<PAGE>
As filed with the Securities and Exchange Commission on November 6, 2000
Registration No. 333-
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
IVES HEALTH COMPANY, INC.
<TABLE>
<S> <C> <C>
Oklahoma 2833 73-1430235
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
817 NORTH J.M. DAVIS BLVD., CLAREMORE, OK 74017 (918) 283-1226
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
M. Keith Ives, President
817 North J.M. Davis Blvd., Claremore, OK 74017
(918) 283-1226
(NAME, ADDRESS AND TELEPHONE NUMBER FOR AGENT FOR SERVICE)
COPIES TO:
JEFFREY A. RINDE, ESQ.
BONDY & SCHLOSS, LLP
6 East 43rd Street, 25th Floor
New York, New York 10017
TELEPHONE (212) 661-3535
FACSIMILE (212) 972-1677
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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(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,
check the following box. [ ]
Cover continued on next page
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================
MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE (1) PRICE (1) FEE
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value 4,571,429 Shares $0.525 $2,400,000 $633.60
$.001 per share,
--------------------------------------------------------------------------------------------------------------------
Total $ 2,400,000 $633.60
====================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
Prospectus
SUBJECT TO COMPLETION, DATED NOVEMBER 6, 2000
IVES HEALTH COMPANY, INC.
4,571,429 SHARES
This prospectus covers up to 4,571,429 shares of the common stock, par
value $.001 per share of Ives Health Company, or Ives, an Oklahoma corporation,
which may be sold from time to time by certain shareholders named in this
prospectus. Our common stock is traded on the OTC Bulletin Board under the
symbol IVEH. On October 25, 2000 the average between the bid and asked price of
our common stock, as reported on the OTC Bulletin Board, was $.120 per share.
The shares of common stock offered by this prospectus may be sold by
the selling shareholders from time to time in transactions on the open market or
in negotiated transactions, in each case at prices satisfactory to them.
LOOK CAREFULLY AT THE RISK FACTORS BEGINNING ON PAGE 6 OF THIS
PROSPECTUS.
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 permitted.
NEITHER THE SEC NOR ANY OTHER REGULATORY BODY HAS APPROVED THESE SHARES
OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS ILLEGAL FOR
ANYONE TO TELL YOU OTHERWISE.
THE DATE OF THIS PROSPECTUS IS OCTOBER , 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary ...................................................3
Risk Factors..........................................................6
Use of Proceeds......................................................10
Dividend Policy......................................................11
Price Range of Common Stock .........................................11
Dilution.............................................................12
Management Discussion and Analysis of Financial
Condition and Results of Operation...................................12
Description of Business..............................................14
Management ..........................................................19
Executive Compensation...............................................21
Principal and Selling Security holders...............................21
Certain Relationships and Related Transactions.......................22
Description of Securities............................................22
Transfer Agent and Registrar.........................................25
The Stock Purchase Agreement.........................................25
Selling Stockholder..................................................29
Plan of Distribution.................................................30
Shares Eligible for Future Sale......................................34
Legal Matters........................................................35
Experts ............................................................35
Where You Can Find More Information..................................35
Index to Financial Statements.......................................F-1
</TABLE>
2
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. When words such as "intend," "anticipate," "believe,"
"estimate," "plan," "expect," or similar phrases are used, Ives is making
forward-looking statements. Ives believes that the assumptions and expectations
reflected in such forward- looking statements are reasonable, based on
information available to it on the date of this prospectus, but Ives cannot
assure you that these assumptions and expectations will prove to have been
correct or that Ives will take any action that it may presently be planning.
Ives has disclosed certain important factors that could cause its actual results
to differ materially from its current expectations under "Risk Factors" and
elsewhere in this prospectus. You should understand that forward-looking
statements made in connection with this offering are necessarily qualified by
these factors. Ives is not undertaking to publicly update or revise any forward-
looking statement if it obtains new information or upon the occurrence of future
events or otherwise.
PROSPECTUS SUMMARY
Since this is a summary, it does not contain all the information that
may be important to you in evaluating your investment. You should read the
following summary, and the "Risk Factors" section, along with the more detailed
information and Financial Statements and the notes to the Financial Statements
appearing elsewhere in this prospectus or incorporated by reference in this
prospectus, prior to purchasing securities of Ives.
IVES HEALTH COMPANY, INC.
Ives is a development stage company that develops and markets
homeopathic medicines, weight loss formulas, natural remedies, and nutritional
supplements. We presently offer 27 different products, all of which are sold
over-the-counter and are non-prescription.
Our primary distribution focus is through regional and national chain
pharmacies. We are currently distributing through regional chains which include
Mays, Drug Warehouse, Price Mart, Horizon, Pamida and The Medicine Shoppes, and
national chains which currently sell our products on a regional basis including
Albertsons, Dillons and Winn-Dixie.
Ives was incorporated under the laws of Oklahoma in February 1998. Our
principal executive offices are located at 817 North J.M. Davis Blvd.,
Claremore, OK 74017 and our telephone number is (918) 283-1226.
BACKGROUND
We began operations in the fourth quarter of 1992 as Ives and
Associates, a sales and distribution organization engaged in the business of
selling and distributing homeopathic supplements, weight loss products,
vitamins, and other alternative medicines to the public through retail grocery
stores and other distribution outlets. In 1993 we incorporated in the state of
Oklahoma under the name Wellness Pharmaceutical, Inc. and in September, 1996
changed our name to Ives Health Company, Inc. In August, 1997, the shareholders
of Ives exchanged all of their issued and outstanding shares for shares of
Maxxon, Inc., a development stage company in the process of developing a safety
syringe, in a tax free share exchange. As a result, Ives Health Company became a
wholly owned subsidiary of Maxxon, Inc. Pursuant to an agreement between Maxxon,
Inc. and M. Keith Ives, entered into and made effective December 31, 1997, Ives
and Maxxon, Inc. subsequently agreed to separate. The separation was
accomplished by a split-off of non-monetary assets, a recapitalization and the
issuance of 7,000,000
3
<PAGE>
shares of new Ives common stock to M. Keith Ives, and 1,700,000 shares of new
Ives common shares to Maxxon, Inc. The new Ives began operations January 1, 1998
and was incorporated in Oklahoma on February 12, 1998.
OUR COMPANY
Ives is engaged in developing and marketing innovative, safe, high
quality, natural non- prescription medicines and nutritional supplements. Our
products, which are guaranteed for potency and purity, include natural
medicines, herbal formulas, vitamins, minerals and homeopathic medicines. The
Company wholesales the products to pharmacies. Our primary distribution focus is
through regional and national chain pharmacies. We are currently distributing
through regional chains which include Mays, Drug Warehouse, Price Mart, Horizon,
Pamida and The Medicine Shoppes, and national chains which currently sell our
products on a regional basis including Albertsons, Dillons and Winn-Dixie.
THE OFFERING
This prospectus covers up to 4,571,429 shares of Ives common stock to
be sold by the selling stockholders. The number of shares subject to this
prospectus represents 25.23% of our issued and outstanding common stock as of
October 25, 2000 and 20.15% after issuance of all currently unissued shares
included in this prospectus.
We signed a common stock purchase agreement with three investors, TVP
Capital, Inc., a New York corporation, Gata Investments Ltd., a British Virgin
Island company, and Altea Investments, Ltd., a British Virgin Islands company,
or collectively, the Purchasers, on July 29, 2000, for the future issuance and
purchase of shares of our common stock. The stock purchase agreement establishes
what is sometimes termed an equity line of credit or an equity draw down
facility.
In general, the draw down facility operates like this: the Purchasers
have committed to provide up to $2.4 million as we request it over an 11 month
period, in return for common stock we issue to them. Once every 20 trading days,
we may request a draw of up to $200,000 of that money. The maximum amount we
actually can draw down upon each request will be determined by the
volume-weighted average daily price of our common stock for the 20 trading days
prior to our request. Each draw down must be for at least $60,000. At the end of
a 20 trading day period following the draw down request, the final draw down
amount is determined based on the volume-weighted average stock price during
that 20 day period. We then use the formulas in the common stock purchase
agreement to determine the number of shares we will issue to the Purchasers in
return for that money.
The aggregate total of all draws cannot exceed $2.4 million and no
single draw can exceed $200,000, except the initial draw down which may be up to
$400,000. We are under no obligation to request a draw for any period.
The market price for our common stock on October 25, 2000 was $.120 and
the average daily trading volume for the 20 trading days ended October 25, 2000
was 86,485 shares. If our market price on October 25, 2000 and the 20-day
average trading volume preceding October 25, 2000 each remained constant over
the 11 month period of the common stock purchase agreement and we requested the
maximum amount available to us under the common stock purchase agreement, each
draw down would be capped at $200,000 and we could make 11 draws for a total
amount drawn of $2,400,000, including an initial draw down of $400,000.
The number of shares we would issue and the proceeds we would receive
could be limited by a provision of the common stock purchase agreement that
prevents us from issuing shares to the Purchasers to the extent they would
beneficially own more than 19.9% of our then outstanding common stock. Any
resales of shares by Purchasers under this prospectus would reduce the number of
shares beneficially owned by them, and would enable us to issue additional
shares to Purchasers without violating this condition.
The per share dollar amount the Purchasers pay for our common stock for
each draw down includes a 30% discount to the average daily market price of our
common stock for the 20-day period after our draw down request.
We will receive the amount of the draw down less a 4% finder's fee
payable to Bondy & Schloss LLP, or the Finder, which introduced the Purchasers
to us. The finder is a law firm and is named as an expert in this prospectus. It
is not obligated to purchase any of our shares, but as an additional finder's
and escrow agent fee, we have issued to Bondy & Schloss LLP 200,000 shares of
common stock and warrants to purchase 544,000 shares of our common stock at an
exercise price of $.50 per share. The common stock issuable upon exercise of
those warrants is included in the registration statement of which this
prospectus is a part.
4
<PAGE>
RISK FACTORS
An investment in these units involves a high degree of risk to the
public investors and, therefore, anyone who cannot afford a loss of his or her
entire investment should not purchase them. You should carefully review and
consider the factors set forth under "Risk Factors" as well as other information
in this prospectus before purchasing any of the Units. See "Risk Factors" on
page 6.
5
<PAGE>
RISK FACTORS
Please consider the following risk factors together with the other
information presented in this prospectus including the financial statements and
the notes thereto before investing in the units. The trading price of our common
stock and warrants could decline due to any of the following risks, and you
might lose all or part of your investment.
WE HAVE EXPERIENCED LOSSES SINCE INCEPTION, WE EXPECT FUTURE LOSSES AND
WE MAY NOT BECOME PROFITABLE. We have incurred losses since inception. For the
years ended December 31, 1999 and 1998, we had net losses of approximately
$590,242 and $502,746, respectively. The net loss for the six months ended June
30, 2000was $625,656. As of June 30, 2000, we had an accumulated deficit of
approximately $1.1 million.
Since we have historically incurred net losses, we expect this trend to
continue until some indefinite date in the future. We may not become profitable.
If we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis.
WE MAY REQUIRE ADDITIONAL CAPITAL IN THE FUTURE WHICH MAY NOT BE
AVAILABLE. Ourfuture capital requirements will depend on many factors,
including:
- the cost of manufacturing scale-up;
- the timing of market acceptance of our products;
- competing technological and market developments; and
- the costs involved in filing, prosecuting and enforcing patent
claims.
We anticipate that our existing resources combined with revenues and
without utilization of proceeds from sales under the Stock Purchase Agreement
will enable us to maintain our current and planned operations through June 2001.
The Stock Purchase Agreement provides us with an additional source of capital.
