.70 as of
December 31, 2000. Series II Preferred Stock will be issued to U.S. Bancorp
upon its conversion of the Series A Convertible 5% Note.
SERIES A CONVERTIBLE NOTE. On June 16, 2000, we issued our Series A
Convertible 5% Note due June 15, 2010 in the principal amount of $8,000,000 to
U.S. Bancorp. The Note is convertible into one (1) share of Series II Preferred
Stock for each $1,000 of principal and accrued interest under the Note at the
time of conversion. The Note is required to be converted into Series II
Preferred Stock on or before June 15, 2001 and we can compel an earlier
conversion upon U.S. Bancorp's satisfaction of certain requirements under the
Bank Holding Company Act of 1956. In the event of any liquidation or
dissolution of Meridian at a time when the Note is outstanding, the Noteholders
are entitled to priority of distribution of our assets over all holders of any
18
<PAGE>
series of preferred stock or the common stock. The Note also contains a
mandatory redemption feature in the event that we: (i) are acquired by another
entity through merger, reorganization or consolidation; (ii) all or
substantially all of our shares or assets are sold; or (iii) there is a change
in control of Meridian.
CUMBERLAND WARRANTS. On September 24, 1999, pursuant to an Amended and
Restated License Agreement related to the Sweet'N Low trademark, we issued
385,000 common stock purchase warrants to Cumberland Packing Corp. entitling
Cumberland to purchase 385,000 shares of Meridian's common stock at a price per
share equal to the greater of (i) $2.50 or (ii) 50% of the average daily trading
volume for the common stock during the twenty (20) day period immediately
preceding the exercise of the warrants ("Cumberland Warrants"). The Cumberland
Warrants expire on December 31, 2008. The Cumberland Warrants contain an
anti-dilution provision under which Cumberland will receive additional warrants
at any time addition shares of common stock are issued by Meridian, but which
provision lapses upon any public sale of shares by Meridian. Pursuant to that
provision, the total number of outstanding Cumberland Warrants as of October 31,
2000 was 533,301. Assuming full conversion of the Series A Convertible notes by
U.S. Bancorp on December 16, 2000, the total warrants outstanding to Cumberland
will be 843,114.80 (See "Business -- Sweet'N Low License Agreement with
Cumberland Packing Corp.").
TRANSFER AGENT. Meridian's transfer agent is Florida Atlantic Stock
Transfer, Inc., 7130 Nob Hill Road, Tamarac, Florida 33321 (telephone (954)
726-4954; telecopier (954) 726-6305).
DIVIDEND POLICY
----------------
We have never declared or paid a cash dividend on our common stock, nor do
we have any present intent to do so in the near future. It is anticipated that
all earnings will be retained to provide working capital for the implementation
of our business plan, until such time as the directors shall, in their sole
discretion, declare that our working capital requirements and cash position will
permit a cash distribution to stockholders. Moreover, under the terms of the
Security Holders Agreement between us and U.S. Bancorp, we are prohibited from
paying any cash dividends without U.S. Bancorp's consent for so long as any
Series II Preferred Stock is outstanding. Stock dividends may be declared, from
time to time, in the sole discretion of the Board of Directors. On August 18,
1999, the Board declared a 10% stock dividend for stockholders of record as of
September 30, 1999.
CAPITALIZATION
--------------
The following table sets forth our capitalization as of September 30,
2000:
- On an actual basis derived from our unaudited consolidated
financial statements;
- On an as adjusted basis reflecting the conversion of an
$8,000,000 convertible note, due to U.S. Bancorp, into Series II
Preferred Stock and subsequently into 4,704,000 shares of our common
stock. The conversion of the U.S. Bancorp note will include all
outstanding accrued interest. This table does not reflect the
exercise of 698,948 stock purchase warrants by U.S. Bancorp Libra at
an exercise price of $1.75 per share.
19
<PAGE>
<TABLE>
<CAPTION>
September 30, 2000
------------------
Actual As Adjusted
-------- -----------
<S> <C> <C>
Debt:
Current portion of note payable $ 2,420 $ 2,420
Note payable, net of current portion 13,363 13,363
Convertible note payable, net of
discount $ 7,038,138 $ -
------------ -------------
Total Debt 7,053,921 15,783
------------ -------------
Stockholders' (deficiency) equity:
Series I convertible preferred stock,
par value $1.00 - authorized
100,000 shares, 3,500 issued and
outstanding 3,500 3,500
Series II convertible preferred stock,
par value $.01 - authorized 8,500
shares, no shares issued and
outstanding - -
Common stock, par value $.001
- authorized 40,000,000 shares,
6,336,399 issued and outstanding
actual, 11,040,399 issued and
outstanding as adjusted 6,337 11,041
Additional paid-in capital 4,394,170 12,389,466
Accumulated other comprehensive income 42,231 42,231
Accumulated deficit (4,554,392) (5,943,143)
----------- -----------
Total stockholders' (deficiency)
equity (108,154) 6,503,095
------------ -------------
Total capitalization $ 6,945,767 $ 6,518,878
============ =============
</TABLE>
The above information should be read in conjunction with "Management's
Discussion and Analysis or Plan of Operation" as well as the consolidated
financial statements and notes thereto appearing elsewhere in this prospectus.
BUSINESS
--------
1. Overview
--------
Meridian is a developing company engaged in the manufacture and sale of
fat-free and sugar-free syrups and sports refresher drinks. The first product
we brought to the market was chocolate syrup, which we began to sell in 1999
under the Sweet'N Low(R) trademark, which we have licensed from Cumberland
Packing Corp. In early 2000, we expanded our syrup product line by adding
strawberry and vanilla cr me flavors. In the third quarter of 2000, we
20
<PAGE>
introduced a sugar-free, fat-free and additive-free isotonic refresher drink
under our own trademark, ChampionLyte(TM). We are presently exploring new food
products in the sugar-free, fat-free categories and plan to bring one or more to
the market within the next twelve (12) months.
2. The Formation of Our Business
---------------------------------
(A) Meridian USA Holdings, Inc.
Meridian USA Holdings Inc. ("Meridian") was incorporated in Florida in
August 1994 for the purpose of merging, as the surviving entity, in a merger
with a then public "shell" entity, MHI Telecommunications, Inc. ("MHI Telecom").
MHI Telecom was a Delaware corporation that had sold shares to the public
pursuant to a Regulation "A" exemption from registration during 1969, under its
original corporate name of Pilgrim Mills, Inc. From 1985 through August 1994,
MHI Telecom had not actively been engaged in any business operations.
In August 1994, the shareholders of MHI Telecom and Meridian approved a
merger of MHI Telecom into Meridian and a simultaneous 1 for 40 reverse stock
split of Meridian's outstanding shares. At the same time, the shareholders also
authorized Meridian to raise working capital through an appropriate financing,
and to acquire an operating business or otherwise engage in or conduct active
business operations. Through the end of 1998, Meridian did not engage in any
fund raising, other than the issuance of shares to certain shareholders in
exchange for services and the advancement of minimal funds on behalf of
Meridian.
(B) Purchase of Shares of The
Old Fashioned Syrup Co., Inc.
On January 8, 1999, Meridian entered into an Acquisition Agreement with The
Old Fashioned Syrup Company, Inc. (the "Syrup Company"), under which Meridian
issued 3,026,794 shares of Meridian's common stock to the shareholders of the
Syrup Company in a tax-free exchange of shares. At the same time, Meridian
entered into a Stock Purchase Agreement with a founder and current director of
Meridian, pursuant to which Meridian purchased 100,000 shares of its common
stock from him for the sum of $50,000. The shares repurchased were retired by
Meridian.
The Syrup Company, which was incorporated in Florida in November 1996, was
founded by Alan Posner and Mark Streisfeld to manufacture and sell a sugar-free,
fat-free chocolate flavored syrup they had developed. Commencing in 1998, the
Syrup Company sold its syrup under its trademark The Old Fashioned Syrup
Company(TM). Shortly prior to the acquisition by Meridian, the Syrup Company
entered into the license agreement with Cumberland Packing Corp. for use of the
Sweet'N Low trademark for its syrup product. The Syrup Company has two
wholly-owned subsidiaries, The Old Fashioned Egg Cream Company, Inc. and The
Original Egg Cream Company, Inc., both of which are Florida corporations.
(C) ChampionLyte, Inc.
In August 1999, we incorporated a new subsidiary under the name
ChampionLyte, Inc. ChampionLyte was formed to develop and market a sugar-free,
21
<PAGE>
fat-free and additive-free isotonic refresher drink. This product was
introduced to the market in the third quarter of 2000.
3. Sweet 'N Low(R) License Agreement
with Cumberland Packing Corp.
--------------------------------
In January 1999, we entered into a ten (10) year license agreement with
Cumberland Packing Corp. under which we were granted the exclusive license to
utilize the well-known Sweet 'N Low(R) brand name for our sugar-free, fat-free
chocolate syrup product (the "Syrup"). The license agreement has an initial term
of ten (10) years, expiring December 31, 2008. We have the right to renew the
agreement for two (2) additional seven (7) year terms, so long as we are not in
default under the agreement. The agreement contains minimum royalty and
marketing expenditure requirements during each year of the term. We have
satisfied all requirements to date and anticipate that we will be able to meet
the remaining minimum requirements under the contract throughout its term.
However, if we fail to meet those requirements, Cumberland has the right to
terminate the license.
In September 1999, the agreement was amended to delete a provision under
which Cumberland had been granted a right to either match any offer to sell
Meridian shares or receive 10% of the proceeds from any such sale. In lieu
thereof, Meridian granted Cumberland common stock purchase warrants to purchase
350,000 shares of Meridian's common stock at the greater of $2.50 per share or
the average daily trading price for the common stock during the 20 day period
preceding exercise. These warrants expire at the same time as the license
agreement. Pursuant to anti-dilution provisions in the warrants, the total
number of Cumberland Warrants outstanding as of October 31, 2000 was 533,301.
Assuming full conversion of the Series A Convertible Note by U.S. Bancorp on
December 16, 2000, the total warrants outstanding to Cumberland will be
843,114.80. (See "Description of Capital Stock -- Cumberland Warrants.")
4. Our Products and Service
---------------------------
SWEET'N LOW(R) BRAND SYRUP. We began the development of sugar-free syrups
while operating our Old Fashioned Egg Cream Carts in 1995 and 1996. In serving
freshly made egg cream drinks (milk, seltzer and chocolate syrup), we received
numerous requests for a low calorie, sugar-free egg cream. We searched the
market and were unable to find any suitable sugar-free chocolate syrups. There
were several "lite" syrups, but none had the required sugar-free content
combined with acceptable taste and texture. Perceiving a business opportunity,
we embarked on an effort to formulate and manufacture an acceptable syrup. We
approached the companies supplying the regular chocolate syrups to our Old
Fashioned Egg Cream Carts and sought their assistance. Over time, we tried and
rejected numerous formulations as not meeting our standards. Finally, in early
1998, we obtained the right mix and arranged through a co-packer in New Jersey
to manufacture, bottle and ship the chocolate syrup under our registered
trademark, Old Fashioned Syrup Company.
We found it difficult to obtain shelf space in food stores for our new
product. However, we received positive reactions and reorders in stores we
managed to penetrate. We also engaged several food brokers and began to expand
our shipments. However, we concluded that the success of this product would be
significantly enhanced if we could obtain a recognized brand name. In November
22
<PAGE>
1998, we succeeded in obtaining an exclusive license for the trademark Sweet'N
Low for use on chocolate syrups. Sweet'N Low is the trademark under which the
world's most popular sugar substitute is sold, most recognizably in the small,
pink packets. Cumberland had licensed its trademark to candy and cookie
manufacturers, but ours was the first license for syrup.
In January 1999, we made our first shipments of Sweet'N Low brand chocolate
syrup. The name recognition was helpful in attracting new customers, as well as
food brokers to sell on our behalf. By the end of 1999, we had expanded our
customer base to more than 150 customers and we are currently available in over
16,000 food outlets in the U.S.
In early 2000, we expanded our product line to include two new flavors:
strawberry and vanilla cr me. Just as there had been no fat-free, sugar-free
chocolate syrups on the market when we introduced ours, we were unable to find
any fat-free, sugar-free other flavored syrups. The expansion of our product
line also enabled us to produce "rainbow packs" of our three flavors, which has
been a productive marketing technique.
We are currently working on additional flavors, which we hope to introduce
in 2001.
Our marketing activities for the Syrup have involved trade publication
advertising, in-store promotions, retail incentives and important sponsorships.
In June 1999, we entered into an agreement with Francis Anthony, the "Love Chef"
of television and magazine fame, under which Mr. Anthony has agreed to develop
recipes for the Syrup Company and represent the product to the public. Meridian
believes that Mr. Anthony's involvement has and will continue to increase the
visibility of the Syrup Company's products. Also in 1999, we obtained the right
to market the Syrup as an approved product of the Diabetes Research Institute, a
national diabetes research center located at the University of Miami. This
approval required our product to pass a strenuous qualification procedure at the
Institute to establish our worthiness to use the Institute's name on our
products.
CHAMPIONLYTE REFRESHER DRINKS. As we discovered with syrups, there have
been no sugar-free products within the isotonic refresher drink category. This
category, whose most well-known products are Gatorade(R) and Powerade(R)
refresher drinks, constituted a market of nearly $2.3 billion in 1998, with
average per capita annual consumption in the U.S. of 2.0 gallons. The category
grew each year from 1996 to 1998 and remains a very strong category within the
beverage industry (Beverage World, 1999). However, although these products
provide the benefit of electrolyte replacement for active consumers, they also
contain high levels of calories and carbohydrates.
We have perceived two distinct market niches for a sugar-free and calorie-
free refresher drink. First, diabetics and those with medically restricted
sugar intakes had no available refresher drink on the market. This group
represents a sizable segment of the U.S. population. Second, we believe
that persons attempting to lose weight through exercise are often reluctant
to consume a drink like Gatorade(R) containing hundreds of calories right
after strenuous exercising to "burn-off" those calories.
23
<PAGE>
To that end, we began a formula development process for four flavors of
ChampionLyte: Fruit Punch, Orange, Lemon-Lime and Grape. We finalized our
formulations during the third quarter of 2000 and commenced shipments of the
product in September 2000.
Our marketing efforts to introduce ChampionLyte have involved ad placements
in industry trade publications, radio ads and food show and beverage show
appearances. The natural tie-in with sports has caused us to pursue
sports-related sponsorships for ChampionLyte. In early 2000 we became the
official refresher of USFans.com, a web site dedicated to the interests of fans
of professional and intercollegiate sports. This sponsorship has given us
prominent visibility on one of the most heavily visited sports web sites on the
Internet.
In October 2000, we entered into a sponsorship and endorsement agreement
with Jay Fiedler, the starting quarterback for the Miami Dolphins of the N.F.L.,
under which Mr. Fiedler has agreed to provide various promotional services in
connection with ChampionLyte. We are also pursuing additional sponsorship
relationships with professional athletes and hope to have more in place by the
first quarter of 2001. Our ChampionLyte has also qualified for sponsorship by
the Diabetes Research Institute and each bottle will contain that organization's
seal of sponsorship.
OLD FASHIONED EGG CREAM. Old Fashioned Egg Cream Company, Inc. and
Original Egg Cream Company (collectively the "Egg Cream Companies") began
business in 1993 by offering freshly made "egg cream" drinks to the public
from custom-designed carts at sports arenas, shopping malls and other high
population traffic locations. The egg cream, a traditional and legendary New Y
York soft drink, is a mixture of milk, seltzer and chocolate syrup. From
1993 until 1998, the Egg Cream Companies, on their own and through franchisees,
operated two carts at various locations, including Madison Square Garden in New
York City, Joe Robbie Stadium in Miami, Florida, Festival Flea Market in
Pompano Beach, Florida and Coral Square Mall in Boynton Beach. In addition,
the egg creams were sold through licensed concessionaires at the Miami Arena
in Miami, Florida and various food service establishments in South Florida
The Egg Cream Companies' marketing was based on a nostalgic appeal to early
20th century Brooklyn, where egg creams were developed and flourished as a
popular chocolate-flavored soft drink. The egg cream carts and logo are designed
with a Brooklyn motif - Ebbets Field, the Brooklyn Bridge, trolley cars. The
carts also offer pretzel rods and Charlotte Russe confections.
The Egg Cream Companies are not currently conducting any active business
operations. Neither of the egg cream carts is currently in operation and there
are no current franchisees. Meridian's current business plan is to seek to
engage the services of an experienced franchise industry executive to
re-establish the Egg Cream Companies' franchise business.
5. Co-Packing Arrangements
------------------------
We manufacture and bottle our products under co-packing arrangements with
third parties. This process involves us providing the co-packers with the
formula, bottles and labels for our products. We then place orders for
production against specific orders from our customers. With the refresher
24
<PAGE>
drinks, we actually provide the co-packer with kits of drink concentrate, which
the co-packer mixes with water, and then bottles and ships. The work is
performed by the co-packers at a per bottle cost of goods manufactured.
We have chosen to operate through co-packing arrangements to enable us to
produce and deliver our products without the capital costs required to build,
equip and operate our own plants. It also eliminates the expense of maintaining
full-time production facilities and employees during down-time in production and
the need for us to invest capital in inventory. Through this type of
arrangement, we have been able to bring our products to the market much more
quickly and at a significantly lower investment than if we had done our own
manufacturing.
The use of co-packing arrangements carries several risks. First, we are
dependent on a third party for our products. If the co-packer is unable or
unwilling to honor our agreement or fails to manufacture our product timely or
pursuant to our specifications, our business could be hurt. To address this
risk, we have identified alternative co-packers to whom we could turn in the
event our current arrangements fail. However, there may be down-time as we
switch co-packers and that could cause us to not be able to meet our customers'
requirements. Our specific arrangements are as follows:
Syrup. The syrups are manufactured, bottled and shipped for us by
Beverage House, Inc. ("BHI"), headquartered in Cartersville, Georgia. Under
the terms of our Agreement with BHI, BHI manufactures our syrup using our
own formulas, packaging and labels and delivers all orders within thirty
(30) days of placement. The agreement with BHI expires on July 12, 2001,
with consecutive six (6) month renewal terms, unless either party elects not to
renew. Under our current arrangement, the syrup concentrate is manufactured
in Georgia and then shipped to BHI's facility in Pennsylvania, where it is
bottled and shipped.
Refresher Drink. The ChampionLyte drinks are being made by a
combination of two separate co-packers. Kits, consisting of preformulated
drink concentrate, are being made for us by BHI, based on our proprietary
formula Those kits, along with our bottles and labels, are shipped to National
Beverage Corp., headquartered in Ft. Lauderdale, Florida, where the drinks
are mixed, bottled and shipped. The general terms of our relationship
with National Beverage Corp. are similar to those with BHI. National Beverage
Corp. has 14 plants located throughout the United States. As a result,
once our products achieve national distribution, we will be able to ship from
regional facilities, saving us time and freight charges.
6. Market
------
(A) RETAIL MARKET. The principal customers for the Syrup are food
retailers, such as supermarkets, drug store chains, discount stores and
warehouse centers and institutional entities, such as U.S. Military post
exchanges. The isotonic beverage is targeted at the same outlets, as well as
convenience stores, delis, fitness centers and health clubs. We have
established a network of national, regional and international food brokers to
market the Syrup to these outlets. These brokers are managed on our behalf by
our National Vice President of Sales, who works out of our headquarters. Our
25
<PAGE>
success is dependent upon our ability to have our products available at such
outlets throughout the country. Management believes that the quality of our
products, their appeal to health-conscious and sugar-restricted consumers, the
fame and reputation of the Sweet'N Low trademark for our syrups and our network
of food brokers should enable us to continue to penetrate the retail food
market.
The primary consumers at whom we are directing our marketing efforts are
people suffering from diabetes and others with sugar restricted diets.
According to the American Diabetes Association, there are approximately
16,000,000 Americans suffering from diabetes, plus another five to ten million
Americans who are required to maintain a strict diet regimen for various medical
conditions. In addition, millions more Americans restrict their sugar
consumption in an effort to reduce their calorie intake. All of these people
form a natural market for our products. Americans spend $33 billion on
weight-loss programs and products annually (National Institute of Diabetes and
Digestive and Kidney Diseases, 2000). Our products are aimed directly at this
market. Moreover, the enormous success of products such as Diet Coke(R),
SnackWell's(R) cookies and numerous sugar-free ice cream, candy and other
products have demonstrated the existence of a substantial market for
sugar-free/reduced calorie food products.
Public and industry acceptance have been positive to date. In July 1999,
the National Board of the American Tasting Institute granted its 1999 American
Tasting Award of Excellence to the Syrup. In June 1999, the Syrup Company's
product was voted the Best New Product in the general merchandise category by
the National Association of Chain Drug Stores.
(B) INSTITUTIONAL/FOOD SERVICE MARKET. Another important market for
the Syrup will be bulk package sales to institutional and food service
customers, such as hospitals, nursing homes, schools, hotels, restaurants,
ice cream and frozen yogurt shops, baked and prepared food product manufacturers
and sports and entertainment venues. Hospitals and nursing homes, aggregating
more than 40,000 units nationwide, present a natural market for the Syrup and
ChampionLyte drinks, especially for diabetes sufferers and others required to
restrict their sugar intake.
(C) PRIVATE LABELING. Under our agreement with Cumberland, we have
the right to package and sell a percentage of our annual syrup production under
the private label of its customers. We intend to pursue private label business
for both the syrup and the sports refresher drink. However, we have
completed no such business to date.
(D) INTERNATIONAL MARKETING. Management has negotiated an
arrangement with Cumberland by which Cumberland has agreed to act as an
international distributor of the Syrup Company's chocolate, strawberry and
vanilla creme syrups in approximately 43 nations throughout the world where
Sweet'N Low sugar substitute is marketed. In addition, Nafpro Canada, Inc.
serves as the exclusive broker for the sale of Syrup in Canada.
7. New Products or Services
---------------------------
We intend to expand our sugar-free, fat-free product line during 2001. We
are presently testing several different product categories in an effort to
identify products that fit our profile of low calorie, high taste foods.
26
<PAGE>
8. Competition
-----------
There are other brands of syrup on the market, some of which advertise as
fat-free, sugar-free, cholesterol-free or low-calorie, as well as nationally and
internationally known brands of syrup, which could reasonably be considered as
competition for the Syrup Company's products. Major chocolate manufacturers,
such as Hershey, sell syrups designated as "Lite" and Smuckers has recently
introduced a sugar-free chocolate flavored syrup. These companies are larger
and have greater resources than we do and therefore can expend greater funds in
marketing and advertising their products. Our ability to compete successfully
with those companies is dependent upon our ability to continue to produce a
tasty product and persuade food retailers to carry our products. We believe
that our syrup, with targeted marketing under the internationally renowned
Sweet'N Low brand name, will continue to be favorably received in the market
place and establish us as a significant purveyor of sugar-free, fat-free and
cholesterol-free syrups and other products.
In the soft drink category, the Company will be competing with major soft
drink distributors including Pepsi, Gatorade and others. These companies are
substantially larger and more well-established than we are. This allows them
not only to commit more money to marketing and advertising, but affords them
access to greater shelf space and prominence in food stores, which is a key to
success in the food industry. We believe that the ability to compete
successfully with these companies is dependent primarily upon our ability to
produce a tasty, sugar-free alternative to the existing sugared drinks and to
persuade food retailers to carry our products. Based on consumer taste tests,
the Company believes it has created products that will be receptive to consumers
as a sugar-free alternative to sugared sports drinks. Moreover, the inroads to
the retail food market we have already established with our syrups with both
retailers and food brokers should facilitate our ability to gain and expand
access to those markets for our soft drink product. However, the competition
for shelf space in food retail establishments is extremely intense and the
ability to obtain such shelf space is essential to the potential success of
these products.