However, if our stock price and trading volume stay at current levels, we will
not be able to draw down all $2,400,000 from the Equity Line of Credit since it
could result in Purchaser's ownership of more than 19.9% of Ives' outstanding
shares of common stock, which is prohibited under the terms of the Stock
Purchase Agreement. We cannot guarantee that changes in our plans or other
events affecting our operating expenses will not result in the expenditure of
our existing resources sooner than expected.
We intend to seek additional funding through partnership arrangements or
the extension of existing arrangements. We cannot guarantee that additional
financing will be available on acceptable terms, or at all. Insufficient funds
may require us to delay, scale back or eliminate some or all of our activities
or to obtain funds through arrangements with third parties that may require us
to relinquish rights to certain of our technologies, product candidates or
products that we would otherwise seek to develop or commercialize ourselves.
THE SO CALLED "PENNY STOCK RULE" COULD MAKE IT CUMBERSOME FOR BROKERS
AND DEALERS TO TRADE IN THE COMMON STOCK, MAKING THE MARKET FOR THE COMMON STOCK
LESS LIQUID WHICH COULD CAUSE THE PRICE OF OUR STOCK TO DECLINE. Trading in our
securities will initially be conducted on the OTC Bulletin Board and/or the
"pink sheets." As long as the common stock is not quoted on Nasdaq or at any
time that we have less than $2,000,000 in net tangible assets, trading in the
common stock is covered by Rule 15g-9 under the Securities Exchange Act of 1934
for non-Nasdaq and non-exchange listed
6
<PAGE>
securities. Under that rule, broker-dealers who recommend covered securities to
persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities are
exempt from this rule if the market price is at least $5.00 per share.
The SEC has adopted regulations which generally define a penny stock to
be any equity security which has a market price of less than $5.00 per share,
subject to certain exemptions. Such exemptions include an equity security listed
on Nasdaq and an equity security issued by an issuer which has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operation
for three (3) years; (ii) net tangible assets of at least $5,000,000, if such
issuer has been in continuous operation for less than three (3) years; or (iii)
average revenue of at least $6,000,000 for the proceeding three (3) years.
Unless such an exemption is available, the regulations require the delivery of a
disclosure schedule explaining the penny stock market and the risks associated
therewith prior to any transaction involving a penny stock. If our common stock
becomes subject to the regulations on penny stocks, that factor could have a
severe adverse effect on the market liquidity for the common stock due to these
limitations on the ability of broker-dealers to sell the common stock in the
public market which could cause the price of our stock to decline.
WE ARE UNCERTAIN AS TO WHETHER OUR PRODUCTS WILL BE COMMERCIALLY
ACCEPTED. Our success is dependent upon the commercial acceptance of our
products by the market targeted by us. There can be no certainty as to the
amount of time required to achieve full-scale commercialization, and the
commercialization process of any new product could take several years. We cannot
guarantee that our products will receive broad market acceptance as an
economically acceptable alternative. Broad market acceptance of our products
will depend upon our ability to demonstrate to potential customers that our
products can compete favorably with alternative solutions. In addition, we will
need to achieve further product cost reductions to compete successfully in the
future. Although we intend to achieve such reductions through a combination of
engineering and process improvements and economies of scale, we cannot guarantee
that we will achieve our cost objectives.
FAILURE TO UPGRADE OPERATING AND FINANCIAL CONTROL SYSTEMS OR
DIFFICULTIES ENCOUNTERED DURING SUCH UPGRADES COULD ADVERSELY AFFECT OUR
BUSINESS AND RESULTS OF OPERATIONS. We may have difficulty managing any future
growth. Our future growth may challenge our management, operational and
financial resources. Our ability to manage growth effectively will require us to
continue to implement and improve our management, operational and financial
systems and to expand, train and manage our employees.
Management of growth is especially challenging for a company with a
short operating history and limited financial resources, and the failure to
effectively manage growth could have a material adverse effect on our results of
operations. Although we believe that our systems and controls are adequate to
address our current needs, we cannot guarantee that such systems and controls
will be adequate to address future changes in our business.
WE FACE INTENSE COMPETITION IN THE HOMEOPATHIC MEDICINES AND
NUTRITIONAL FOODS AND HEALTH SUPPLEMENTS MARKETS ON SEVERAL DIFFERENT FRONTS.
Each market in which we participate is intensely competitive. Numerous companies
manufacture and market homeopathic medicines and nutritional foods and health
supplements. Important competitive factors in these market include price,
product quality and performance, diversity of features, warranties and customer
service. We believe that our products are competitive in each of these
categories. However, many of our competitors possess greater financial
resources, wider brand name recognition, broader distribution networks and other
resources and characteristics that may give them a competitive advantage.
ANY REGULATORY ENFORCEMENT EFFORTS, PARTICULARLY ANY ACTIONS THAT COULD
INTERRUPT OUR DIRECT MARKETING EFFORTS OR RESULT IN A PRODUCT RECALL, WOULD
ADVERSELY AFFECT OUR BUSINESS. We are
7
<PAGE>
regulated by various federal, state and local authorities, including the Federal
Trade Commission, the Food and Drug Administration, the Consumer Products Safety
Commission, the Occupational Safety and Health Administration and the
Environmental Protection Agency. We believe we are in material compliance with
all applicable rules and regulations. If we are incorrect, or if we violate such
regulations in the future, we may be subject to regulatory enforcement efforts.
INCREASES IN PRODUCT RETURNS COULD ADVERSELY AFFECT OUR FINANCIAL
PERFORMANCE. Any material increase in the quantity of products returned by our
customers for purchase-price refunds could adversely affect our financial
performance. We have limited operating experience, and therefore limited
experience with the return rates for our products.
OUR WARRANTY RESERVES MAY BE INSUFFICIENT TO COVER FUTURE WARRANTY
CLAIMS, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE. We offer
warranties on all of our principal products. If our warranty reserves are
inadequate to cover future warranty claims on our products, our financial
performance could be adversely affected.
WE FACE PRODUCT LIABILITY RISKS. We are subject to potential product
liability claims if our products injure or allegedly injure our customers or
other users. We believe that our insurance coverage and reserves adequately
cover potential product liability claims. However, we may have inaccurately
assessed our product liability risk. In addition, we may be unable to purchase
sufficient insurance coverage at an affordable price, or our insurers may fail
to satisfy their obligations. If our insurance coverage and reserves are
inadequate to cover future product liability claims, our business may be
adversely affected.
A DECLINE IN CONSUMER SPENDING DUE TO UNFAVORABLE ECONOMIC CONDITIONS
COULD HINDER SALES OF OUR CONSUMER PRODUCTS. The success of each of our products
depends substantially on how consumers decide to spend their money. Unfavorable
economic conditions may depress consumer spending, especially for premium priced
products like ours.
OUR FINANCIAL PERFORMANCE MAY BE VULNERABLE TO RAPIDLY CHANGING
PREFERENCES IN THE CONSUMER HOMEOPATHIC MEDICINES AND NUTRITIONAL FOODS AND
HEALTH SUPPLEMENTS MARKETS. Our net sales and profitability depend significantly
on the acceptance of our existing and future products within the consumer health
and fitness market. These markets are characterized by rapidly changing trends
and fads, frequent innovations and improvements are necessary to maintain
consumer interest in our products.
THE LOSS OF ANY SOURCE OF SUPPLY WILL HAVE A MATERIALLY ADVERSE EFFECT
ON OUR CONTINUING ABILITY TO SUPPLY CUSTOMERS AND TO CONTINUE IN BUSINESS. We
purchase our products from a small number of manufacturers and then sell them
under our private label. There is no assurance that we will be able to purchase
required inventory to meet our customer's needs or market demand.
THE LOSS OF ANY OF OUR MAJOR CUSTOMERS COULD ADVERSELY AFFECT OUR
BUSINESS. We have major contracts with a limited number of national and regional
pharmacies and grocery stores. Because of the large volumes, the margins
received from such sales is significantly below those margins which we receive
from smaller customers. Our growth is largely dependent upon our continued
relationship with these major customers. There is no assurance that we will
continue to enjoy a successful relationship with these major customers. We are
in the initial stage of establishing a multi-level distribution system for the
distribution of our products directly to customers, thereby reducing our
dependence upon large national and regional chains. We believe that such a
multi-level distribution has significant future opportunities, but we lack the
operating capital to commence such operations at this time. There is no
assurance that we will ever be able to capture the multi-level market or to be
profitable in that endeavor if it is launched.
8
<PAGE>
OUR FINANCIAL PERFORMANCE WOULD BE HARMED IF WE ARE UNABLE TO
SUCCESSFULLY DEVELOP OR DIRECTLY MARKET NEW CONSUMER PRODUCTS. Our growth
strategy and financial performance depend in part on our ability to develop or
acquire the rights to, and then directly market, new consumer products. Our net
sales and profitability would be harmed if we are unable to develop or acquire
the rights to premium quality, premium priced consumer products that satisfy our
direct marketing criteria. In addition, any new products that we directly market
may not generate sufficient net sales or profits to justify their development or
acquisition costs.
WHILE WE MAY HIRE ADDITIONAL QUALIFIED INDIVIDUALS TO WORK IN VARIOUS
CAPACITIES FOR US, THE LOSS OF THE SERVICES OF ANY OF OUR OFFICERS AND DIRECTORS
COULD HAVE A MATERIAL ADVERSE EFFECT ON IVES' BUSINESS, FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. We will depend heavily upon the services of certain
officers and directors, including in particular, M. Keith Ives, our president
and Michael Harrison, our chief executive officer. We do not have key person
life insurance on any of the lives of said individuals but we are in the process
of evaluating our needs for such insurance.
CONCENTRATION OF STOCK OWNERSHIP IN A FEW PERSONS TOGETHER WITH THE
EXISTENCE OF THE RESTRICTIONS ON TRANSFERS MAKES IT UNLIKELY THAT ANY OTHER
HOLDER OF VOTING COMMON STOCK WILL BE ABLE TO AFFECT THE MANAGEMENT OR DIRECTION
OF IVES. M. Keith Ives, our president owns an aggregate of 8,186,374 shares of
our outstanding common stock representing approximately 45% of our outstanding
voting stock. Even if all 4,571,429 shares are issued to Purchaser through the
Stock Purchase Agreement, our management will control approximately 42% of our
outstanding voting stock.
WE FACE RISKS ASSOCIATED WITH ANY FUTURE ACQUISITIONS. We intend to
explore growth opportunities through strategic acquisitions that would enhance
our direct marketing capabilities or product lines. We currently have no
agreements, understandings or other arrangements with respect to any
acquisition. If we identify and pursue an acquisition opportunity, our
management may be required to devote a significant amount of time and effort to
the process, which could unduly distract them from our existing operations. If
we complete an acquisition, we expect to face significant challenges integrating
the acquired business into our operations. An acquisition may not produce the
revenue, earnings or business synergies that we anticipate, and an acquired
product or technology may not perform as we expect. Any such difficulties would
adversely affect our business. In addition, the size, timing and integration of
any acquisitions could cause substantial fluctuations in our operating results.
To pay for an acquisition, we may use common stock or cash, including the
proceeds of the offering. Alternatively, we may borrow money from banks or other
lenders. If we use common stock, the ownership interest of our shareholders
would be diluted. If we use cash or debt, our financial liquidity will be
reduced.
OUR FAILURE OR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY COULD
SIGNIFICANTLY HARM OUR COMPETITIVE POSITION, AND WE COULD ALSO INCUR SUBSTANTIAL
COSTS TO DEFEND CLAIMS THAT WE HAVE VIOLATED THE PROPRIETARY RIGHTS OF OTHERS.