9. Major Customers
----------------
The Syrup Company has approximately 150 customers, none of whom accounts
for 10% or more of the Syrup Company's total sales.
10. Patents, Trademarks, Licenses
-------------------------------
The Syrup Company's subsidiary, The Old Fashioned Egg Cream Company, Inc.,
is the owner of the U.S. Trademark registrations for the mark OLD FASHIONED EGG
CREAM for food products, clothing items and food service. The Syrup Company is
the owner of the trademarks THE OLD FASHIONED SYRUP COMPANY and NO GUILT, both
of which are the subject of pending applications in the United States Patent and
Trademark Office. ChampionLyte is the owner of the trademark CHAMPIONLYTE which
is also the subject of a pending trademark application in the United States
Patent and Trademark Office.
Under a license agreement dated January 1999 with Cumberland, the Syrup
Company acquired the license to use the Sweet'N Low trademark in connection with
27
<PAGE>
the manufacture and sale of its sugar-free, fat-free syrup. The license
agreement expires on December 31, 2008. In addition, the agreement requires a
minimum royalty in 2000 of $30,000.00 and a minimum advertising capital
commitment of $200,000.00.
Under a license agreement dated November 1999, we have the right to use the
Diabetes Research Institute seal and logo on our syrup and refresher drink
products.
Under an agreement dated February 2000, we have obtained the right to
utilize the usFANS.com logo on our refresher drink packaging, using the
designation "official refresher" of usFANS.com.
We intend to continue to protect all of our intellectual property through
appropriate state and federal registrations and enforcement.
11. Government Regulation and Approval
-------------------------------------
The labeling of our products is subject to regulation by the United States
Food and Drug Administration. The Company believes that it is in full compliance
with those regulations. The sale of food products to the public is subject to
various state and local health and safety regulations. It is our policy to
comply in full with all such regulations. Under our co-packing arrangements,
the co-packers are obligated to us to maintain compliance with all such rules
and regulations.
12. Research and Development
--------------------------
Since 1998, we have engaged in research and development related to our
current and proposed new products through our contract co-packers. The
expenditures on research and development have been undertaken by the co-packers,
with participation in the development process by the Syrup Company's employees.
13. Environmental Compliance
-------------------------
Meridian does not anticipate any significant costs to comply with
environmental laws and requirements.
14. Employees
---------
As of December 5, 2000, Meridian had 11 full-time employees, eight of whom
work at Meridian's offices in Boca Raton, Florida and the remaining three of
whom are regional sales employees working out of their own offices.
15. Reports to Shareholders
-------------------------
Meridian became subject to the information and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") in January
2000, upon the effective date of its registration statement on Form 10-SB. As
such, Meridian is required to and will file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information filed with the Commission
by Meridian may be inspected and copied at the public reference facilities
28
<PAGE>
maintained by the Commission at its principal offices at Judiciary Plaza, 450
5th Street NW, Washington, D.C. 20549. Such reports, proxy statements and other
information may also be obtained from the web site maintained by the Commission
at http://www.sec.gov. Copies of these materials can also be obtained at
prescribed rates from the public reference section of the Commission at its
principal offices in Washington D.C., as set forth above.
16. Description of Property
-------------------------
Meridian's executive and administrative offices occupy a stand-alone
building containing approximately 3,500 square feet of office space at 1356 NW
2nd Avenue, Boca Raton, Florida. Meridian leases this space from an
unaffiliated party under a lease that expires on October 31, 2005. The current
rental is $59,500 per year, subject to an annual increase of 3% commencing
November 2001. Meridian also rents warehouse and distribution facilities in
Jersey City, New Jersey from Port Jersey Distribution Services, with rental
based on the amount of space and services used each month.
LEGAL PROCEEDINGS
-----------------
We are a defendant in an action currently pending in the Circuit Court of
Palm Beach County, Florida entitled MARTIN KLEIN V. MERIDIAN USA HOLDINGS, INC.
The plaintiff is seeking a finders fee related to the U.S. Bancorp financing
transaction that took place in June 2000. The amount sought is $50,000 plus
200,000 shares of our common stock. We deny any liability for that claim.
On December 7, 2000, the Court granted our motion for summary judgment
dismissing the complaint in its entirety. The plaintiff has taken an appeal
from that decision.
Other than the above, we are not party to any legal actions, claims or
proceedings.
PRICE RANGE OF CAPITAL STOCK
----------------------------
Market Price
-------------
Our common stock is traded over-the-counter on the electronic bulletin board
operated by the National Association of Securities Dealers. From inception
until December 13, 1999, the shares traded under the symbol MDHG. On December
13, 1999, we changed our trading symbol to MUSD in connection with the change of
our name to Meridian USA Holdings, Inc. The following table sets forth the high
and low bid prices for the common stock since the inception of its quotation on
the Bulletin Board during the first quarter of 1999.
YEAR QUARTER HIGH LOW
1999 First 2.375 0.00
1999 Second 2.5625 1.0313
1999 Third 3.875 2.1875
1999 Fourth 3.5625 2.1875
2000 First 2.8125 1.4375
2000 Second 3.0625 1.0313
2000 Third 3.25 1.5
The above quotations reflect the inter-dealer prices without retail
mark-up, mark-down or commissions and may not represent actual transactions.
29
<PAGE>
Holders
-------
As of November 6, 2000, there were 490 record holders of our common stock.
Based on information from brokers and other sources, we estimate that as of
November 11, 2000, there were approximately 741 beneficial holders of Meridian's
common stock.
Dividends
---------
Meridian paid no cash dividends with respect to its common stock during
1999 and has no current intention to pay any cash dividends. Meridian declared
and distributed a 10% stock dividend to all shareholders of record of common
stock on September 30, 1999.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
The following discussion of the results of operations, financial condition
and liquidity should be read in conjunction with Meridian's consolidated
financial statements and notes thereto contained elsewhere in this registration
statement. The consolidated financial statements for the nine months ended
September 30, 2000 and 1999, included elsewhere in this registration statement
are unaudited. However, in the opinion of management, they included all
adjustments consisting of normal recurring adjustments, necessary for the fair
presentation of its financial position and results of operations. This
discussion of results, causes and trends should not be construed to imply any
conclusion that such results or trends will necessarily continue in the future
(see "Forward Looking Information", page 10).
Overview
--------
Meridian is a developing company engaged in the manufacture and sale of
fat-free and sugar-free syrups and sports refresher drinks. The first product
we brought to the market was chocolate syrup, which we began to sell in 1999
under the Sweet'N Low (R) trademark, which we have licensed from Cumberland
Packing Corp. In early 2000, we expanded our syrup product line by adding
strawberry and vanilla cr me flavors. In the third quarter of 2000, we
introduced a sugar-free, fat-free and additive-free isotonic sports refresher
drink under our own trademark, ChampionLyte (TM). We are presently exploring
new food products in the sugar-free, fat-free categories and plan to bring one
or more to the market within the next twelve (12) months.
Results of Operations
-----------------------
Comparison of nine months ended September 30, 2000
to September 30, 1999.
Meridian's net sales revenues for the three and nine months ended September
30, 2000, were $175,233 and $846,961, respectively, as compared to $96,612 and
$208,117, respectively, in the comparable periods of 1999. The increases were
attributable to continued expansion of the market for Meridian's Sweet'N Low(R)
brand syrups. Meridian's gross margin increased from 21% in the nine months
ended September 30, 1999 to 38% in the comparable 2000 period. This increase
30
<PAGE>
was attributable primarily to lower margins in the 1999 period resulting from a
change in Meridian's co-packer during that period and lower than expected
pricing. Sales volume was relatively low in the 1999 period and, as a result,
the above two factors had a significant percentage impact on gross margin. The
margins achieved during the 2000 period are within the expected range for the
Company's business. Management believes that sales volume will continue to grow
and that, as Meridian's products become more well-established in the market,
margins will stabilize.
Selling, general and administrative expenses increased from $197,780 in the
third quarter of 1999, to $1,121,331 in the third quarter of 2000 and from
$497,931 in the first nine months of 1999 to $2,125,610 in the first nine months
of 2000. The increases were attributable primarily to six factors: (i) noncash
interest and amortization costs of $571,904 for the nine months ended September
30, 2000, associated with the U.S. Bancorp financing, which closed in June 2000;
(ii) $116,667 in accrued interest due to U.S. Bancorp Investments, Inc. that may
be converted into shares of the Company's Series II Preferred Stock; (iii) the
cost associated with the completion of development and introduction to market of
Meridian's ChampionLyte (TM) sports refresher drinks; (iv) the hiring of various
sales and other administrative personnel to support the continued growth of the
Company's products resulted in incremental period to period costs of
approximately $40,000 and $72,000 for three and nine months ended September 30,
2000; (v) increased advertising and media expenses to support the Company's
product line, which increased from approximately $18,000 and $25,000 for the
three and nine months ended September 30, 1999 to approximately $155,000 and
$601,000 in the comparable 2000 periods and (vi) noncash compensation costs of
$264,000 and $272,125 for the three and nine months ended September 30, 2000,
associated with the issuance of common stock for consulting services rendered.
The costs associated with the U.S. Bancorp bridge loan and the noncash
compensation costs associated with the issuance of common stock for consulting
services are nonrecurring. These nonrecurring costs aggregated $264,000 and
$303,125, respectively, during the three and nine months ended September 30,
2000.
Meridian had a net loss of $2,313,132 ($0.38 per share) during the nine
months ended September 30, 2000, as compared to a net loss of $453,907 ($0.09
per share) during the comparable prior period.
Comparison of year ended December 31, 1999
to December 31, 1998
In 1999, Meridian's sales revenues were $395,980, as compared to $144,206
in 1998, an increase of 175%. However, Meridian had a net loss of $1,017,264,
or $0.20 per share, as compared to a net loss of $166,996, or $0.04 per share,
in 1998. The increased loss in 1999 was attributable primarily to five factors;
(i) the commencement of payment of salaries to officers; (ii) the addition of a
vice president of sales in May 1999; (iii) increased advertising costs, slotting
fees and trade show and related travel expenses; and (iv) professional fees
relating to the reverse acquisition of Old Fashioned Syrup Company, the
completion of the Cumberland (Sweet'N Low) License Agreement and the
registration of the Company's securities under the Securities and Exchange Act.
These increases were generally attributable to the start-up nature of Meridian's
business in 1999.
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<PAGE>
Liquidity and Capital Resources
----------------------------------
Meridian's available cash and marketable securities at September 30, 2000
were approximately $6,335,000, as compared to approximately $79,000 at September
30, 1999. The increase is primarily attributable to the proceeds of Meridian's
issuance of its Series A Convertible Note to U.S. Bancorp in June 2000 and, to a
lesser extent, to increased sales of Meridian's products.
As a result of the U.S. Bancorp financing, management believes that it has
sufficient working capital to carry out its business plan for the operation and
expansion of its syrup business and for the introduction and growth of its
sports refresher drink for at least the next 15 to 18 months. In addition,
Meridian believes that operations will contribute to cash flow during the same
period.
MANAGEMENT
----------
Executive Officers, Directors and Key Employees
----------------------------------------------------
Our current executive officers and directors and their ages and positions
as of November 30, 2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Alan Posner 54 Chief Executive Officer,
Chief Financial Officer,
Secretary and Director
Mark Streisfeld 49 President, Director
Joel Flig(1),(2) 46 Director
Paul M. Galant(1) 58 Director
Steven Kreuscher 36 Senior Vice President - Sales
David Ravich 71 Director
Ronald Shapss(2) 53 Director
Christopher Valleau 30 Vice President - Finance
</TABLE>
_____________________
(1) Member of Audit Committee
(2) Member of Compensation Committee
The principal occupation, title and business experience of Meridian's
executive officers and directors during the last five years, including the names
and locations of employers, is indicated below:
ALAN POSNER was elected as CEO, Secretary and Chairman of the Board of
Directors on February 24, 1999. Prior to that he was co-founder and has served
as CEO/Secretary/Treasurer of The Old Fashioned Syrup Company, Inc., its
subsidiaries and predecessors since 1994. From 1973 to 1985, Mr. Posner was
32
<PAGE>
employed in various professional and administrative capacities, including having
served as the Senior Associate Administrator at Brookdale Hospital Medical
Center in Brooklyn, New York. From 1985 to 1993, he was a principal of Medical
Care Administration, Inc. and Healthrac, Inc., multi-service medical providers,
medical management and consulting firms. From 1991 to 1994, Mr. Posner was a
member of the New York City Mayor's Advisory Committee for Emergency Medical
Services. He is a member of the American College of Health Care Administrators,
the American Public Health Association and the New York Association for
Ambulatory Care. Mr. Posner received dual Bachelor of Science degrees (Biology
and Nursing) in 1971 and a Masters of Science in Health Care Administration in
1973 from the State University of New York at Stony Brook. From 1965 to 1968 he
served in the U.S. Naval Hospital Corps.
MARK STREISFELD was elected as President and Director on February 24,1999.
He was co-founder and has been president of The Old Fashioned Syrup Company,
Inc., its subsidiaries and predecessors since 1994. From 1976 to 1989, Mr.
Streisfeld operated a retail electronics business in Monticello, New York, which
he founded. From 1989 to the present, Mr. Streisfeld has operated a
multi-faceted jewelry enterprise in Monticello, founded by him and his family.
From 1973 to 1976 he was an elected trustee of the Village of Monticello. Since
1985 Mr. Streisfeld has been a Rated Jeweler by the Jewelers Board of Trade and
a member of the Advertising Specialties Institute. He is currently a member of
the Sullivan County (NY) Chamber of Commerce, the Sullivan County Action
Committee and the Board of Directors of the New Hope Community for Retarded
Adults (Sullivan County, NY).
MARK STREISFELD was elected as President and Director on February 24,1999.
He was co-founder and has been president of The Old Fashioned Syrup Company,
Inc., its subsidiaries and predecessors since 1994. From 1976 to 1989, Mr.
Streisfeld operated a retail electronics business in Monticello, New York, which
he founded. From 1989 to the present, Mr. Streisfeld has operated a
multi-faceted jewelry enterprise in Monticello, founded by him and his family.
From 1973 to 1976 he was an elected trustee of the Village of Monticello. Since
1985 Mr. Streisfeld has been a Rated Jeweler by the Jewelers Board of Trade and
a member of the Advertising Specialties Institute. He is currently a member of
the Sullivan County (NY) Chamber of Commerce, the Sullivan County Action
Committee and the Board of Directors of the New Hope Community for Retarded
Adults (Sullivan County, NY).
JOEL FLIG, a director of Meridian since August 1999, is the founder (1989)
and CEO of Financial Solutions Group, Ltd., a New York based company engaged
nationwide in placement of senior debt. Since 1998 he has been a director of
Sparta Surgical Supply Co. Prior to his current business entity, Mr. Flig was a
member of the Board of Directors and Executive Vice President of Aspen
Financial, Inc. (a bank holding company) and from 1981 to September 1988 he was
First Vice President of Union Chelsea National Bank (NY). From 1977 through May
1981 he served in a variety of executive capacities at Republic National Bank
(NY) and began his banking career in the Management Development program at Chase
Manhattan Bank (NY) in 1974. Mr. Flig received a B.B.A. degree in 1977 from the
Bernard Baruch College of the City of New York, and his MBA-Finance from St.
John's University (NY).
PAUL M. GALANT was appointed by the new Board of Directors as Special
Counsel in February 1999, served as an officer and director of Meridian from
August 1994 to February 24, 1999 and was elected to Meridian's Board of
Directors in August 1999. Between 1975 and 1997, Mr. Galant was a registered
NASD General Securities Principal. He has been a business development
consultant since 1970. He has served as an officer and director of various
development stage companies, including Deerfield Financial Services, Inc. and
www.eBIZnet.com, Inc., and is the founder and currently serves as an officer and
director of NetWeb Online.Com, Inc. He was a practicing attorney in the State
of New York from 1966 to 2000. Between 1975 and 1986, Mr. Galant was a founding
partner and general principal of a Long Island (NY) based full service brokerage
firm. Subsequently, he was cofounder, and officer and/or a registered principal
of several NASD member securities/brokerage firms in the New York metropolitan
area. Since 1981 he has served as President of PR Sources, Inc., a private
entity engaged in corporate development services. From 1966 through 1968 he
33
<PAGE>
served in the U.S. Army. Mr. Galant is a 1965 graduate of Brooklyn Law School
(J.D.), and received a Bachelor of Business Administration degree from Adelphi
University in 1962.
STEVEN KREUSCHER joined the Company in March 2000 as Senior Vice President
of Sales. Prior to joining the Company, Mr. Kreuscher served in increasingly
responsible positions at Yoo-Hoo Chocolate Beverage Company/Austin Nichols &
Co., Soft Drinks from 1986 until 1999. While representing Yoo-Hoo, Mr.
Kreuscher was promoted from District Sales Manager NY/NJ to Divisional Sales
Manager Northeast to National Accounts Manager. Mr. Kreuscher received his MBA
in 1997 at Dowling College (NY). In 1986, he received a Bachelor of Science
degree in marketing from St. John's University (NY).
DAVID RAVICH has been a member of the Board of Directors since August 2000.
He has been a practicing attorney in New Jersey since 1954. From 1966 until
his recent retirement, he was the senior and founding partner of Ravich,
Koster, Tobin, Oleckman, Reitman & Greenstein, P.A., located in Rahway, New
Jersey. Mr. Ravich received his undergraduate degree from the University of
Pennsylvania and his law degree from the Rutgers University School of
Law.
RONALD SHAPSS, a director of Meridian since August 1999, is the founder of
Ronald Shapss Corporate Services, Inc. (RSCS) a company engaged in consolidating
fragmented industries since 1992. RSCS was instrumental in facilitating the
roll-up of several companies into such entities as U.S. Delivery, Inc. and
Consolidated Delivery & Logistics, Inc. Mr. Shapss was also the founder of
Coach USA, Inc. and, from 1997 to 1999, served on the advisory boards of
Consolidated Partners Founding Fund, LLC and 1+ USA, Inc., which founded
Advanced Communications Group, Inc. (now Worldpages.com), an Internet directory
whose shares trade on the New York Stock Exchange. From 1997 until 1999, he was
a consultant and a member of the Board of Directors of Frontline Communications
Corporation (NASDAQ: FCC). Mr. Shapss is a member of the New York Bar, having
graduated from Brooklyn Law School.
CHRISTOPHER VALLEAU joined the Company as Vice President-Finance in October
2000. Immediately prior to that, he was a Senior Staff Accountant for the New
York and Florida-based certified public accounting firm, Feldman, Sherb & Co.,
P.C., for whom he managed the Florida client base, including Meridian. He had
joined Feldman Sherb as a staff accountant in 1997. Prior to that, he had been
Assistant Controller (1994-1996) and Controller (1996-1997) of Ocean World
Lines, Inc. in New York City. Chris is a licensed Certified Public Accountant
in New York. He received a Bachelors of Business Administration degree from
Pace University (Pleasantville, New York).
Board of Directors
--------------------
Directors of the Company are elected annually to serve until the next
annual meeting of shareholders and until their successors have been duly elected
and qualified. Executive officers are appointed by, and serve at the discretion
of, the Board of Directors for a term beginning after the first regular meeting
of the Board of Directors following the annual meeting of shareholders and until
their respective successors are duly appointed and qualified.
34
<PAGE>
There are no family relationships between any director, executive officer,
or person nominated or chosen by the Company to become a director or executive
officer.
During the fiscal year ended December 31, 1999, there was one (1) meeting
of the Board of Directors and there have been two (2) meetings of the Board of
Directors in 2000.
Board Committees
-----------------
Audit Committee. The Audit Committee was created in May 2000, with the
responsibility of recommending to the Board of Directors the auditing firm to be
selected each year as independent auditors of the Company's financial statements
and to perform services related to the completion of such audit. The Audit
Committee also has responsibility for: (i) reviewing the scope and results of
the audit with the independent auditors; (ii) reviewing the Company's financial
condition and results of operations with management and the independent
auditors; (iii) considering the adequacy of the Company's internal accounting
and control procedures; and (iv) reviewing any non-audit services and special
engagements to be performed by the independent auditors and considering the
effect of such performance on the auditors' independence. The Committee
currently consists of Messrs. Flig and Galant.
Compensation Committee. The Compensation Committee was created in May
2000, with responsibility for reviewing and advising the Board with respect to
executive compensation affecting corporate officers subject to Section 162(m) of
the Internal Revenue Code and such other executives as the Company's management
may deem appropriate. The Committee also has responsibility for administration
of the 1999 Stock Incentive Plan and compensation intended as performance-based
compensation under the Code. The Committee also has the responsibility to fix
all salaries, grant all stock options and approve all employment agreements for
executives who are, or are expected to become, subject to Section 162(m). The
Committee currently consists of Messrs. Flig and Shapss.
Director Compensation
----------------------
Directors of the Company received a fee of $1,500 for each Board of
Directors meeting attended in 1999. In addition, Directors were reimbursed for
any of their travel expenses to and from such meetings.
Compensation Committee Interlocks and Insider Participation. None of our
executive officers has served as a member of a compensation committee or board
of directors of any other entity which has an executive officer serving as a
member of the board of directors.
Executive Compensation
-----------------------
The following table sets forth, for the Company's last fiscal year, the
annual and long-term compensation of those persons who were, at December 31,
1999, the two Executive Officers of the Company. The Company paid no
compensation to Executive Officers prior to January 1, 1999.
35
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------- ------------------------
Name and principal Fiscal All other
position Year Salary Bonus($) Options(#) Compensation
----------- -------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Mark Streisfeld 1999 $ 125,000 --- --- $ 1,500
President
Alan Posner 1999 $ 125,000 --- --- $ 1,500
CEO and Chairman
All Directors and
Executive Officers
as a Group (5 Persons) 1999 $ 250,000 --- --- $ 7,500
</TABLE>
PRINCIPAL STOCKHOLDERS
----------------------
The following table provides information as of October 31, 2000 as to the
ownership of common stock by: (i) each person known by the Company to be the
beneficial owner of five (5%) percent or more of the common stock; (ii) each
director and nominee for election as a director of the Company; (iii) each of
the Company's executive officers; and (iv) all directors and executive officers
of the Company as a group:
<TABLE>
<CAPTION>
Shares of
Common Stock
Number of Obtainable
Shares of Percent of Under Stock
Common Stock Common Stock Options Exercise Price
Name and Title of Beneficially Beneficially Currently of Stock
Shareholder Owned1 Owned Outstanding(2) Options
------------------------------------------------ ------------ ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Alan Posner(3) 1,112,7914 17.5% 50,000 $ 1.00
(CEO and Director)
Mark Streisfeld(5) 1,112,7916 17.5% 50,000 $ 1.00
(President and Director)
Paul Galant(7) 335,000 5.3% 25,000 $ 1.00
(Director)
Joel Flig(8) 5,000 -0- 5,000 $ 1.00
(Director)
Ronald Shapss(9) 225,972 3.5% 50,000 $ 1.00
(Director)
36
<PAGE>
David Ravich(10) 5,000 -0- -0- -0-
(Director)
Steven Kreuscher 5,000 -0- -0- -0-
(Sr. Vice Pres. - Sales)
-0- -0- 20,000 1.00
Christopher A. Valleau
(Vice President - Finance)
All Directors and 2,816,554 44.2% 200,000
Executive Officers
as a group(eight (8) persons)
------------------------------------------------
</TABLE>
--------------------------------
(1)Unless otherwise indicated, the persons or entities identified in this table
have sole voting and investment power with respect to all shares shown as
beneficially held by them, subject to community property laws where applicable.