Protecting our intellectual property is an important factor in maintaining our
competitive position in the fitness industry. If we do not or are unable to
adequately protect our intellectual property, our sales and profitability could
be adversely affected. We currently hold a number of patents and trademarks.
However, our efforts to protect our proprietary rights may be inadequate and
applicable laws provide only limited protection. In addition, we believe that
our products, trademarks and other proprietary rights do not infringe upon the
proprietary rights of third parties. However, we may not be able to successfully
prevent others from claiming that we have violated their proprietary rights or
that any such assertion will not require us to enter into a license agreement or
royalty agreement with the party asserting a claim. We could incur substantial
costs in defending against such claims, even if they are invalid, and we could
become subject to judgments requiring us to pay substantial damages.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE. Sales of
a substantial number of shares of our common stock in the public market
following this offering could adversely affect the market price for our common
stock.
9
<PAGE>
BROAD MARKET FLUCTUATIONS MAY HAVE A MATERIAL ADVERSE EFFECT ON THE
MARKET PRICE OF OUR COMMON STOCK The following factors may cause the market
price of our common stock to fluctuate significantly:
- market acceptance of our product,
- the timing of purchase orders,
- the attainment of or failure to attain milestones
in the commercialization of our products,
- the introduction of new products,
- establishment of new collaborative arrangements by
Ives, its competitors or other third parties,
- claims of patent infringement or other material
litigation,
- government regulations,
- investor perception of Ives,
- fluctuations in our operating results, and
- general market conditions in the industry.
In addition, the stock market in general has recently experienced
extreme price and volume fluctuations. Furthermore, if selling stockholders in
this offering sell substantial amounts of common stock in the public market, the
market price of our common stock could fall.
A FAILURE TO PAY DIVIDENDS MEANS YOU WILL RECEIVE NO INCOME ON YOUR
INVESTMENT AND SUCH LACK OF DIVIDENDS COULD HAVE AN ADVERSE IMPACT ON THE PRICE
OF OUR STOCK. We have never declared or paid any cash dividends on our common
stock, and we don't expect to pay dividends anytime soon. We expect to retain
our earnings, if any, and use them to finance the growth and development of our
business.
FORWARD LOOKING STATEMENTS. This prospectus and the information
incorporated into it by reference contains various "forward-looking statements"
within the meaning of federal and state securities laws, including those
identified or predicated by the words "believes," "anticipates," "expects,"
"plan" or similar expressions. Such statements are subject to a number of
uncertainties which could cause the actual results to differ materially from
those projected. Such factors include, but are not limited to, those described
under "Risk Factors." Given these uncertainties, prospective purchasers are
cautioned not to place undue reliance upon such statements.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares by
the Purchasers that it has obtained under the common stock purchase agreement.
However, we will receive the sale price of any common stock we sell to
the Purchasers under the common stock purchase agreement described in this
10
<PAGE>
prospectus and upon the cash exercise of the stock purchase warrants held by
the Finder. We expect to use the proceeds of any such sales for general working
capital purposes.
DIVIDEND POLICY
We have never paid cash dividends and do not intend to pay any cash
dividends with respect to our common stock in the foreseeable future. We intend
to retain any earnings for use in the operation of our business. Our board of
directors will determine dividend policy in the future based upon, among other
things, our results of operations, financial condition, contractual restrictions
and other factors deemed relevant at the time. We intend to retain appropriate
levels of our earnings, if any, to support our business activities.
PRICE RANGE OF COMMON STOCK
Ives' common stock has been traded on the Pink Sheets, symbol
"IVEH" since June 30, 1999, and on the OTC Bulletin Board since May 25, 2000.
The following table sets forth the high and low sales prices of Ives' common
stock for the period from June 30, 1999 through December 31, 1999, and the first
three quarters ended September 30, 2000. These prices reflect prices between
dealers without retail markups, markdowns or commissions, and may not
necessarily represent actual transactions:
<TABLE>
<CAPTION>
Trade Prices
-------------------
High Low
------ -------
<S> <C> <C>
Fiscal year ended December 31, 1999
Second Quarter $ 2.00 $ 1.20
Third Quarter $ 1.20 $ 1.20
Fourth Quarter $ .50 $ .03
Fiscal year ending December 31, 2000
First Quarter
Second Quarter $.500 $ 1.125
Third Quarter $.093 $ 1.00
</TABLE>
On October 25, 2000, the last reported sale price of Ives's
common stock on the OTC Bulletin Board market was $.120. As of October 25, 2000,
there were approximately 188 holders of record of Ives' common stock with
18,117,341 shares outstanding. The market price of shares of common stock, like
that of the common stock of many other emerging growth companies, has been and
is likely to continue to be highly volatile.
11
<PAGE>
DILUTION
The issuance of further shares to the Purchasers under the Stock
Purchase Agreement, and the eligibility of issued shares and shares issued
upon the exercise of warrants, for resale, will dilute our common stock and may
lower the price of our common stock. If you invest in our common stock, your
interest will be diluted by the issuance of additional shares to the Purchasers.
Furthermore, we may issue additional shares, stock options and warrants and we
may grant additional stock options to our employees, officers, directors and
consultants which may further dilute our stock price.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
OVERVIEW
The following is a discussion of certain factors affecting Ives's
results of operations, liquidity and capital resources. You should read the
following discussion and analysis in conjunction with Ives's audited and
unaudited financial statements and related notes which are included elsewhere in
this prospectus.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31,1999 COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1998 AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1999
Revenues were $469,567 for the year ended December 31, 1999 compared to
$394,854 for the year ended December 31, 1998. This represents a 19% increase in
revenue from 1998 to 1999. Cost of sales were $330,526 for the year ended
December 31, 1999 compared to $192,039 for the year ended December 31, 1998.
Selling expenses were $196,830 for the year ended December 31, 1999 compared to
$329,149 for the year ended December 31, 1998. General & Administrative expenses
were $532,563 for the year ended December 31, 1999 compared to $323,693 for the
year ended December 31, 1998. This change represents an increase of $208,870 or
65% over 1998 general and administrative expenses. This General & Administrative
expense increase was primarily due to increases in consulting expenses, legal
and accounting expenses, research and development expenses, fringe benefits to
employees and office clerical salaries. The ratio of the cost of sales with
respect to revenue increased substantially in 1999 to 70.4% compared to 48.6%
during 1998. This increase in the cost of sales was due to a substantial
increase in the price of herbal and animal extracts which are necessary to
manufacture Ives products. In addition, to be more competitive in the market,
Ives lowered the retail pricing on many products which resulted in a higher
ratio when comparing the cost of sales to revenue. Selling expenses decreased
substantially in 1999 as compared to 1998 due to cash flow restrictions and a
corresponding reduction in allocation of funds to the advertising budget. The
company posted a net loss of $(590,242) for the year ended December 31, 1999,
compared to a net loss of $(502,746) for the year ended December 31, 1998. A
total deficit of $(1,092,988) accumulated during the 1998-1999 development stage
of the company.
12
<PAGE>
During the second quarter of the year ending June 30, 2000, the Company
posted better sales performance compared to the same period in 1999. The net
sales for the three months ending June 30, 2000, was $185,785 as compared to
sales of $154,068 for the three months ending June 30, 1999. For the six months
ending June 30, 2000, the Company posted significantly higher sales compared to
the same period in 1999. The net sales of the six months ending June 30, 2000,
was $447,918 compared to $226,490 for the six months ending June 30, 1999. These
increases were primarily due to continued business with large chain pharmacies
and other national accounts plus revenues from Ives Formulation Company.
Earnings for the quarter ending June 30, 2000 were ($562,936) as compared to
$45,187 for the same period in 1999. This decrease was primarily due to the
asset purchase of a pharmaceutical formulation company and the creation of a
direct marketing subsidiary, both of which required a significant amount of
startup expenses. Much of the second quarter increase in expenses will not be
occurring again in the future and/or is expected to be offset by significant
increases in revenue. For the quarter ending June 30, 2000 gross profit was
$99,176 increasing from $95,386 for the same quarter in 1999 a 4% increase.
Cost of sales rose during the quarter ending June 30, 2000 to 46.6% of
sales as compared to the same period for 1999 which was 38.1% of sales. Cost of
sales ratios are expected to approach the 30-33% range as revenues increase.
Operating expense ratios as compared to sales were significantly higher for the
quarter ending June 30, 2000 as compared to the same period in 1999 due to the
acquisition of the assets of a pharmaceutical formulation company and associated
startup costs and the creation of a direct sales subsidiary. Operating expense
ratios are expected to decrease sharply as the new subsidiaries create more
revenue and require less expense contribution from the parent company.
The company has refocused sales efforts to large chain pharmacies by
hiring several brokers in strategic areas. These efforts have proven successful
and will result in less sales overhead. In addition, the company has also
created a direct sales subsidiary, NutraRight International, Inc., an Oklahoma
Corporation and wholly owned subsidiary of Ives. NutraRight is expected to
launch in November 2000 and will sell private label products directly to
consumers via the internet and through direct marketing distributors. The
company is expecting significant sales and profits from NutraRight.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999 and June 30, 2000, we had cash and working
capital of approximately $(214,669) and $49,248, respectively.
We do not have any pending material commitments regarding capital
expenditures. The Company is presently looking for $1.5 million in short and
long-term financing which is required to fund NutraRight, Ives Formulation
Company and secure regional television advertising that will help boost sales to
large chain pharmacies. However, our current sources of liquidity and cash are
insufficient to satisfy our cash needs beyond the next twelve months. We will
require additional capital to fund our operations and pursue our business
strategies. We expect to raise or obtain additional capital through the sale of
securities and through the exercise of outstanding stock warrants. There can be
no assurance that additional funds will be available. If adequate funds are not
available, there will be a material adverse effect on our business, financial
conditions and development strategies.
Management believes that to achieve its objectives, the Company should
seek additional funding of $750,000, whether it be through long-term debt or
additional sales of stock or both. The funds will be used for company expansion,
which will include the following: increasing inventory, significantly increasing
advertising expenses, creating a multi- level marketing division where private
label products will
13
<PAGE>
be sold to consumers directly over the internet, creating a hospital and doctor
direct division where the products purchased from Dr. Bedeen and Quantum
Resources will be sold directly to hospitals and doctors offices, creating an
international sales division where products will be sold abroad and retirement
of existing debt. Management also believes that the 4th quarter 1999 refocus on
large chain pharmacy sales should significantly increase sales of the company
which combined with the above company expansion will result in projected gross
sales of $2 million for the year 2000 with positive net earnings.
Due to the refocus on large chain pharmacy sales in the 4th quarter of
1999, company financial conditions had significantly improved by December 31,
1999. Since January 2000, Ives was posting positive operational cash flow. We
are presently providing working capital from the sale of inventory. However, we
are seeking to borrow additional working capital which will be used to implement
the aforementioned company expansion.
Since January, 2000, we have been servicing approximately $21,000 in
monthly short-term and long-term debt payments and are meeting this debt
service out of operational cash flow.
Product Development and Research Plan for the Next Twelve Months
Ives' research and development department currently operates
as follows: internal tracking, quality control, test results, product
development and other important data are done internally in conjunction with an
outside joint venture with Albertsons. Management plans to continue the
validation testing for current products and all new products introduced.
During the last half of 1999, Ives entered into a validation
testing agreement with Albertsons where 400 participants were enrolled
for validation testing in Oklahoma Albertsons pharmacies. The reason
for this program was to substantiate the efficacy of our products. Each
participant was given a 30 day supply of a specific product. A series of tests
were performed under a doctor's supervision on each participant as part of the
validation testing. The testing was completed on November 15, 1999. From these
tests it was determined that Ives products have an overall effectiveness of 83%.