(2)All Stock Options expire on May 1, 2010.
(3)The address for Mr. Posner is c/o Meridian USA Holdings, Inc., 1356 N.W. 2nd
Avenue, Boca Raton, FL 33432.
(4)Excludes 577,500 shares of common stock which are issuable to Mr. Posner upon
conversion of his 1,750 shares of Series I Preferred Stock.
(5)The address for Mr. Streisfeld is c/o Meridian USA Holdings, Inc., 1356 N.W.
2nd Avenue, Boca Raton, FL 33432.
(6)Excludes 577,500 shares of common stock which are issuable to Mr. Streisfeld
upon conversion of his 1,750 shares of Series I Preferred Stock.
(7)The address for Mr. Galant is 470 N.E. 25th Terrace, Boca Raton, FL 33431.
(8)The address for Mr. Flig is 160 East 61st Street, New York, NY 10021.
(9)The address for Mr. Shapss is 75 Montebello Road, Suffern, NY 10901-3746.
(10)The address for Mr. Ravich is 3827 Red Maple Circle, Delray Beach, FL 33445.
(11)The address for Mr. Valleau is 8761 Wiles Road, 17-201, Coral Springs, FL
33067.
LEGAL MATTERS
--------------
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company and the Selling Stockholders by Aronauer,
Goldfarb, Sills & Re, LLP, New York, New York.
EXPERTS
-------
The consolidated financial statements of the Company as of December 31,
1999 and for the years ended December 31, 1998 and December 31, 1999, have been
included herein in reliance upon the report of Feldman Sherb & Company, P.C.,
independent auditors, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
37
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
--------------------------------------------
We have filed with the SEC a registration statement on Form SB-2 under the
Securities Act with respect to the shares of common stock registered hereby.
This prospectus, which constitutes a part of the registration statement, does
not contain all of the information set forth in our registration statement and
the exhibits filed therewith. For further information with respect to Meridian
USA Holdings, Inc. and the common stock, reference is made to the registration
statement and exhibits filed therewith. Statements contained in this prospectus
regarding the contents of any agreement or any other document to which reference
is made are not necessarily complete, and, in each instance, reference is made
to the copy of such agreement or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference.
You may read and copy any document we file on the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. Our SEC filings are also available to the public from the
SEC's web site at http://www.sec.gov.
Since January 2000, we have been subject to the information and periodic
reporting requirements of the Securities Exchange Act of 1934, and, in
accordance therewith, file periodic reports, proxy statement and other
information with the SEC. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference rooms and the SEC's web site, which is described above.
38
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
<TABLE>
<CAPTION>
MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY Page
----
<S> <C>
YEARS ENDED DECEMBER 31, 1999 AND 1998:
Independent Auditors' Report F-2
Consolidated Balance Sheet F-3
Consolidated Statement of Operations F-4
Consolidated Statement of Stockholders'
Equity (Deficiency) F-5 - F-6
Consolidated Statement of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-13
NINE MONTHS ENDED SEPTEMBER 30, 2000
AND 1999 (UNAUDITED):
Consolidated Balance Sheet F-14
Consolidated Statement of Operations F-15 - F-16
Consolidated Statement of Cash Flows F-17
Notes to Consolidated Financial Statements F-18 - F-20
UNAUDITED PROFORMA CONSOLIDATED FINANCIAL
STATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000:
Description of Unaudited Proforma
Consolidated Financial Statements F-21
Unaudited Proforma Consolidated Balance
Sheet F-22
Unaudited Proforma Consolidated Statement
of Operations F-23
Notes to Unaudited Proforma Consolidated
Financial Statements F-24 - F-25
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Meridian USA Holdings, Inc.
We have audited the accompanying consolidated balance sheet of Meridian USA
Holdings, Inc. and subsidiary as of December 31, 1999, and the related
statements of operations, stockholders' deficiency and cash flows for the years
ended December 31, 1999 and December 31, 1998. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Meridian USA Holdings, Inc. and
subsidiary, for the years ended December 31, 1999 and December 31, 1998 and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Feldman Sherb & Co., P.C.
Feldman Sherb & Co., P.C.
Certified Public Accountants
New York, New York
March 30, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31,
<S> <C>
1999
--------------
ASSETS
------
Current assets:
Cash $ 67,699
Accounts receivable, net 43,293
Inventory 47,184
Advances - stockholders 99,000
--------------
Total current assets 257,176
Property and equipment, net 8,442
Licensing agreement, net 170,133
--------------
$ 435,751
==============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
-----------------------------------------
Current liabilities:
Accounts payable $ 152,350
Accrued expenses and other current liabilities 341,745
--------------
Total current liabilities 494,095
--------------
Commitments and contingency -
Stockholders' deficiency:
Series I convertible preferred stock, par value $1.00
- authorized 100,000 shares, 3,500 issued and
outstanding 3,500
Series II convertible preferred stock, par value $.01
authorized 8,500 shares, no shares issued and outstanding -
Common stock, par value $.001 - authorized 40,000,000
shares, 5,736,500 issued and outstanding 5,737
Additional paid-in capital 2,173,679
Accumulated deficit (2,241,260)
-----------
Total stockholders' deficiency (58,344)
--------------
$ 435,751
==============
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
<TABLE>
<CAPTION>
MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
1999 1998
---------- ----------
<S> <C> <C>
Net sales $ 395,980 $ 144,206
Cost of goods sold 268,654 105,916
----------- -------------
Gross profit 127,326 38,290
Selling, general and administrative 1,144,590 205,286
------------ -----------
Net loss $(1,017,264) $ (166,996)
============ =============
Net loss per common share -
basic and diluted $ (0.20) $ (0.04)
========== =============
Weighted average number of common shares
outstanding - basic and diluted 5,210,546 4,088,517
=========== ============
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
<TABLE>
<CAPTION>
MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
Series I Convertible
Common Stock Preferred Stock
--------------- ---------------
Shares Amount Shares Amount
----------- -------- ------- -------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 439,056 439 - -
Issuance of common stock
for services 330,000 330 - -
Issuance of common stock 2,000 2 - -
Issuance of common stock
purchase warrants - - - -
Net loss - - - -
----------- -------- ------- -------
BALANCE, DECEMBER 31, 1998 771,056 771 - -
Issuance of convertible
preferred stock stock
from reverse merger - - 3,500 3,500
Issuance of common stock
from reverse merger 3,026,794 3,027 - -
Issuance of common stock 47,150 47 - -
Exercise of common stock
purchase warrants 850,000 850 - -
Issuance of common stock
related to reverse
acquisition 620,000 620 - -
Stock dividend 521,500 522 - -
Repurchase of common
stock (100,000) (100) - -
Issuance of warrants for - - - -
license agreement
Net loss - - - -
----------- -------- ------- -------
BALANCE, DECEMBER 31, 1999 $5,736,500 $ 5,737 $ 3,500 $ 3,500
=========== ======== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
<TABLE>
<CAPTION>
MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY (CONTINUED)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Deficiency
------- ------- ----------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 628,120 (535,500) 93,059
Issuance of common stock
for services - - 330
Issuance of common stock 1,998 - 2,000
Issuance of common stock
purchase warrants 850 - 850
Net loss - (166,996) (166,996)
---------- ---------- ---------
BALANCE, DECEMBER 31, 1998 630,968 (702,496) (70,757)
Issuance of convertible
preferred stock from
reverse merger - - 3,500
Issuance of common stock
from reverse merger - - 3,027
Issuance of common stock 47,103 - 47,150
Exercise of common stock
purchase warrants 849,150 - 850,000
Issuance of common stock
related to reverse
acquisition (620) - -
Stock dividend 520,978 (521,500) -
Repurchase of common
stock (49,900) - (50,000)
Issuance of warrants for
license agreement 176,000 - 176,000
Net loss - (1,017,264) (1,017,264)
--------- ----------- -----------
BALANCE, DECEMBER 31, 1999 $2,173,679 $(2,241,260) $ (58,344)
========== ============ ============
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
<TABLE>
<CAPTION>
MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-------------------------
<S> <C> <C>
1999 1998
----------- ----------
Cash flows from operating activities:
Net loss $ (1,017,264) $ (166,996)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 14,198 8,079
Changes in assets and liabilities:
Accounts receivable (29,054) (4,542)
Inventory (47,184) -
Other current assets - -
Other assets 3,001 (1,479)
Accounts payable 73,191 53,698
Accrued expenses and other
current liabilities 336,403 (5,225)
------------- ----------
Net cash used in operating activities (666,709) (116,465)
------------- ----------
Cash flows from investing activities:
Capital expenditures - (2,015)
------------- ----------
Net cash used in investing activities - (2,015)
------------- ----------
Cash flows from financing activities:
Loans payable stockholders (50,000) 50,000
Advances to stockholders (99,000) -
Repurchase of common stock (50,000) -
Proceeds from sale of common stock and
exercise of warrants 897,150 -
Capital contribution - 101,106
----------- ----------
Net cash provided by financing activities 698,150 151,106
----------- ----------
Net (decrease) increase in cash 31,441 32,626
Cash, beginning of year 36,258 3,632
----------- ---------
Cash, end of period $ 67,699 $ 36,258
============== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest expense $ - $ 1,890
============= ==========
Income taxes $ - $ -
============= ==========
Non-cash flow investing and financing activities:
Issuance of common stock and convertible
preferred stock in reverse merger $ 3,377 $ -
============= ==========
Issuance of common stock related to reverse
merger $ 620 $ -
============= ==========
Issuance of warrants for licensing agreement $ 176,000 $ -
============= ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-7
<PAGE>
MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
--------------------------------------
1. ORGANIZATION
------------
The Old Fashioned Syrup Company, Inc. ("Old Fashioned"), a Florida
corporation, was formed in November 1996 for the purpose of developing
sugar-free, fat-free, cholesterol-free chocolate-flavored syrup to market and
sell principally to retailers and food service customers located throughout the
United States. The Old Fashioned Egg Cream Company and The Original Egg Cream
Company, both subsidiaries of Old Fashioned, were incorporated in 1993 in the
state of Florida.
During January 1999, Old Fashioned was acquired by Meridian USA Holdings,
Inc. ("Meridian" or the "Company"), a Florida corporation, for 3,026,794 shares
of Meridian common stock and 3,500 shares of its Series I Convertible Preferred
Stock (the "Exchange") for all of the shares of Old Fashioned and its
subsidiaries. The Exchange has been accounted for as a reverse acquisition
under the purchase method for business combinations. Accordingly, the
combination of the two companies is recorded as a recapitalization of Old
Fashioned, pursuant to which Old Fashioned is treated as the continuing entity.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------
A. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its subsidiary. All material
intercompany transactions have been eliminated.
B. 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
C. CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
temporary cash investments with an original maturity of three months or less
when purchased, to be cash equivalents.
D. REVENUE RECOGNITION - Revenues are recognized as customers receive
products.
F-8
<PAGE>
E. INVENTORIES - Inventories are stated at lower of cost or market on the
first-in, first-out method of inventory valuation.
F. PROPERTY AND EQUIPMENT - Property and equipment is stated at cost.
Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets.
G. CONCENTRATION OF RISK - Credit losses, if any, have been provided for in
the financial statements and are based on management's expectations. The
Company's accounts receivable are subject to potential concentrations of credit
risk. The Company does not believe that it is subject to any unusual or
significant risks, in the normal course of business.
H. INCOME TAXES - Income taxes are accounted for under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which is
an asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
I. NET LOSS PER SHARE - Basic earnings per share has been calculated based
upon the weighted average number of common shares outstanding. Stock options
have been excluded as common stock equivalents in the diluted earnings per share
because they are either antidilutive, or their effect is not material.
J. FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts reported in
the balance sheet for cash, receivables, accounts payable and accrued expenses
approximate fair value based on the short-term maturity of these instruments.
K. LICENSING AGREEMENT - The licensing agreement is amortized on a
straight-line basis over ten years.
L. IMPAIRMENT OF LONG-LIVED ASSETS - The Company reviews long-lived assets
for impairment whenever circumstances and situations change such that there is
an indication that the carrying amounts may not be recovered. At December 31,
1999, the Company believes that there has been no impairment of its long-lived
assets.
3. RELATED PARTY TRANSACTIONS
----------------------------
As of December 31, 1999, the Company has a receivable of $99,000 due from
two officers of the Company. Such advances are short-term in nature and do
not bear interest.
F-9
<PAGE>
4. PROPERTY AND EQUIPMENT
------------------------
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
Useful Life December 31,
------------ ---------------
1999 1998
--------- ---------
<S> <C> <C> <C>
Carts 5 Years $ 62,500 $ 62,500
Office Furniture and Equipment 5 Years 18,096 18,096
Vehicles 5 Years 2,800 2,800
--------- ---------
83,396 83,396
(74,954) (66,623)
--------- ---------
$ 8,442 $ 16,773
========= =========
</TABLE>
5. LICENSING AGREEMENT
--------------------
The Company entered into a ten year license agreement, effective January
20, 1999, and as amended in October 1999, with Cumberland Packing Corp.
("Cumberland"), a New York corporation, for the right to use their "Sweet'N Low"
Trademark in order to market the Company's sugar-free, fat-free,
cholesterol-free chocolate flavored syrup product.
Licensing agreement as of December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Useful December 31,
Life 1999
----------- ------------
<S> <C> <C>
Licensing Agreement 10 years $ 176,000
Less: accumulated amortization 5,867
-----------
$ 170,133
=============
</TABLE>
The license agreement bears minimum royalty payments of $30,000 in year
ending December 31, 2000 and increases in increments of $10,000 per annum
throughout the term of the agreement.
6. STOCKHOLDERS' DEFICIENCY
-------------------------
On July 31, 1998, the Company entered into a one-year consulting agreement
with a brokerage firm and, as compensation for services, granted a
three-year option to purchase 25,944 shares of the Company's common stock at
F-10
<PAGE>
an exercise price of $.25. The Company granted to the brokerage firm one-time
registration rights and unlimited "piggyback" registration rights to the
underlying common stock shares of these three-year options.
In April 1999, the Company completed a self underwritten Regulation "D" Private
Placement Offering of 49,150 shares of common stock, at the price of $1.00 per
share, and 850,000 Common Stock Purchase Warrants ("Warrants"), at a price of
$.001 per warrant. As of December 31, 1999, all of the holders' of the warrants
had converted to common stock at a conversion price of $1.00 per share.
During January 1999, in connection with the reverse merger, the Company
issued 620,000 shares of common stock of which 300,000 shares was issued to a
stockholder who acted as advisor, 300,000 shares were issued to a member of the
Board of Directors and the remaining balance of 20,000 shares was issued to
former officers of Meridian. The common stock was valued at $.001 per share on
the dates of issuance and had been recorded as additional paid-in capital.
On August 18, 1999, the Board of Directors declared a 10% stock dividend to
be payable to all stockholders of record as of September 30, 1999 and the
521,500 shares of common stock were valued at $1.00 per share on the date of
declaration. The stock dividend was distributed on October 15, 1999.
In September 1999, in connection with the Cumberland agreement, the Company
has granted warrants to purchase 385,000 (increase from 350,000 shares as a
result of the 10% stock dividend) shares of the Company's common stock at an
exercise price equal to the greater of $2.50 per share or 50% of the average
trading price for the Company's shares during the twenty days prior to the
exercise of the warrants. The Cumberland Warrants contain an anti-dilution
provision under which Cumberland will receive additional warrants at any time
additional shares of common stock are issued by the Company, but which provision
lapses upon any public sale of shares by the Company. The warrants expire on
December 31, 2008 and management has estimated the value of the warrants, based
on the Black-Scholes option pricing model, in order to record $176,000 of
deferred licensing cost. The deferred licensing cost is being amortized on a
straight-line basis over ten years from the date the warrants were granted.
Amortization expense charged to operations for the year ended December 31, 1999
was approximately $5,900.
7. CONVERTIBLE PREFERRED STOCK
-----------------------------
The Company is authorized to issue 1,000,000 shares of preferred stock at
$.001 par value, the terms of which may be determined at the time of issuance by
the Board of Directors without further action by the shareholders. The Company
has designated 100,000 shares of convertible preferred stock as Series I. Each
outstanding share of Series I Preferred Stock is convertible into 330 shares of
common stock (increased from 300 as a result of the September 1999 stock
dividend). As of December 31, 1999, 3500 shares of Series I convertible
preferred stock were issued and outstanding.
8. STOCK OPTION PLAN
-------------------
In August 1999 the Company's stockholders approved the adoption of an
Incentive Stock Option Plan ("1999 Option Plan"), which allows the Board of
Directors to grant options to employees and members of the Board of Directors.
The 1999 Option Plan provides the Board of Directors the right to grant options
to purchase up to a total of 100,000 shares of the Company's common stock. As
of December 31, 1999 no options have been granted.
F-11
<PAGE>
9. INCOME TAXES
-------------
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 requires the recognition of deferred tax assets and liabilities for both the
expected impact of differences between the financial statements and tax basis of
assets and liabilities, and for the expected future tax benefit to be derived
from tax loss and tax credit carryforwards. SFAS 109 additionally requires the
establishment of a valuation allowance to reflect the likelihood of realization
of deferred tax assets.
The provision (benefit) for income taxes differs from the amounts computed
by applying the statutory federal income tax rate to income (loss) before
provision for income taxes is as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------- -------------------
<S> <C> <C>
Taxes benefit computed at statutory rate
$ (429,000) $ (260,000)
Losses for which no tax benefit realized $ 429,000 260,000
------------------- -------------------
Net income tax benefit $ - $ -
=================== ===================
</TABLE>
The Company has a net operating loss carryforward for tax purposes totaling
approximately $1,071,000 at December 31, 1999 expiring in the year 2019.
Listed below are the tax effects of the items related to the Company's
net tax liability:
<TABLE>
<CAPTION>
<S> <C>
December 31, 1999
-------------------
Tax benefit of net operating loss carryforward $ 429,000
Valuation Allowance (429,000)
-------------------
Net deferred tax asset recorded $ -
===================
</TABLE>
F-12
<PAGE>
9. COMMITMENTS
-----------
OPERATING LEASES - The Company has an operating lease for office space that
expires in 2004. The future minimum lease payments are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
2000 $19,284
2001 19,284
2002 19,284
2003 19,284
2004 3,214
-------------
80,350
=============
</TABLE>
F-13
<PAGE>
<TABLE>
<CAPTION>
MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
<S> <C>
ASSETS
------
Current assets:
Cash $ 19,987
Marketable securities -
available for sale 6,315,246
Accounts receivable, net 148,055
Inventory 74,410
Advances - stockholders 99,000
Other current assets 19,969
------------
Total current assets 6,676,667
Property and equipment, net 58,986
Deferred financing costs, net 426,889
Licensing agreement, net 156,933
------------
$ 7,319,475
============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
Current liabilities:
Accounts payable $ 103,558
Accrued expenses and other current liabilities 248,181
Loan payable 21,969
Current portion of note payable 2,420
------------
Total current liabilities 376,128
------------
Note payable, net of current portion 13,363
Convertible note payable, net of discount 7,038,138
Commitments and contingency -
Stockholders' deficiency:
Series I convertible preferred stock,
par value $1.00 - authorized
100,000 shares, 3,500 issued
and outstanding 3,500
Series II convertible preferred stock,
par value $.01 - authorized 8,500
shares, no shares issued
and outstanding -
Common stock, par value $.001 - authorized
40,000,000 shares, 6,336,399 issued and
outstanding 6,337
Additional paid-in capital 4,394,170
Accumulated other comprehensive income -
unrealized gain on marketable securities 42,231
Accumulated deficit (4,554,392)
------------
Total stockholders' deficiency (108,154)
------------
$ 7,319,475
============
</TABLE>
See Notes to Consolidated Financial Statements
F-14
<PAGE>
<TABLE>
<CAPTION>
MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
September 30,
--------------------
2000 1999
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Net sales $ 175,233 $ 96,612
Cost of goods sold 111,387 112,526
---------- ---------
Gross profit 63,846 (15,914)
Selling, general and administrative 1,121,331 197,780
----------- ----------
Loss from operations (1,057,485) (213,694)
Other income (expense):
Interest income 30,946 -
Interest expense (496,646) -
----------- ----------
Other expenses, net (465,700) -
----------- ----------
Net loss $(1,523,185) $ (213,694)
=========== ===========
Net loss per common share - basic and diluted
basic and diluted $ (0.24) $ (0.04)
=========== ===========
Weighted average number of common shares
outstanding - basic and diluted 6,248,066 5,197,540
=========== ===========
Other comprehensive loss:
Net loss $(1,153,185) $ (213,694)
Unrealized gain from marketable securities 49,119 -
----------- -----------
Comprehensive loss $(1,474,066) $ (213,694)
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-15
<PAGE>
<TABLE>
<CAPTION>
MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
September 30,
-------------------
2000 1999
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Net sales $ 846,961 $ 208,117
Cost of goods sold 528,019 164,093
------------ -----------
Gross profit 318,942 44,024
Selling, general and administrative 2,125,610 497,931
----------- ----------
Loss from operations (1,806,668) (453,907)
Other income (expense):
Interest income 43,234 -
Interest expense (549,698) -
----------- ----------
Other expenses, net (506,464) -
----------- ----------
Net loss $(2,313,132) $ (453,907)
============ ===========
Net loss per common share -
basic and diluted $ (0.38) $ (0.09)
============ ===========
Weighted average number of common shares
outstanding - basic and diluted 6,160,299 4,804,046
============ ===========
Other comprehensive loss:
Net loss $(2,313,132) $ (453,907)
Unrealized gain from marketable securities 42,231 -
------------ -----------
Comprehensive loss $(2,270,901) $ (453,907)
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-16
<PAGE>
<TABLE>
<CAPTION>
MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
-------------------
2000 1999
--------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,313,132) $ (453,907)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 193,199 7,696
Common stock issued for services 272,125 -
Amortization of debt discount 396,060 -
Changes in assets and liabilities:
Accounts receivable (104,762) (14,472)
Inventory (27,226) (78,788)
Other current assets (19,969) (1,500)
Accounts payable (48,792) (30,984)
Accrued expenses and other
current liabilities (93,564) 15,663
----------- ----------
Net cash used in operating activities (1,746,061) (556,292)
----------- ---------
Cash flows from investing activities:
Purchase of marketable securities (6,273,015) -
Capital expenditures (54,766) -
----------- ----------
Net cash used in investing activities (6,327,781) -
----------- ----------
Cash flows from financing activities:
Loans payable stockholders - (50,000)
Advances to stockholders - -
Repayment of advances from stockholders - -
Proceeds from note payable 16,955 -
Proceeds from loans payable 21,969 -
Principal payments on notes payable (1,172) -
Proceeds from convertible notes 8,000,000 -
Debt issue costs (602,666) -
Repurchase of common stock - (50,000)
Proceeds from issuance of common stock
and warrants 475,000 695,356
Capital contribution 116,044 -
----------- ----------
Net cash provided by financing activities 8,026,130 595,356
----------- ----------
Net (decrease) increase in cash (47,712) 39,064
Cash, beginning of year 67,699 39,680
----------- ----------
Cash, end of period $ 19,987 $ 78,744
============ ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest expense $ 36,971 $ -
============ ==========
Income taxes $ - $ -
============ ==========
Non-cash flow investing and financing activities:
Issuance of common stock and convertible
preferred stock in reverse merger $ - $ 3,377
============ ==========
Issuance of common stock related to
reverse merger $ - $ 620
============ ==========
Issuance of common stock subscriptions
receivable - $ 201,794
============ ==========
Issuance of common stock for Cumberland
agreement - $ 176,000
============ ==========
Issuance of warrants in conjunction with
convertible note payable 1,023,940 $ -
============ ==========
</TABLE>
See Notes to Consolidated Financial Statements
F-17
<PAGE>
MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
------------------------------
The accompanying consolidated financial statements (unaudited) for the three and
nine-months ended September 30, 2000 and 1999, have been prepared in accordance
with generally accepted accounting principles for interim financial information
and, in the opinion of the Company, include all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation thereof.