This information is being used in Ives new Preventive Health Discount Plan where
Ives, pharmacy chains and insurance companies enter into agreements that provide
wellness to participants. The Ives Preventive Health Plan will be of significant
benefit to insurance companies (decreased claims and increased profits),
consumers (decreased drug expense, better health and lower insurance premiums),
companies ( better employee health, less absenteeism, increased employee
performance and lower insurance premiums), the participating pharmacy chains
(increased traffic, increased sales and increased profits), and will
significantly boost the sales of Ives products. The validation testing program
has validated the product claims of Ives and will be very important in the
expansion of Ives products, its markets, and the acceptance of its products by
the ultimate consumer.
DESCRIPTION OF BUSINESS
Ives is a development stage company that develops and markets
homeopathic medicines, weight loss formulas, natural remedies, and nutritional
supplements. We were incorporated under the laws of Oklahoma in February 1998.
The Company began operations in 1992 as Ives and Associates -- a sales and
distribution organization maintaining strong relationships with suppliers and
customers.
We began operations in the fourth quarter of 1992 as Ives and
Associates, a sales and distribution organization engaged in the business of
selling and distributing homeopathic supplements, weight loss
14
<PAGE>
products, vitamins, and other alternative medicines to the public through retail
grocery stores and other distribution outlets. In 1993 we incorporated in the
state of Oklahoma under the name Wellness Pharmaceutical, Inc. and in September,
1996 changed our name to Ives Health Company, Inc. In August, 1997, the
shareholders of Ives exchanged all of their issued and outstanding shares for
shares of Maxxon, Inc., a development stage company in the process of developing
a safety syringe shares in a tax free share exchange. As a result, Ives Health
Company became a wholly owned subsidiary of Maxxon. Pursuant to an agreement
between Maxxon, Inc. and M. Keith Ives, entered into and made effective December
31, 1997, Ives and Maxxon, Inc. agreed to separate. The separation was
accomplished by a split-off of non-monetary assets, a recapitalization and the
issuance of 7,000,000 shares of new Ives common stock to M. Keith Ives, and
1,700,000 shares of new Ives common shares to Maxxon, Inc. The new Ives began
operations January 1, 1998 and was incorporated in Oklahoma on February 12,
1998.
Products
The Company is engaged in developing and marketing innovative, safe,
high quality natural medicines and nutritional supplements, which are guaranteed
for potency and purity, including homeopathic medicines, weight loss formulas,
natural remedies, and nutritional supplements. The Company's products can
generally be grouped into four categories:
Homeopathic medicines (pure medicines)
Weight Management
Natural Remedies
Nutritional Snacks
Homeopathic Medicines
Homeopathic medicines, or "pure" medicines, help the body to help
itself. They have no synthetic chemicals, no additives, no coloring matter, no
flavoring, and no preservatives. They are scientific blends of specially
prepared natural extracts and have individual curative powers, that are matched
to the symptoms of an illness. The symptoms disappear gradually and naturally by
harnessing the body's natural defense mechanisms, thus removing the cause of the
ailment. Our homeopathic line includes products for aches and pains, acne,
allergy, antacid, arthritis, cough and sore throat, energy, headache, PMS, and
sinus.
Weight Management
Our premier product is an all-natural, effective and nutritious weight
management program -- The Pharmacy Health & Diet Program'TM' or PHD. PHD was
originally conceived by Dr. Jack Watkins, a doctor of naturopathic medicine,
then developed and improved by M. Keith Ives and Ives' staff. PHD's main
ingredient, Nutri-Lean, is featured in the prestigious Physicians' Desk
Reference. This program is a three-step process, which initially conditions the
body for weight loss, causes weight loss to occur, and then provides a healthy
weight maintenance plan once the desired target weight is reached. The program
does not require the dieter to go hungry nor does it deprive the body of needed
nutrition.
Natural Remedies
Natural remedies are products that use proven natural compounds to
combat every day illnesses and primarily to be used as a preventive measure. Our
feature products in this category are:
15
<PAGE>
T Factor, (an AIDS and Auto-Immune Illness treatment that
significantly raises T- Cell, CD-4, CD-24 and CD-26 blood
levels, thus greatly enhancing the immune system),
Immune 2000 (a scaled down version of T Factor for daily
immune system enhancement),
Arthritis Formula,
Cholest-Away (a cholesterol/triglyceride lowering and
maintenance product)
Relaxagent Anti-Stress Formula, and
Prostate Formula.
Nutritional Snacks
Leading the list of nutritional food supplements are products belonging
to our Vegi Snack Food Line, which was developed utilizing the results of
extensive research into cellular nutrition. Our premier product is Vegi Bears, a
product that looks and tastes like "gummi bears" but is supplemented with
nutrients from fruits and vegetables.
Business Strategy, Markets and Marketing Plan
According to Consumer Reports magazine, in February 1998 the weight
loss market was approximately $35 billion and projected to approach $60 billion
by the year 2005. We estimate that the size of the preventive health care market
in 1995 was $760 million and is now approaching 10 billion dollars annually.
There are 800+ firms that manufacture and/or distribute over-the-counter
products of this kind. There are approximately 17,000 chain pharmacies and
health food retail outlets. The number of independent pharmacies nationwide is
approximately 41,000. The pharmaceutical industry includes the manufacture and
distribution to the public of drugs and medicines. The industry was born in
response to the need to take physicians out of the role of manufacturing
medicines. Thus the industry now forms a needed bridge between physicians and
their patients. Some manufacturers both produce and distribute their products;
however, most manufacturers work with pharmaceutical distribution companies to
get their products to the retailers and subsequently to the consumer.
Historically, the products marketed by pharmaceutical companies have
been created solely for the purpose of treating existing conditions and
primarily, when recommended by physicians. With an increasing awareness by the
public of the benefits of preventive health care and natural alternative
medicines, i.e. no side effects, an increasing number of companies are
developing and marketing products to serve this awakening market. The bulk of
the market is still dedicated to products, which attempt to "cure" rather than
prevent illness. Our products focus on the market segment of preventive health
care products. The aim of our products is to improve the quality of life through
natural means.
While we have traditionally sold our products through niche marketing
and word-of-mouth advertising over the past few years, we have launched an
extensive advertising and marketing campaign in ten midwestern and southern
markets, including Florida and Texas, commencing in September, 2000.
16
<PAGE>
We sell the bulk of our products through wholesale distributors and
attempt to capitalize the success of our current wholesalers -- and generate
business with new wholesalers, while continuing to seek regional and national
chain pharmacies. Our primary distribution focus is through regional and
national chain pharmacies. We are currently distributing through Mays, Drug
Warehouse, Price Mart, Horizon, Pamida and The Medicine Shoppes (these are
regional chains). National chains currently selling our products on a regional
basis are Albertsons (2700 national locations), Dillons and Winn-Dixie (1200
plus national locations). We anticipate that the growth of the acceptance of our
products will result in the addition of other large grocery and/or
pharmaceutical chains as customers.
We have established a strong alliance with wholesale distributors who
sell to independent pharmacies and continued growth with these distributors is
another reason for our achieving nationwide distribution. Our most noted
strengths with our wholesalers are product quality, a strong in-store marketing
package, high profit margins for both the wholesaler and the retail pharmacy,
product and alternative medicine education, validation testing and outstanding
promotional incentives and profit margins in the industry.
Competition
Our principal competitors are as follows:
WEIGHT LOSS: Ultra Slim Fast, Weight Watchers, Nutra-System,
Jenny Craig, Dexatrim, Herbal Life, and Metabolyte.
HOMEOPATHIC MEDICINE: Nature's Way, Naturopath Medicines,
Boyron, and Centrum are our principal competetors in this
market.
NUTRITIONAL SUPPLEMENTS: Nature's Resource, Nature's Way, and
Centrum are our biggest competitors and control approximately
35% of the market. However, most of their distribution is
targeted through health food stores, i.e. GNC, Akins and a
variety of others.
Protection of Proprietary Technology
We own the trademark to NutraRight and for all of the products owned by
Ives Formulation Company, Inc.
Manufacturing and Product Approval Process
We market our products in the wholesale distribution market for
nutritional supplements. All of our products are sold strictly over-the-counter
and are non-prescription. On April 30, 2000, Ives Formulation Company, Inc., a
newly organized and wholly owned Oklahoma subsidiary of Ives purchased certain
assets from International Formulation and Manufacturing Company, Inc., of San
Diego, CA , or IFM. IFM is the primary supplier of certain products private
labeled by Ives. The purchase price consisted of $502,000 in cash, a promissory
note of $150,000 payable by Ives at $25,000 per month for 6 months beginning May
1, 2000, and 150,000 shares of Ives common stock. The Ives stock was issued in a
transaction exempt from registration pursuant to Section 4(2) of the Securities
Act.
The assets purchased consisted of various manufacturing equipment used
to mix, tabletize, encapsulate, and package natural non-prescription medicines;
certain inventory of finished goods and work in progress, certain office
furniture, computers, office machines, laboratory equipment, various
intellectual property rights, including the exclusive right to certain formulas
of products which Ives private labels. We intend to continue the use of the
above assets. As a result of this purchase, we now have control of the equipment
and personnel to supply us with the products we supply to our customers.
17
<PAGE>
Insurance
We believe that we carry adequate insurance coverage on all property
and equipment.
Material Contracts
We have an exclusive license agreement with Dr. Robert Slayton-Bedeen
relating to certain technology developed by Dr. Bedeen. The purpose of the
license agreement with Dr. Bedeen was to obtain all rights to formulations
(including the rights to manufacture, distribute and sell) that Dr. Bedeen had
developed with respect to products named, Immune 2000, T-factor and a
revolutionary burn creme. This agreement has not been significant to Ives in the
past. This agreement will be a significant part of Ives year 2000 expansion. The
aforementioned products will be the primary products sold in the new Hospital
and Doctor Direct Division of Ives which is scheduled to be created in the fall
of 2000.
Employees
We presently have 27 full time employees.
Facilities
Ives's principal executive office currently occupies approximately
13,200 square feet of space located at 817 N.J.M. Davis Blvd., Claremore, OK,
74017. We own the land and building at this address, and all furniture,
fixtures, and equipment. The balance due on the building mortgage as of June 30,
2000 was $149,161. The property is used primarily for packaging, storage and
shipping of Ives products and a lesser part of the building houses our corporate
offices. Ives's telephone number is (918) 283-1226 and its facsimile number is
(918) 283-1232.
Ives believes that its current facilities will meet Ives's office needs
until the closing of this offering, and that suitable facilities will be
available when, and if needed, to accommodate Ives's future operations.
Legal Proceedings
We are aware of no material legal proceedings against Ives.
18
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of
October 25, 2000 are as follows:
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
M. Keith Ives 42 President and Director
Michael Harrison 45 CEO and Director
Perry Ives 36 Vice-president and Director
JoEtta Hughes 43 CFO and Director
</TABLE>
All directors of Ives hold office until the next annual meeting of
shareholders or until their successors are elected and qualified. Currently,
there are six directors of Ives. The Bylaws permit the Board of Directors to
fill any vacancy and such director may serve until the next annual meting of
shareholders or until his successor is elected and qualified. Officers serve at
the discretion of the Board of Directors. M. Keith Ives, President, JoEtta
Hughes, CFO and Perry Ives, Vice President are siblings.
M. KEITH IVES, has been President of Ives since 1995. Mr. Ives,
upon graduating from Oklahoma State University in 1982, went to work for
McKesson Drug Co. as a territory sales manager where he gained expertise in
sales, pharmacology, marketing, business management, and business consulting.