2. MARKETABLE SECURITIES
----------------------
Investments in marketable securities are classified as available-for-sale and
are recorded at fair value with any unrealized holding gains or losses included
in accumulated other comprehensive income (loss), which is a component of
stockholders' deficiency.
3. NOTE PAYABLE
-------------
In May 2000, the Company entered into a note payable for $17,184, the proceeds
for which were used to acquire a vehicle. Such borrowing is secured by the
vehicle and bears interest at 9% per annum, payable in sixty monthly
installments.
4. CONVERTIBLE NOTES PAYABLE
---------------------------
On June 16, 2000, the Company entered into a convertible debt agreement with a
bank. Such agreement includes a convertible note payable for $8,000,000. This
note bears interest at 5.00% per annum, and is automatically converted on June
15, 2001. Either the Company or the note holder upon the satisfaction of
certain conditions may convert the note prior to its mandatory conversion date.
The note is convertible into Series II Convertible Preferred Stock at one share
for each $1,000 in debt, including accrued interest. The Company received net
proceeds of $7,366,334 and recorded deferred financing costs of $602,666, to be
amortized over one year. In the event the Company is sold or liquidated while
any principal amount of the note is outstanding, the note will be due upon
demand, including accrued interest. On May 11, 2000, the Company received
bridge financing from the same note holders for $500,000, which debt was
satisfied upon issuance of the convertible note. The Company has recorded
$31,000 in interest expense.
Along with the convertible note, the Company issued 698,948 warrants to acquire
shares of the Company's common stock. The warrants are exercisable at $1.75 per
share and expire seven years from the date of issuance. The Company has
recorded these warrants as a discount to the convertible note for $1,357,922.
The discount was derived from the Black-Scholes option-pricing model based on
the following assumptions: expected stock price volatility 171%; risk-free
interest rate of 5.70%; and an expected 4 year life. The discount will be
amortized as interest expense over one year. With respect to such discount, the
Company has recorded amortization expense of $175,777 for the period ended
September 30, 2000.
F-18
<PAGE>
5. STOCKHOLDERS' DEFICIENCY
-------------------------
On August 17, 2000, with the approval of the shareholders of the Company, the
number of authorized common shares was increased from 20,000,000 to 40,000,000.
Additionally, the number of options that can be granted under the Company's
stock option plan was increased to 1,000,000.
From March 1, 2000 through June 30, 2000, the Company issued 450,000 shares of
its restricted common stock at $1.00 per share for $450,000. Additionally, the
Company granted 250,000 options to purchase shares of the Company's common
stock. The exercise price of the options issued was between $0.50 to $1.00 per
share of common stock.
In January 2000, the Company issued 5,000 shares of its restricted common stock
to a member of the Company's advisory board. The Company has recorded $8,125 in
compensation to reflect this transaction.
In May 2000, the Company granted 180,000 options to officers and directors of
the Company.
On June 16, 2000, the Company amended its articles of incorporation to designate
Series II Convertible Preferred Stock ("Series II"). The Company authorized
8,500 shares of Series II stock, $.01 par value. Series II stock accrued
preferred dividends at 5% per annum and each share is convertible into
approximately 588 shares of the Company's common stock based upon a $1.70
conversion price where each Series II shares converts into a $1,000 unit of
common stock. The conversion price may be adjusted one year from the date of
issuance. The adjusted conversion price would be the lower of $1.70 or the
average of the closing prices of the common stock for the ten-day period ending
one year from the date of issuance. Additionally, these shares have a right of
mandatory redemption ten years from the date of issuance.
On August 16, 2000, options to purchase 25,000 shares of restricted common stock
were exercised at $1.00 per share.
On September 27, 2000, the Company issued 120,000 shares of its restricted
common stock to a consultant for services rendered. The Company valued the
restricted common stock at $264,000 and recorded compensation expense.
6. COMMITMENT AND CONTINGENCY
----------------------------
Commitment:
On March 15, 2000, the Company entered into an employment agreement with an
executive. The agreement is for a term of two years with an annual compensation
of $90,000. Such executive will also be entitled to 1.5% of sales net of all
discounts, claims, allowances and bad debts. Additionally, this individual will
be granted 5,000 shares of the Company's common stock after the thirtieth day of
employment, such shares were subsequently issued in November 2000.
F-19
<PAGE>
Contingency:
In July 2000, an action was commenced against the Company by an individual
claiming to be entitled to a "finder's fee" in connection with the financing
transaction between the Company and U.S. Bancorp. The individual claims he is
entitled to $50,000 plus 200,000 shares of the Company's common stock. The
Company denies these allegations and intends to vigorously defend its position.
7. SUBSEQUENT EVENTS
------------------
On October 1, 2000, the Company entered into a five year consulting agreement
with a consultant. The consultant will provide sales and marketing services.
The Company paid $100,000 upon signing this agreement and will pay an additional
$250,000 in equal monthly installments over the term of the agreement.
On October 2, 2000, the Company entered into an agreement with its vice
president of finance for a term of one year. Under the agreement, this
individual will receive a salary of $90,000 per year. The Company has also
agreed to cover reasonably expected benefits and to issue 20,000 options to
purchase shares of the Company's common stock at $1.00 per share vesting at a
rate of 5,000 options per year commencing September 30, 2001.
On October 3, 2000, the Company entered into a five-year lease for office space.
The lease shall commence on November 1, 2000, and monthly rental payments are
approximately $5,256. The monthly rent will increase by approximately 3% per
annum over the term of the lease.
In November 2000, the Company issued 30,000 shares of its common stock to
members of its board of directors and advisory board.
On November 7, 2000, the Company entered into a one year endorsement agreement
with a professional athlete. This agreement gives the Company the right to
utilize this individual's likeness in its ChampionLyte product advertisements.
The individual received $60,000 and will receive $15,000 in shares of the
Company's restricted common stock.
Also on November 7, 2000, the Company entered into a one-year agreement with a
consultant for sports marketing services. The Company has paid $10,000 and will
issue to the consultant 28,000 options to purchase shares of the Company's
restricted common stock at $0.50 per share. The options will be issued at a
rate of 7,000 options per quarter with the first 7,000 issued upon execution of
the agreement.
F-20
<PAGE>
MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
UNAUDITED PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
On June 16, 2000, Meridian USA Holdings, Inc. ("Meridian" or the "Company")
entered into an $8,000,000 convertible debt agreement with U.S. Bancorp
Investments, Inc. ("Bancorp"). Such debt is convertible into shares of
Meridian's Series II Convertible Preferred Stock and subsequently convertible
into shares of the Company's common stock.
The following unaudited proforma consolidated balance sheet presents the
proforma financial position of Meridian at September 30, 2000, as if the Bancorp
debt agreement had been fully converted into common stock as of September 30,
2000.
The unaudited proforma consolidated statement of operations for the nine
months ended September 30, 2000, reflects the conversion of the Bancorp debt
agreement into shares of common stock as if it had occurred as of January 1,
2000.
The unaudited proforma consolidated statement of operations does not
necessarily represent actual results that would have been achieved had the
Bancorp debt agreement occurred and converted on January 1, 2000, nor may they
be indicative of future operations. These unaudited proforma consolidated
financial statements should be read in conjunction with the historical financial
statements and notes thereto.
F-21
<PAGE>
MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
UNAUDITED PROFORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, Proforma
2000 Adjustments Proforma
------------- ----------- --------
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash $ 19,987 $ - $ 19,987
Marketable securities - available
for sale 6,315,246 - 6,315,246
Accounts receivable, net 148,055 - 148,055
Inventory 74,410 - 74,410
Advances - stockholders 99,000 - 99,000
Other current assets 19,969 - 19,969
------------ ------------ -----------
Total current assets 6,676,667 - 6,676,667
Property and equipment, net 58,986 - 58,986
Deferred financing costs, net 426,889 [2] (426,889) -
Licensing agreement, net 156,933 - 156,933
------------ ------------ -----------
$ 7,319,475 $ (426,889) $6,892,586
============ =========== ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
--------------------------------------------------
Current liabilities:
Accounts payable $ 103,558 $ - $ 103,558
Accrued expenses and other current
liabilities 248,181 - 248,181
Loan payable 21,969 - 21,969
Current portion of note payable 2,420 - 2,420
------------ ------------ -----------
Total current liabilities 376,128 - 376,128
------------ ------------ -----------
Note payable, net of current portion 13,363 - 13,363
Convertible note payable, net of
discount 7,038,138 [1,2] (7,038,138) -
Commitments and contingency - - -
Stockholders' (deficiency) equity:
Series I convertible preferred stock,
par value $1.00 - authorized
100,000 shares, 3,500 issued and
outstanding 3,500 - 3,500
Series II convertible preferred
stock, par value $.01 -
authorized 8,500 shares, no shares
issued and outstanding - - -
Common stock, par value $.001 -
authorized 40,000,000 shares,
6,336,399 issued and outstanding,
11,040,399 issued and outstanding
on a proforma basis 6,337 [1] 4,704 11,041
Additional paid-in capital 4,394,170 [1] 7,995,296 12,389,466
Accumulated other comprehensive
income - unrealized gain on
marketable securities 42,231 - 42,231
Accumulated deficit (4,554,392) [ 1,2] (1,388,751) (5,943,143)
------------ ------------ -----------
Total stockholders' (deficiency)
equity (108,154) 6,611,249 6,503,095
------------ ------------ -----------
$7,319,475 $ (426,889) $6,892,586
=========== ============ ===========
</TABLE>
See Notes to Proforma Consolidated Financial Statements
F-22
<PAGE>
MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Proforma Adjustments
----------------------
Historical Debit Credit Proforma
------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $ 846,961 $ - $ - $ 846,961
Cost of goods sold 528,019 - - 528,019
------------ ---------- ----------- ----------
Gross profit 318,942 - - 318,942
Selling, general and
administrative 2,125,610 - - 2,125,610
------------ ---------- ----------- ----------
Loss from operations (1,806,668) - - (1,806,668)
Other income (expense):
Interest income 43,234 - - 43,234
Interest expense (549,698) - [3] 116,667 (433,031)
------------ ---------- ----------- ----------
Other expenses, net (506,464) - 116,667 (389,797)
------------ ---------- ----------- ----------
Net loss $(2,313,132) $ - $ 116,667 $(2,196,465)
============ ========== ========== ===========
Net loss per common share -
basic and diluted $ (0.38) $ (0.20)
============ ============
Weighted average number of
common shares outstanding
- basic and diluted 6,160,299 10,864,299
============ ============
Other comprehensive loss:
Net loss $(2,313,132) $(2,196,465)
Unrealized gain from
marketable securities 42,231 42,231
------------ -----------
Comprehensive loss $(2,270,901) $(2,154,234)
============ ============
</TABLE>
See Notes to Proforma Consolidated Financial Statements.
F-23
<PAGE>
MERIDIAN USA HOLDINGS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED PROFORMA CONS0LIDATED FINANCIAL STATEMENTS
PRESENTATION OF PROFORMA CONSOLIDATED FINANCIAL STATEMENTS.