After seven years with McKesson Drug Co., in 1987 he bought Ives and Associates,
an insurance agency through which he gained experience in personnel management,
sales management, and knowledge about the insurance industry and their role in
the pharmaceutical industry. Simultaneously, he became a distributor for a
direct marketing company in which he acquired the skills in applying direct
marketing to the pharmaceutical business.
MICHAEL HARRISON, was hired as CEO of Ives on December 27, 1999.
Mr. Harrison was a production manager for Oxy USA Inc., the largest
oil operation in the state of Kansas from 1987-1991. He was a financial
consultant for the corporate financial planning and analysis department of OXY
USA from 1991-1993 and evaluated 106 oil companies for possible acquisition
during 1992. Mr. Harrison was a co-instructor of an in-house business decision
making school for Oxy USA Inc. from 1991-1992. While at Oxy, he managed
divestment of $5 million of company properties at auction during 1992. From
1993-1996 Mr. Harrison served as the President of Hasty-Bake Barbecue Grill
19
<PAGE>
Company. From 1996-1999 he was the President of RPC Company, an industrial
powder coating operation.
JOETTA HUGHES, is CFO of Ives, a position she has held since
1993. Ms. Hughes has comprehensive experience in accounting, the
pharmaceutical industry, warehouse and personnel management with McKesson Drug
Co. where she was employed as branch manager from 1979-1989. From 1989-1991 she
was an assistant comptroller for a division of Coopers and Lybrand accounting
firm.. Ms. Hughes graduated valedictorian from Bryan Institute in 1981 with a
B.S. in computer programming and accounting. She is currently Vice President of
the local chapter of Business and Professional Woman's Federation as well as
state Membership Chair and she currently sits on the advisory boards for Rogers
University and Oklahoma State University.
PERRY IVES has been Vice President of Marketing for Ives since
1997. From 1994-1997, Mr. Ives worked at Ives as manager of production.
Mr. Ives has 13 years experience in employee relations and day to day operations
as maintenance supervisor for Southwest Properties, an apartment management
firm. He received his associates degree in computerized accounting at Condie
College in California in 1989.
FRED OBERLOH has been with Ives in its marketing department since 1996
and has been Ives' national sales manager since January 1999. Mr. Oberloh has
been in the pharmaceutical industry for over 20 years as a regional sales
manager with Pittman Moore Drug Company where he worked until January 1996.
CONFLICTS OF INTEREST
There are no agreements or understandings with any of our directors or
officers regarding termination of employment or change-in control arrangements.
LIMITATION ON LIABILITY OF DIRECTORS
Our Certificate of Incorporation provides for indemnification to the
full extent permitted by Oklahoma law of all persons it has the power to
indemnify under Oklahoma law. In addition, Ives' Bylaws provide for
indemnification to the full extent permitted by Oklahoma law of all persons it
has the power to indemnify under Oklahoma law. Such indemnification is not
deemed to be exclusive of any other rights to which those indemnified may be
entitled, under any bylaw, agreement, vote of stockholders or otherwise. The
provisions of our Certificate of Incorporation and Bylaws which provide
indemnification may reduce the likelihood of derivative litigation against Ives'
directors and officers for breach of their fiduciary duties, even though such
action, if successful, might otherwise benefit Ives and its stockholders.
20
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------
ANNUAL COMPENSATION
-------------------
AWARDS PAYOUTS
------ -------
RESTRICTED
NAME AND PRINCIPAL OTHER ANNUAL STOCK ALL OTHER
POSITION SALARY BONUS COMPENSATION AWARDS COMPENSATION
------------------ ------ ----- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Keith Ives, President, Director 1998 $64,125 -- -- -- --
Perry Ives, Vice President, Director 1998 $27,408 -- -- -- --
Jo Etta Hughes, CFO, Director 1998 $33,594 -- -- -- --
Tony Fauver, Production Manager 1998 $21,549 -- -- -- --
Keith Ives, President, Director 1999 $70,333 -- -- -- --
Perry Ives, Vice President, Director 1999 $32,165 -- -- -- --
Jo Etta Hughes, CFO, Director 1999 $43,552 -- -- -- --
Tony Fauver, Production Manager 1999 $28,252 -- -- -- --
Michael Harrison, CEO, Director 2000 $70,000 -- -- -- $3,600(1)
Keith Ives, President, Director 2000 $72,000 -- -- -- --
Perry Ives, Vice President, Director 2000 $36,000 -- -- -- --
Jo Etta Hughes, CFO, Director 2000 $60,000 -- ---- -- --
</TABLE>
(1) Represents $300.00 per month for a company car.
PRINCIPAL SHAREHOLDERS
The table sets forth certain information concerning the beneficial ownership of
our common stock as of the date of this prospectus, by (i) each person known by
us to be the beneficial owner of more than 5% of our common stock, (ii) each of
our named executive officers, (iii) each of our directors, and (iv) all
directors and executive officers as a group. Unless otherwise indicated, each of
the stockholders has sole voting and investment power with respect to the shares
beneficially owned.
21
<PAGE>
<TABLE>
<CAPTION>
Title of Class Name, Title and Address Shares Beneficially Shares Beneficially
-------------- ----------------------- Owner Prior to Offering Owned After Offering
of beneficial owners ------------------------- ------------------------
-------------------- Number Percent Number Percent
<S> <C> <C> <C> <C> <C>
Common M. Keith Ives, Officer/Director 8,186,374 45.19% 8,186,374 36.10%
817 North J.M. Davis Blvd.
Claremore, OK 74017
Common Maxxon, Inc., Beneficial Owner 1,200,000 6.62% 1,200,000 5.30%
8908 S. Yale Ave, Ste 409, Tulsa,
OK 74137
Common JoEtta Hughes, Officer/Director 699,984 3.86% 699,984 3.09%
817 North J.M. Davis Blvd.
Claremore, OK 74017
Common Perry Ives, Officer/Director 363,300 2.00% 363,300 1.60%
817 North J.M. Davis Blvd.
Claremore, OK 74017
Common Michael Harrison, CEO/Director 200,000 * 200,000 *
817 North J.M. Davis Blvd.
Claremore, OK 74017
Common All Officers and Directors as a 9,449,658 52.17% 9,449,658 41.66%
group ( 4 persons )
</TABLE>
* Indicates less than 1%
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1998, officers loaned the Company $91,044 to
cover certain operating expenses. During 1998, the Company repaid a total of
$81,711. The remaining note payable-officer balance of $41,752 accrues interest
at a rate of 10% per year. During 1999 certain officers & shareholders of the
company advanced $270,487 to the company to over certain operating expenses.
During the year a total of $191,101 was paid on these notes leaving a balance
due of $121,137 at December 31, 1999.
DESCRIPTION OF SECURITIES
Ives is authorized to issue 50,000,000 shares of Common Stock, par
value $0.001 per share, of which and 18,117,341 shares were outstanding as of
October 25, 2000.
22
<PAGE>
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share on
all matters submitted to a vote of the shareholders. Shares of Common Stock do
not have cumulative voting rights, and therefore the holders of a majority of
the shares of common stock voting for the election of directors may elect all of
our directors standing for election. Holders of a majority of the issued and
outstanding shares of Common Stock may take action by written consent without a
meeting. In the event of a liquidation, dissolution or winding up of the affairs
of Ives, whether voluntary or involuntary, and subject to the rights of the
holders of any outstanding shares of preferred stock, the holders of shares of
common stock shall be entitled to receive pro rata all of our remaining assets
available for distribution to our stockholders. The common stock has no
preemptive, redemption, conversion or subscription rights. All outstanding
shares of common stock are, and the shares of common stock to be issued pursuant
to this offering will be, fully paid and non-assessable. The issuance of common
stock or of rights to purchase common stock could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, a majority of our outstanding voting stock.
Holders of record of shares of Common Stock are entitled to receive dividends
when and if declared by the Board of Directors. To date, Ives has not paid cash
dividends on its Common Stock. Holders of Common Stock are entitled to receive
such dividends as may be declared and paid from time to time by the Board of
Directors out of funds legally available, therefore, Ives intends to retain any
earnings for the operation and expansion of its business and does not anticipate
paying cash dividends in the foreseeable future. Any future determination as to
the payment of cash dividends will depend upon future earnings, results of
operations, capital requirements of Ives financial condition and such other
factors as the Board of Directors may consider.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
BYLAWS AND CERTAIN OKLAHOMA STATUTES
Provisions of our certificate of incorporation and bylaws, may be
deemed to have an anti-takeover effect and may delay, defer or prevent a tender
offer or takeover attempt that a shareholder might consider in its best
interest, including those attempts that might result in a premium over the
market price for the shares held by shareholders.
Our certificate of incorporation authorizes the board of directors to
fill vacant directorships or increase the size of the board of directors. This
may deter a shareholder from removing incumbent directors and simultaneously
gaining control of the board of directors by filling the vacancies created by
such removal with its own nominees.
The bylaws also include requirements as to the form and content of a
shareholder's notice. These provisions may preclude shareholders from bringing
matters before an annual meeting of shareholders or from making nominations for
directors at an annual meeting of shareholders.
The authorized but unissued shares of common stock are available for
future issuance without shareholder approval. These additional shares may be
used for a variety of corporate purposes, including future public offerings
to raise additional capital, corporate acquisitions and employee benefit plans.
The existence of authorized but unissued and unreserved common stock could
render more difficult or discourage an attempt to obtain control of the Company
by means of a proxy contest, tender offer, merger or otherwise.
23
<PAGE>
Our certificate of incorporation provides that we may grant rights or
options to purchase any shares of our common stock of any class or series to
run for such period of time, for such consideration, upon such terms and
conditions, and in such form as our board of directors may determine. This
provision may allow the board to enact certain anti-takeover plans.
We are subject to Section 1090.3 of the Oklahoma General Corporation
Act. In general, Section 1090.3 prevents an "interested stockholder" from
engaging in a "business combination" with an Oklahoma corporation for three
years following the date that person became an interested stockholder, unless:
prior to the date such person became an interested stockholder, our
board of directors approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination;
upon consummation of the transaction that resulted in the interested
stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85% of our voting stock outstanding at the
time the transaction commenced, excluding stock held by directors who
are also officers of the corporation and stock held by certain
employee stock plans; or
on or subsequent to the date of the transaction in which such person
became an interested stockholder; the business combination is approved
by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of
two-thirds of the outstanding voting stock of the corporation not
owned by the interested stockholder.
Section 1090.3 defines a "business combination" to include:
any merger or consolidation involving the corporation and an
interested stockholder;
any sale, transfer, pledge or other disposition involving an
interested stockholder of 10% or more of the assets of the
corporation;
subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the
corporation to an interested stockholder;
any transaction involving the corporation which has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by the interested stockholder;
or
the receipt by an interested stockholder of any loans, guarantees,
pledges or other financial benefits provided by or through the
corporation.
For purposes of Section 1090.3, the term "corporation" also includes our
majority-owned subsidiaries. In addition, Section 1090.3 defines an "interested
stockholder" as an entity or person beneficially owning 15% or more of our
outstanding voting stock and any entity or person affiliated with or controlling
or controlled by such entity or person.
24
<PAGE>
If we have 1,000 or more shareholders and meet other conditions, we will be
subject to Oklahoma's control share act. With exceptions, this act prevents
holders of 20% or more of the voting power of our stock from voting their shares
for a period of three years unless the acquisition has been approved by our
shareholders in accordance with the act. This provision may delay the time it
takes anyone to gain control of us.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our bylaws include provisions whereby our officers and directors are to
be indemnified. Our certificate of incorporation also limits, to the fullest
extent permitted by Oklahoma law, a director's liability for monetary damages
for breach of fiduciary duty, including gross negligence. Under Oklahoma law,
however, a director's liability cannot be limited for:
breach of the director's duty of loyalty;
acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;
the unlawful payment of a dividend or unlawful stock purchase
redemption; or
any transaction from which the director derives an improper personal
benefit.
Oklahoma law does not eliminate a director's duty of care and this provision has
no effect on the availability of equitable remedies such as injunction or
rescission based upon a director's breach of the duty of care.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act,
and is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Executive
Registrar and Transfer Agency, Inc., 3118 West Thomas Road, Ste 707, Phoenix,
Arizona 85017.
STOCK PURCHASE AGREEMENT
OVERVIEW
We signed a common stock purchase agreement with the Purchasers on July
29, 2000, for the future issuance and purchase of shares of our common stock.
The stock purchase agreement establishes what is sometimes termed an equity line
of credit or an equity drawdown facility.
25
<PAGE>
In general, the drawdown facility operates like this: the investor, the
Purchasers have committed to provide us up to $2.4 million as we request it over
an 11 month period, in return for common stock we issue to them. Once every 20
trading days, we may request a draw of up to $200,000 of that money. The maximum
amount we actually can draw down upon each request will be determined by the
volume-weighted average daily price of our common stock for the 20 trading days
prior to our request. Each draw down must be for at least $60,000.
At the end of a 20 trading day period following the drawdown request,
the actual drawdown amount is determined based on the volume-weighted average
stock price during that 20-day period. We then use the formulas in the common
stock purchase agreement to determine the number of shares we will issue to
Purchasers in return for that money. The aggregate total of all draws cannot
exceed $2.4 million and no single draw can exceed $200,000, except for the
initial drawdown which may be up to $400,000. We are under no obligation to
request a draw for any period.
The per share dollar amount the Purchasers pay for our common stock for
each drawdown includes a 30% discount to the average daily market price of our
common stock for the 20-day period after our drawdown request, weighted by
trading volume.
We will receive the amount of the draw down less a 4% finder's fee
payable to Bondy & Schloss LLP, or the Finder, which introduced the Purchasers
to us. The Finder is a law firm and is named as an expert in this prospectus. It
is not obligated to purchase any of our shares, but as an additional finder
and escrow agent fee, we have issued to Bondy & Schloss LLP 200,000 shares of
common stock and warrants to purchase 544,000 shares of our common stock at an
exercise price of $.50 per share. The common stock issuable upon exercise of
those warrants is included in the registration statement of which this
prospectus is a part.
The common stock purchase agreement does not permit us to drawdown
funds if the issuance of shares of common stock to the Purchasers pursuant to
the drawdown would result in the Purchasers owning more than 19.9% of our
outstanding common stock on the drawdown exercise date.
Amount of the Draw
No draw can exceed the lesser of 200,000 and the capped amount that is
derived from the following formula:
26
<PAGE>
The average of the volume-weighted average daily prices for the 20 trading days
immediately prior to the date we give notice of the drawdown multiplied by 70%.
The lesser of our drawdown request and the capped amount is reduced by
1/20 for every day in the 20 trading days after our drawdown request that the
volume-weighted average daily price for a trading day is below the threshold
price set by us in the request. If the daily price for a day is below the
threshold price, we will not issue any shares and the Purchasers will not
purchase any shares for that day. We cannot make another drawdown request until
expiration of the 20 trading days that follow a drawdown request we have already
made.
Number of Shares
The 20 trading days immediately following the drawdown notice are also
used to determine the number of shares we will issue in return for the money
provided by Purchasers, and thus the price per share the Purchasers will pay for
our shares.
To determine the number of shares of common stock we must issue in
connection with a drawdown, take 1/20 of the drawdown amount determined by the
formulas above, and for each of the 20 trading days immediately following the
date we give notice of the drawdown, divide it by 70% of the volume-weighted
average daily trading price of our common stock for that day. The 70% accounts
for Purchasers' 30% discount. The sum of these 20 daily calculations produces
the number of common shares we will issue, unless the volume-weighted average
daily price for any given trading day is below the threshold amount, in which
case that day is ignored in the calculation. The price per share the Purchasers
ultimately pays is determined by dividing the final drawdown amount by the
number of shares we issue the Purchasers.
Necessary Conditions Before Purchasers Are Obligated to Purchase Our Shares
The following conditions must be satisfied before the Purchasers are
obligated to purchase the common shares that we wish to sell from time to time:
1. A registration statement for the shares must be declared effective by
the Securities and Exchange Commission and must remain effective and
available as of the draw down settlement date for making resales of the
common shares purchased by the Purchasers;
2. There can be no material adverse change in our business, ions,
properties, prospects or financial condition;
3. No statute, rule, regulation, executive order, decree, ruling or
injunction may be in effect which prohibits consummation of the
transactions contemplated by the stock purchase agreement;
27
<PAGE>
4. No litigation or proceeding nor any investigation by any governmental
authority can be pending or threatened against us or the Purchasers
seeking to restrain, prevent or change the transactions contemplated by
the stock purchase agreement or seeking damages in connection with such
transactions; and
5. Trading in our common shares must not have been suspended by the
Securities and Exchange Commission or the OTC Bulletin Board, or any
national market or exchange on which our stock is listed or trades.
On each drawdown settlement date for the sale of common shares, we must
deliver an opinion from our counsel about a number of these matters.
Restrictions on Future Financings
The common stock purchase agreement limits our ability to raise money
by selling our securities for cash at a discount to the market price until the
earlier of 11 months from the effective date of the registration statement of
which this prospectus is a part or the date which is 60 days after Purchasers
have purchased the maximum of $2,400,000 worth of common stock from us under the
common stock purchase agreement.
There are exceptions to this limitation for securities sold in the
following situations:
0 in a registered public offering which is underwritten by one or more
established investment banks;
0 in one or more private placements where the purchasers do not have
registration rights;
0 pursuant to any presently existing or future employee benefit
plan which plan has been or is approved by our stockholders;
0 pursuant to any compensatory plan for a full-time employee or key
consultant;
0 in connection with a strategic partnership or other business
transaction, the principal purpose of which is not simply to raise
money; and
a transaction to which the Purchasers gives its written approval.
28
<PAGE>
Indemnification of Purchasers
The Purchasers are entitled to customary indemnification from us for
any losses or liabilities suffered by them based upon material misstatements or
omissions from the registration statement and the prospectus, except as they
relate to information supplied by them to us for inclusion in the registration
statement and prospectus.
SELLING STOCKHOLDER
Overview
Common shares registered for resale under this prospectus constitute
25.23% of our issued and outstanding common shares as of October 25, 2000. The
number of shares we are registering is based in part on our good faith estimate
of the maximum number of shares we will issue to the Purchasers under the stock
purchase agreement. Accordingly, the number of shares we are registering for
issuance under the stock purchase agreement may be higher than the number we
actually issue under the stock purchase agreement.
The Purchasers
The Purchasers are engaged in the business of investing in publicly
traded equity securities for their own accounts. Investment decisions for the
Purchasers are made by their respective boards of directors. The Purchasers do
not currently own any of our securities as of the date of this prospectus. Other
than their obligation to purchase common shares under the stock purchase
agreement, they have no other commitments or arrangements to purchase or sell
any of our securities. There are no business relationships between the
Purchasers and us other than the stock purchase agreement.
29
<PAGE>
PLAN OF DISTRIBUTION
The Purchasers are offering the common shares for their accounts as
statutory underwriters, and not for our account. We will not receive any
proceeds from the sale of common shares by the Purchasers. The Purchasers may be
offering for sale up to 4,571,429 common shares acquired by them pursuant to the
terms of the stock purchase agreement more fully described under the section
above entitled "Stock Purchase Agreement". The Purchasers have agreed to be
named as a statutory underwriter within the meaning of the Securities Act of
1933 in connection with such sales of common stock and will be acting as
underwriters in the resales of the common stock under this prospectus. The
Purchasers have, prior to any sales, agreed not to effect any offers or sales
of the common stock in any manner other than as specified in the prospectus
and not to purchase or induce others to purchase common stock in violation of
any applicable state and federal securities laws, rules and regulations and
the rules and regulations of the OTC Bulletin Board. If the maximum number
of shares permitted to be issued pursuant to the common stock purchase
agreement and the warrants are in fact to be issued, we will seek shareholder
approval to increase the number of authorized shares.
To permit the Purchasers to resell the common shares issued to them
under the stock purchase agreement, we agreed to register those shares and to
maintain that registration. To that end, we have agreed with the Purchasers that
we will prepare and file such amendments and supplements to the registration
statement and the prospectus as may be necessary in accordance with the
Securities Act and the rules and regulations promulgated thereunder, to keep it
effective until the earliest of any of the following dates:
0 the date after which all of the common shares held by the Purchasers or
their transferees that are covered by the registration statement of
which this prospectus is a part have been sold under the provisions of
Rule 144 under the Securities Act of 1933;
0 the date after which all of the common shares held by the Purchasers or
their transferees that are covered by the registration statement have
been transferred to persons who may trade such shares without
restriction under the Securities Act of 1933 and we have delivered new
certificates or other evidences of ownership of such common shares
without any restrictive legend;
0 the date after which all of the common shares held by the Purchasers or
their transferees that are covered by the registration statement have
been sold by the Purchasers or their transferees pursuant to such
registration statement;
0 the date after which all of the common shares held by the Purchasers or
their transferees that are covered by the registration statement may be
sold, in the opinion of our counsel, under Rule 144 under the
Securities Act of 1933 irrespective of any applicable volume
limitations;
0 the date after which all of the common shares held by the Purchasers or
their transferees that are covered by the registration statement may be
sold, in the opinion of our counsel, without any time, volume or manner
limitations under Rule 144(k) or similar provision then in effect under
the Securities Act of 1933; or
30
<PAGE>
0 the date after which none of the common shares held by the Purchasers
that are covered by the registration statement are or may become issued
and outstanding.
Shares of common stock offered through this prospectus may be sold from
time to time by the Purchasers. We will supplement this prospectus to disclose
the names of any pledgees, donees, transferees or other successors in interest
that intend to offer common stock through this prospectus.
Sales may be made on the over-the-counter market or otherwise at prices
and at terms then prevailing or at prices related to the then current market
price, or in negotiated private transactions, or in a combination of these
methods. The selling stockholders will act independently of us in making
decisions with respect to the form, timing, manner and size of each sale. WE
HAVE BEEN INFORMED BY THE SELLING STOCKHOLDERS THAT THERE ARE NO EXISTING
ARRANGEMENTS BETWEEN ANY OF THE SELLING STOCKHOLDERS AND ANY OTHER STOCKHOLDER,
BROKER, DEALER, UNDERWRITER OR AGENT RELATING TO THE SALE OR DISTRIBUTION OF
SHARES OF COMMON STOCK WHICH MAY BE SOLD BY THE SELLING STOCKHOLDERS THROUGH
THIS PROSPECTUS. The Purchasers are underwriters in connection with resales of
their respective shares.
The common shares may be sold in one or more of the following manners:
0 a block trade in which the broker or dealer so engaged will attempt to
sell the shares as agent, but may position and resell portion of the
block as principal to facilitate the transaction;
0 purchases by a broker or dealer for its account under this prospectus;
or
0 ordinary brokerage transactions and transactions in which the broker
solicits purchases.