On June 16, 2000, the Company entered into a convertible debt agreement
with a bank. Such agreement includes a convertible note payable for $8,000,000.
This note bears interest at 5.00% per annum, and is automatically converted on
June 15, 20001. Either the Company or the note holder upon the satisfaction of
certain conditions may convert the note prior to its mandatory conversion date.
The note is convertible into Series II Convertible Preferred Stock at one share
for each $1,000 in debt, including accrued interest. Each share of Series II
Preferred Stock represents a $1,000 unit, convertible at a rate of $1.70 per
share of common stock or approximately 588 shares of common stock for each share
of Series II Preferred Stock. The Company received net proceeds of $7,366,334
and recorded deferred financing costs of $602,666, to be amortized over one
year. In the event the Company is sold or liquidated while any principal amount
of the note is outstanding, the note will be due upon demand, including accrued
interest. On May 11, 2000, the Company received bridge financing from the same
note holders for $500,000, which debt was satisfied upon issuance of the
convertible note. The Company has recorded $31,000 in interest expense.
Along with the convertible note, the Company issued 698,948 warrants to
acquire shares of the Company's common stock. The warrants are exercisable at
$1.75 per share and expire seven years from the date of issuance. The Company
has recorded these warrants as a discount to the convertible note for
$1,357,922. The discount was derived from the Black-Scholes option-pricing
model based on the following assumptions: expected stock volatility 171%;
risk-free interest rate of 5.70%; and an expected 4-year life. The discount
will be amortized as interest expense over one year. With respect to such
discount, the Company has recorded amortization expense of $175,777 for the
period ended September 30, 2000.
The accompany balance sheets are presented as if the Bancorp debt agreement
had been converted into common shares of the Company as of September 30, 2000.
The accompanying statements of operations for the nine months ended September
30, 2000 is presented as if the Bancorp debt agreement was consummated and
converted on January 1, 2000. No consideration is given to the potential
exercise of the 698,948 warrants in these proforma financial statements.
A. The following uanudited proforma adjustments are included in the
accompanying unaudited proforma consolidated balance sheet at
September 30, 2000:
(1) To record the conversion of Bancorp debt into approximately
4,704,000 shares of Meridian's common stock.
(2) To record the write off of debt discount and deferred
financing costs related to the Bancorp debt of $961,862 and
$426,889, respectively.
B. The following proforma adjustments are included in the
accompanying unaudited proforma consolidated statement of
operations for the nine months ended September 30, 2000:
F-24
<PAGE>
(1) To reverse accrued interest expense of $116,667 for the period
June 16, 2000 through September 30, 2000.
The following material nonrecurring charges relating to this transaction have
not been reflected on the proforma statement of operations: (1) write-down of
the remaining debt discount of $961,862; (2) write-down of the remaining
deferred financing costs of $426,889.
F-25
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
-------------------------------------------
The following sets forth fees and expenses payable by the Company (other
than underwriting discounts and commissions) in connection with the issuance and
distribution of the Common Stock being registered. All amounts are estimated
except for the Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
Securities and Exchange Commission registration fee
Legal fees and expenses
Accounting fees and expenses
Printing and engraving expenses
Registrar and transfer agent fees
Miscellaneous expenses
Total
</TABLE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The Company's Articles of Incorporation and the Company's Bylaws provide
that the Company may, to the fullest extent permitted by law, indemnify all
officers and directors of the Company.
Section 607.850(1) of the Florida Business Corporation Act (the "FBCA")
provides that a Florida corporation, such as the Company, shall have the power
to indemnify any person who was or is a party to any proceeding (other than an
action by, or in the right of, the corporation), by reason of the fact that he
is or was a director, officer, employee, or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, or other
enterprise against liability incurred in connection with such proceeding,
including any appeal thereof, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 607.0850(2) of the FBCA provides that a Florida corporation shall
have the power to indemnify any person, who was or is a party to any proceeding
by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors, the
estimated expenses of litigating the proceeding to conclusion, actually and
reasonably incurred in connection with the defense or settlement of such
proceeding, including any appeal thereof. Such indemnification shall be
authorized if such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best
II-1
<PAGE>
interests of the corporation, except that no indemnification shall be made
under this subsection in respect of any claim, issue, or matter as to which such
person shall have been adjudged to be liable unless, and only to the extent
that, the court in which such proceeding was brought, or any other court of
competent jurisdiction, shall determine upon application that, despite the
adjudication of liability but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper.
Section 607.850 of the FBCA further provides that: (i) to the extent that
a director, officer, employee, or agent of a corporation has been successful on
the merits or otherwise in defense of any claim, issue, or matter therein, he
shall be indemnified against expenses actually and reasonably incurred by him in
connection therewith; (ii) indemnification provided pursuant to Section 607.0850
is not exclusive; and (iii) the corporation may purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him or incurred by him in any such capacity or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liabilities under Section 607.0850.
Notwithstanding the foregoing, Section 607.0850 of the FBCA provides that
indemnification or advancement of expenses shall not be made to or on behalf of
any director, officer, employee, or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute: (i) a violation of the
criminal law, unless the director, officer, employee, or agent had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was unlawful; (ii) a transaction from which the director, officer,
employee, or agent derived an improper personal benefit; (iii) in the case of a
director, a circumstance under which the liability provisions regarding unlawful
distributions are applicable; or (iv) willful misconduct or a conscious
disregard for the best interests of the corporation in a proceeding by or in the
right of the corporation to procure a judgment in its favor or in a proceeding
by or in the right of a shareholder.
Section 607.0831 of the FBCA provides that a director of a Florida
corporation is not personally liable for monetary damages to the corporation or
any other person for any statement, vote, decision, or failure to act, regarding
corporation management or policy, by a director, unless: (i) the director
breached or failed to perform his duties as a director; and (ii) the director's
breach of, or failure to perform, those duties constitutes: (A) a violation of
criminal law, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful; (B) a
transaction from which the director derived an improper personal benefit, either
directly or indirectly; (C) a circumstance under which the liability provisions
regarding unlawful distributions are applicable; (D) in a proceeding by or in
the right of the corporation to procure a judgment in its favor or by or in the
right of a shareholder, conscious disregard for the best interest of the
corporation, or willful misconduct; or (E) in a proceeding by or in the right of
someone other than the corporation or a shareholder, recklessness or an act or
omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety or
property.
II-2
<PAGE>
The Company maintains a director and officer liability insurance policy
insuring directors and officers of the Company against certain liabilities.
RECENT SALES OF UNREGISTERED SECURITIES
---------------------------------------
From March 2000 through June 30, 2000, the Company issued 450,000 shares of
its common stock at $1.00 per share, aggregating proceeds of $450,000.
Additionally, the Company issued 250,000 options to purchase shares of the
Company's common stock. The exercise price of the options issued was between
$.005 and $1.00 per share of common stock.
In April 2000, the Company issued 5,000 shares of common stock to Pavillion
Investors, Inc. The Company has recorded $8,125 in noncash compensation to
reflect this transaction.
On January 16, 2000, we issued our Series A Convertible 5% Promissory Note
due January 30, 2010 to U.S. Bancorp in exchange for $8,000,000. The Note is
convertible into Series II Convertible Preferred Stock. See Description of
Capital Stock.
On August 16, 2000, 25,000 options to purchase shares of the Company's
common stock were exercised at $1.00 per share by James Rippon.
On September 27, 2000, the Company issued 120,000 shares of its common
stock to a consultant, Market Voice, Inc., for services rendered. The Company
recorded $264,000 in compensation expenses based on the fair value of the stock
on the date of issuance, less a discount for the restrictive legend on the
shares issued.
In October 2000, the Company issued 5,000 shares of common stock to Ami
Sharaby, a member of the Company's advisory board.
EXHIBITS
--------
The following documents are filed as exhibits to this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
3.1 Articles of Incorporation, as amended.*
3.2 By-Laws.*
5.1 Opinion of Aronauer, Goldfarb, Sills & Re, LLP.**
10.1 Employment Agreement dated October 2, 2000 between Christopher A. Valleau and Meridian USA Holdings, Inc.*
10.2 Consulting Agreement dated October 1, 2000 between Essex Consulting Corp. and Meridian USA Holdings, Inc.*
10.3 Stock Option Agreement dated October 2, 2000 between Christopher A. Valleau and Meridian USA Holdings, Inc.*
10.4 Consulting Agreement dated September 6, 2000 between Market Voice, Inc. and Meridian USA Holdings, Inc.*
10.5 Lease Agreement dated November 1, 2000 between D&H Partnership and Meridian USA Holdings, Inc.*
10.6 Agreement dated February 1, 2000 between United Sports Fans of America and ChampionLyte, Inc.*
10.7 Supplier Agreement dated July 12, 1999 between Beverage House, Inc., and The Old Fashioned Syrup Company, Inc.*
II-3
<PAGE>
10.8 Loan agreement dated May 11, 2000, between U.S. Bancorp Libra and Meridian USA Holdings, Inc.*
10.9 Securities Purchase Agreement dated June 16, 2000 between Meridian USA Holdings, Inc. and
U.S. Bancorp Investments, Inc.*
10.10 Registration Rights Agreement dated June 16, 2000 between Meridian USA Holdings, Inc. and
U.S. Bancorp Investments, Inc.*
10.11 Investor Rights Agreement dated June 16, 2000 between Meridian USA Holdings, Inc. and U.S. Bancorp Investments, Inc.*
10.12 Securityholders Agreement dated June 16, 2000 among Meridian USA Holdings, Inc., Alan Posner,
Mark Streisfeld, Paul Galant, Joel Flig, Ronald Shapss and U.S. Bancorp Investments, Inc.*
10.13 Employment Agreement dated January 2000 between Mark Streisfeld and Meridian USA Holdings, Inc.*
10.14 Employment Agreement dated January 2000 between Alan Posner and Meridian USA Holdings, Inc.*
10.15 Employment Agreement dated March 15, 2000 between Steve Kreuscher and Meridian USA Holdings, Inc.*
10.16 Amended and Restated License Agreement dated September 24, 1999 between Cumberland Packing Corp. and
The Old Fashioned Syrup Company, Inc.*
10.17 Agreement dated June 1999 between Francis Anthony and The Old Fashioned Syrup Company, Inc.*
21.1 Subsidiaries of Meridian USA Holdings, Inc.*
23.1 Consent of Feldman Sherb & Company, P.C., independent accountants.**
23.2 Consent of Aronauer, Goldfarb, Sills & Re, LLP to use of legality opinion (included in Exhibit 5.1).**
24.1 Power of Attorney (contained on page II-6 of this Registration Statement).**
27.1 Financial Data Schedule for year ended December 31, 1999.**
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______________________
* Previously filed.
** Filed herewith.
UNDERTAKINGS
------------
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a twenty (20%) percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
II-4
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Boca Raton, State of
Florida, on December 20, 2000.
MERIDIAN USA HOLDINGS, INC.
(Registrant)
/s/ Mark Streisfeld
By:---------------------------
MARK STREISFELD
PRESIDENT and DIRECTOR
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Alan Posner his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Alan Posner
------------------------------
Name: Alan Posner
Title: Chief Executive
Officer and Director
/s/ Christopher A. Valleau
-------------------------------
Name: Christopher A. Valleau
Title: Senior Financial
Officer and Vice
President - Finance
/s/ Joel Flig
-------------------------------
Name: Joel Flig
Title: Director
/s/ Paul M. Galant
-------------------------------
Name: Paul M. Galant
Title: Director
-------------------------------
Name: David Ravich
Title: Director
/s/ Ronald Shapss
-------------------------------
Name: Ronald Shapss
Title: Director
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------------
<S> <C> <C>
5.1 Opinion of Aronauer, Goldfarb, Sills & Re, LLP.
23.1 Consent of Feldman Sherb & Co., P.C., independent auditors.
27.1 Financial Data Schedule for year ended December 31, 1999.
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