In effecting sales, brokers or dealers engaged by the selling
stockholders may arrange for other brokers or dealers to participate. Except as
disclosed in a supplement to this prospectus, no broker-dealer will be paid more
than a customary brokerage commission in connection with any sale of the common
shares by the selling stockholders. Brokers or dealers may receive commissions,
discounts or other concessions from the selling stockholders in amounts to be
negotiated immediately prior to the sale. The compensation to a particular
broker-dealer may be in excess of customary commissions. Profits on any resale
of the common shares as a principal by such broker-dealers and any commissions
received by such broker-dealers may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933. Any broker-dealer participating in
such transactions as agent may receive commissions from the selling stockholders
(and, if they act as agent for the purchaser of such common shares, from such
purchaser).
Broker-dealers may agree with the selling stockholders to sell a
specified number of common shares at a stipulated price per share, and, to the
extent a broker dealer is unable to do so acting as agent for the selling
stockholders, to purchase as principal any unsold common shares at a price
required to fulfill the broker-dealer commitment to the selling stockholders.
Broker-dealers who acquire common shares as principal may thereafter resell such
common shares from time to time in transactions (which may involve crosses and
block transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market, in negotiated transactions or otherwise at market
prices prevailing at the time of sale or at negotiated prices, and in connection
with such resales may pay to or receive from the purchasers of such common
shares commissions computed as described above. Brokers or dealers who acquire
common shares as principal and any other participating brokers or dealers may be
deemed to be underwriters in connection with resales of the common shares.
31
<PAGE>
In addition, any common shares covered by this prospectus which qualify
for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to
this prospectus. We will not receive any of the proceeds from the sale of these
common shares, although we have paid the expenses of preparing this prospectus
and the related registration statement of which it is a part.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the common shares may not simultaneously
engage in market making activities with respect to such securities for a period
beginning when such person becomes a distribution participant and ending upon
such person's completion of participation in a distribution, including
stabilization activities in the common shares to effect covering transactions,
to impose penalty bids or to effect passive market making bids. In addition, in
connection with the transactions in the common shares, the Purchasers and we
will be subject to applicable provisions of the Exchange Act and the rules and
regulations under that Act, including, without limitation, the rules set forth
above. These restrictions may affect the marketability of the common shares.
The selling stockholders will pay all commissions and its own expenses
any, associated with the sale of the common shares, other than the expenses
associated with preparing this prospectus and the registration statement of
which it is a part.
The price at which we will issue the common shares to the Purchasers
under the stock purchase agreement will be 70% of the volume-weighted average
daily trading price on the OTC Bulletin Board, for each day in the pricing
period with respect to each drawdown request.
LIMITED GRANT OF REGISTRATION RIGHTS
We granted registration rights to the Purchasers to enable them to sell
the common stock it purchases under the common stock purchase agreement. In
connection with any such registration, we will have no obligation:
o to assist or cooperate with the Purchasers in the offering or
disposition of such shares;
32
<PAGE>
o to indemnify or hold harmless the holders of any such shares (other
than the Purchasers) or any underwriter designated by such holders;
o to obtain a commitment from an underwriter relative to the sale of any
such shares; or
o to include such shares within any underwritten offering we do.
We will assume no obligation or responsibility whatsoever to determine
a method of disposition for such shares or to otherwise include such shares
within the confines of any registered offering other than the registration
statement of which this prospectus is a part.
We will use our best efforts to file, during any period during which we
are required to do so under our registration rights agreement with the
Purchasers, one or more post-effective amendments to the registration statement
of which this prospectus is a part to describe any material information with
respect to the plan of distribution not previously disclosed in this prospectus
or any material change to such information in this prospectus. This obligation
may include, to the extent required under the Securities Act of 1933, that
supplemental prospectus be filed, disclosing
o the name of any broker-dealers;
o the number of common shares involved;
o the price at which the common shares are to be sold;
o the commissions paid or discounts or concessions allowed to
broker-dealers, where applicable;
o that broker-dealers did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus, as
supplemented; and
o any other facts material to the transaction.
Our registration rights agreement with the Purchasers permits us to
restrict the resale of the shares the Purchasers have purchased from us under
the common stock purchase agreement for a period of time sufficient to permit us
to amend or supplement this prospectus to include material information. If we
restrict the Purchasers for more than 20 days in any 12-month period and our
stock price declines during the restriction period, we are required to pay to
the Purchasers cash to compensate the Purchasers for their inability to sell
shares during the restriction period. The amount we would be required to pay
would be the difference between our stock price on the first day of the
restriction period and the last day of the restriction period, for each share
held by the Purchasers during the restriction period that has been purchased
under the common stock purchase agreement.
33
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market
or the prospect of such sales by existing shareholders and warrant holders could
materially adversely affect the market price of our common stock. As of October
25, 2000, we had outstanding 18,117,341 shares of common stock A large majority
of our outstanding shares of common stock are either registered and therefore
freely tradable or may be transferred pursuant to Rule 144(k) under the
Securities Act, unless held by our "affiliates" as that term is defined in Rule
144 under the Securities Act. In June, 2000, we filed a Registration Statement
on Form S-8 under the Securities Act covering 1,811,565 shares of common stock
issued in consideration for services rendered. In August, 2000, we also filed a
Registration Statement on Form S-8 under the Securities Act covering 2,080,750
shares of common stock issued in consideration for services rendered. Upon
issuance, shares registered under such Registration Statements will be, subject
to Rule 144 volume limitations applicable to our affiliates, available for sale
in the open market.
Upon completion of this offering, assuming all of the shares are
purchased, Ives will have outstanding 22,688,770 shares of common stock Of these
shares, only the 4,571,429 shares offered in this offering and the 3,892,315
shares previously registered on Form S-8 will be freely tradable without
restriction, except for restrictions imposed by certain state regulatory
authorities, or registration under the Securities Act, except that any shares
purchased by an "affiliate" of Ives, as defined in the rules and regulations
promulgated under the Securities Act, will be subject to the resale limitations
under Rule 144 under the Securities Act. The remaining 14,225,026 shares of
outstanding common stock were issued and sold by Ives in private transactions in
reliance upon exemptions from registration under the Act. Such shares may be
sold only pursuant to an effective registration statement filed by Ives or an
applicable exemption, including the exemption contained in Rule 144 promulgated
under the Act.
In general, under Rule 144 as currently in effect, a shareholder,
including an affiliate of Ives may sell shares of common stock after at least
one year has elapsed since such shares were acquired from Ives or an affiliate
of Ives. The number of shares of common stock which may be sold within any
three-month period is limited to the greater of: (i) one percent of the then
outstanding common stock or (ii) the average weekly trading volume in the common
stock during the four calendar weeks preceding the date on which notice of such
sale was filed under Rule 144.
Certain other requirements of Rule 144 concerning availability of
public information, manner of sale and notice of sale must also be satisfied. In
addition, a shareholder who is not an affiliate of Ives (and who has not been an
affiliate of Ives for 90 days prior to the sale) and who has beneficially owned
shares acquired from Ives or an affiliate of Ives for over two years may resell
the shares of common stock without compliance with the foregoing requirements
under Rule 144.
No predictions can be made as to the effect, if any, that future sales
of shares, or the availability of shares for future sale, will have on the
market price of the common stock prevailing from time to time. Nevertheless,
sales of substantial amounts of common stock, or the perception that such sales
may occur, could have a material adverse effect on prevailing market prices.
34
<PAGE>
LEGAL MATTERS
Bondy & Schloss LLP, New York, New York, has advised us with respect to
the validity of the securities offered by this prospectus. Bondy & Schloss LLP
owns 200,000 shares of common stock of the Company.
EXPERTS
The financial statements of Ives Laboratories, Inc. as of December 31,
1999 and 1998 and for the years then ended and for the period from January 1,
1998 (date of inception) to December 31, 1999 included in this prospectus have
been audited by Henderson Sutton & Co., P.C., independent public accountants, as
stated in their report appearing elsewhere in this prospectus, and have been so
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form SB-2 with the SEC for
our common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement. You should refer to the
registration statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the registration statement or incorporated herein by
reference for the copies of the actual contract, agreement or other document.
Following this offering we will be required to file annual, quarterly and
special reports, proxy statements and other information with the SEC.
You can read our SEC filings, including the registration statement,
over the Internet at the SEC's Web site at HTTP://WWW.SEC.GOV. You may also read
and copy any document we file with the SEC at its public reference facilities at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and 7 World Trade
Center, Thirteenth Floor, New York, New York 10048. You may also obtain copies
of the documents at prescribed rates by writing to the Public Reference Section
of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference facilities.
35
<PAGE>
IVES HEALTH COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
Index to Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants F-2
Balance Sheets
December 31, 1999 and 1998 F-3
Statements of Operations
Years Ended December 31, 1999 and 1998 and Period From
January 1, 1998 (Date of Inception) to December 31, 1999 F-5
Statements of Cash Flows
Years Ended December 31, 1999 and 1998 and Period From
January 1, 1998 (Date of Inception) to December 31, 1999 F-6
Statements of Stockholders' Equity
Years Ended December 31, 1999 and 1998 and Period From
January 1, 1998 (Date of Inception) to December 31, 1999 F-8
Notes to Financial Statements F-10
Balance Sheet
June 30, 2000 and December 31, 1999 (Unaudited) F-16
Statements of Operations
Six Months Ended June 30, 2000 and 1999 and For the Three Months Ended
June 30, 2000 and 1999 F-18
Statements of Cash Flows
For the Periods June 30, 2000, March 31, 2000 and December 31, 1999 F-19
Notes to Condensed Financial Statements (Unaudited) F-20
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of Ives Health Company, Inc.:
We have audited the balance sheet of Ives Health Company, Inc., (A
Development Stage Company), an Oklahoma Corporation, as of December 31, 1999 and
1998 and the related statements of operation, shareholders' equity and cash
flows from January 1, 1998 (inception) to December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. 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 provides 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 Ives Health Company, Inc.,
(A Development Stage Company), as of December 31, 1999 and 1998 and the results
of its operations and its cash flows for the years ending December 31, 1999 and
1998 and from January 1, 1998 (inception) to December 31, 1999 in conformity
with generally accepted accounting principles.
HENDERSON SUTTON & CO., P.C.
/s/ HENDERSON SUTTON & CO., P.C.
--------------------------------
Certified Public Accountants
Tulsa, Oklahoma
March 15, 2000
F-2
<PAGE>
IVES HEALTH COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current Assets
Cash $ 3,165 $ 24,787
Accounts Receivable 78,704 8,853
Less Allowance For Doubtful Accounts (10,000) --
Inventories 153,970 156,819
Prepaid expenses 110,952 --
Loans to officers 5,000 --
----------- -----------
Total Current Assets 341,791 190,459
----------- -----------
Property and Equipment
Property, Plant & Equipment 491,180 445,586
Less Accumulated Depreciation 62,097 21,136
----------- -----------
Net Property and Equipment 429,083 424,450
----------- -----------
Other Assets
Goodwill-net 284,700 306,600
Deposit 600 900
Marketing design program-net 13,849 31,778
Investments 39,825 34,055
----------- -----------
Total Other Assets 338,974 373,333
----------- -----------
TOTAL ASSETS $ 1,109,848 $ 988,242
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 252,847 $ 179,940
Payroll & sales taxes payable 22,924 11,092
Accrued Expenses 11,283 22,998
Note payable to officer 121,137 41,752
Current Portion of Long Term Debt 151,434 272,219
----------- -----------
Current Liabilities 559,625 528,000
----------- -----------
Long-Term Liabilities
Notes Payable 681,758 556,904
Less current portion long-term debt (151,434) 272,219
----------- -----------
Total Long-term Liabilities 530,324 284,685
----------- -----------
Total Liabilities 1,089,949 812,685
----------- -----------
Shareholders' Equity
Common Stock (Par $.001) 12,847 9,578
12,846,946 and 9,577,650 outstanding at
December 31, 1999 and 1998 respectively
Additional Paid in Capital 1,100,040 668,725
</TABLE>
F-3
<PAGE>
<TABLE>
<S> <C> <C>
Retained earnings (1,092,988) (502,746)
----------- -----------
Total Shareholder's Equity 19,899 175,556
----------- -----------
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $ 1,109,848 $ 988,242
----------- -----------
</TABLE>
(The accompanying notes are an integral part of these Financial Statements)
F-4
<PAGE>
IVES HEALTH COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
JANUARY 1, 1998
(INCEPTION)
REVENUES TO DECEMBER 31, 1999 1999 1998
-------------------- ------------ ------------
<S> <C> <C> <C>
Sales $ 864,421 $ 469,567 $ 394,854
Cost of Sales 522,565 330,526 192,039
------------ ------------ ------------
Gross Profit 341,856 139,041 202,815
------------ ------------ ------------
OPERATING EXPENSES
Selling Expenses 525,979 196,830 329,149
General & Administrative Expenses 856,256 532,563 323,693
Depreciation & Amortization 105,222 77,694 27,528
Interest & Factoring Expense 97,387 72,196 25,191
------------ ------------ ------------
Total Operating Expenses 1,584,844 879,283 705,561
------------ ------------ ------------
NET OPERATING LOSS (1,242,988) (740,242) (502,746)
Gain On Contract Default 150,000 150,000 ---
Income Tax Expense --- --- ---
------------ ------------ ------------
NET LOSS $ (1,092,988) $ (590,242) $ (502,746)
------------ ------------ ------------
Weighted Average of Shares Outstanding 10,146,618 9,034,076
------------ ------------
Net Loss Per Share $ (.058) $ (.056)
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
IVES HEALTH COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net loss from operations $(590,242) $(502,746)
Depreciation 40,961 9,568
Amortization 36,641 26,189
Stock Issued for services 151,436 ---
(Increase) decrease in accounts receivable (59,851) 51,702
(Increase) decrease in inventories 2,848 (86,295)
(Increase) decrease in prepaid expenses (110,951) 27,806
Increase (decrease) in accounts payable 72,908 108,045
Increase (decrease) in accrued payroll taxes 11,832 7,612
Increase (decrease) in accrued expenses (11,716) 12,382
Liabilities assumed from old Ives --- (8,614)
Net Cash Provided (Used) by Operating Activities (456,134) (354,351)
--------- ---------
Cash Flows From Investing Activities
Loans to Officers (5,000) ---
Property Plant and Equipment (45,594) (424,892)
Deposits 300 3,380
Investments 13,418 (35,975)
Other Assets --- (34,055)
Equity acquired from old Ives --- (17,976)
Net Cash Provided (Used) by Investing Activities (36,876) (509,518)
--------- ---------
Cash Flows From Financing Activities
Notes payable to Officers 4,385 20,772
Long term debt 199,854 502,219
Sale of Common Stock for Cash, net of offering cost 267,387 358,417
Net Cash Provided (Used) by Financing Activities 471,387 881,408
--------- ---------
</TABLE>
F-6
<PAGE>
<TABLE>
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH (21,623) 17,539
CASH AT BEGINNING OF YEAR 24,787 7,249
CASH AT END OF YEAR $ 3,165 $ 24,787
Non-cash financing & investing activities:
Stock issued for investments $ 16,000 $ ---
Goodwill --- 328,500
Stock issued for services 151,436 ---
Stock issued for product formulas 16,000 ---
--------- ---------
$ 183,436 $ 328,500
========= =========
</TABLE>
(The accompanying notes are an integral part of these Financial Statements)
F-7
<PAGE>
IVES HEALTH COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
DEFICIT
PRICE COMMON STOCK DURING THE
PER -------------------- PAID-IN DEVELOPMENT
SHARE SHARES AMOUNT CAPITAL STAGE
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1998 $ --- --- $ --- $ --- $ ---
Shares Issued in Conjunction With .001 8,700,000 8,700 6,000 ---
The Maxxon/Ives Split-Off Transaction
To Record Goodwill 328,500 ---
Shares Issued Under 504 Offering .72 552,650 553 398,662 ---
Shares Issued to Employees & Officers .001 305,000 305 (305) ---
Shares Issued for Summa License .001 20,000 20 (20) ---
Less Offering Cost (64,112) ---
Net Loss For the Year (502,746)
----------------------------------------------------------------------
BALANCE DECEMBER 31, 1998 9,577,650 9,578 668,725 (502,746)
----------------------------------------------------------------------
Shares Issued to Employees & Officers .05 2,868,560 2,858 148,578 ---
for Services
Shares Issued Under 504 Offering .722 400,736 411 289,847
Shares Issued for Summa License .80 16,000
Less Offering Cost (23,110)
Net Loss For The Year (590,242)
----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 12,846,946 $ 12,847 $ 1,100,040 $ (1,092,988)
----------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
(The Accompanying notes are an integral part of these Financial Statements)
F-9
<PAGE>
IVES HEALTH COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Ives Health Company, Inc.
(the "Company") is presented to assist in understanding the Company's financial
Statements. The financial statements and notes are representations of the
Company's management who is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting principles
and have been consistently applied in the presentation of the financial
statements.
ORGANIZATION
Ives Health Company, Inc. ("IVES" or the "Company") was formed pursuant to
an agreement between Maxxon, Inc. and M. Keith Ives, entered into and made
effective December 31, 1997. IVES, (a wholly owned subsidiary of Maxxon, Inc.)
and Maxxon, Inc. agreed to separate. The separation was accomplished by, a
non-pro-rata split-off of non-monetary assets in accordance with Issue 96-4 of
the Emerging Issues Task Force, a recapitalization and the issuance of 7,000,000
shares of new Ives common stock to M. Keith Ives, and 1,700,000 shares of new
Ives common shares to Maxxon, Inc. The new IVES began operations January 1, 1998
and was incorporated in Oklahoma on February 12, 1998.
Ives Health Company, Inc. (A Development Stage Company) is engaged in
developing and marketing innovative, safe, high quality natural non-prescription
medicines and nutritional supplements. IVES products, which are guaranteed for
potency and purity, include natural medicines, herbal formulas, vitamins,
minerals and homeopathic medicines. The Company wholesales the products to
pharmacies.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid assets with maturities of three
months or less to be cash equivalents.
INVENTORY
Inventory consists primarily of bulk product that will be packaged into
capsules, bottled, and packaged for distribution to customers. Inventory is
stated at the lower of cost or market value using the first-in, first-out
method. Obsolete products are written off in the year they are determined to be
obsolete.
FISCAL YEAR END
The Company's fiscal year ends on December 31.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. All material property and
equipment additions are capitalized and depreciated on a straight-line basis
over the estimated useful life of the asset.
USE OF 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
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INCOME TAXES
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires the
measurement of deferred tax assets for deductible temporary differences and
operating loss carry-forwards, and of deferred tax liabilities for taxable
temporary differences. Measurement of current and deferred tax liabilities and
assets is based on provisions of enacted tax law. The effects of future changes
in tax laws or rates are not included in the measurement. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable for the period
and the change during the period in deferred tax assets and liabilities.
EARNINGS PER SHARE
Earnings (Loss) per Share
F-10
<PAGE>
The Company computes net income per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under
provision of SFAS No. 128 and SAB 98 basic net income (loss) per share is
calculated by dividing net income (loss) available to common stockholders for
the period by the weighted average shares of common stock of the Company
outstanding during the period. Diluted net income per share is computed by
dividing the net income for the period by the weighted average number of common
and common equivalent shares outstanding during the period. The calculation of
fully diluted income (loss) per share of common stock assumes the dilutive
effect of stock options outstanding.
Segment Information
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Company identifies its operating segments based on business activities,
management responsibility and geographical location. During the years ended
December 31, 1999 and 1998, the Company operated in the single business segment
engaged in developing and marketing selected healthcare products.
New Accounting Standards
The Company adopted SFAS No. 130, "Reporting Comprehensive Income" and SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information"
during 1998. The Company had no comprehensive income items during 1999 and 1998.
Therefore, net loss equals comprehensive income. The Company operates in only
one business segment. The company adopted SFAS No. 133, "Accounting for
Derivative Investments and Hedging Activities" during 1999. As of December 31,
1999, the Company did not engage in hedging activities or other transactions
involving derivatives.
REVENUE RECOGNITION
Revenue is recognized monthly based upon the terms of the sale. The Company
issues credit to customers on a discount basis of 2% if paid within ten days
of the invoice or the full balance due within thirty days of the invoice.
Management uses the allowance method of recognizing bad debts. A provision for
doubtful accounts was not required at December 31, 1999 and 1998 of $10,000
and $0, respectively.
NOTE 2 - PROPERTY AND EQUIPMENT
The following is a summary of the major classes of property and equipment:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1999 1998
----------- ----- ----
<S> <C> <C> <C>
Building 30 years $ 249,347 $ 249,347
Building Improvements 30 years 100,400 100,400
Land - ----- 20,000 20,000
Equipment 5-7 years 68,387 65,171
Furniture 5-7 years 11,075 10,668
Master Dies 5 years 4,355 -----
Vehicles 3 years 37,616 -----
-----------------------------------------------
491,180 445,586
Accumulated Depreciation 62,097 21,136
------------ -----------
Property and equipment (net) $ 429,083 $ 424,450
-----------
</TABLE>
NOTE 3 - OTHER ASSETS
GOODWILL
Effective December 31, 1997 M. Keith Ives exchanged 275,360 shares of
Maxxon Inc. common shares valued at $1.01 per share (using the average of
the last five trading days in 1997) for 7,000,000 common shares of the
Company's stock. Maxxon retained 1,700,000 shares of the newly formed Ives
Health Company, Inc. After the issuance of the 8,700,000 common shares, M.
Keith Ives owned 80.5% of the outstanding shares and Maxxon owned 19.5% of
the outstanding shares. The exchange was accounted for as a purchase using
the fair market value of the Maxxon common stock as consideration for 80.5%
of the newly formed company. The transaction was a non-pro-rata split-off
of certain non-monetary assets, whereby Maxxon exchanged assets for a
non-controlling interest in a new entity. The transaction was recorded in
accordance with the Emerging Issues Task Force Issues #96-4 and #89-7.
Goodwill in the amount of $328,500 was recorded with a resulting credit to
Paid-in Capital. The Goodwill is being amortized over its estimated useful
life of fifteen years.
F-11
<PAGE>
INVESTMENT IN LICENSING AND OPTION TO PURCHASE AGREEMENTS
On August 24, 1998, the Company entered into a License Agreement to the
rights to certain technology known as (1) the T-Factor Immune System
Optimizer and (2) The Burn Treatment Therapy. The rights to the technology
were acquired for future development of the technology for the consumer
market. The rights to the license, which included a royalty provision to
the seller and extends through August 24, 2049, were acquired for
approximately $25,000. The cost related to the license and rights were
capitalized and is being amortized over five years.
On July 30, 1999, the company purchased for $10,000 and expensed the cost
of the royalty provision that was required under the License Agreement. The
purchase thereby eliminated any royalty payments to the previous owner of
the technology.
In January 1998, Ives Health Company paid $10,000 for the option to
purchase VEGI-Snack Foods, Inc., where Ives had the exclusive right to sell VEGI
BEARS and related products and retained the right to purchase VEGI-Snack Foods,
Inc. until the end of 1999. The option to purchase VEGI-Snack Foods expired at
the end of 1999 and the $10,000 investment made to secure this purchase option
was written off during 1999.
<TABLE>
<CAPTION>
Investments 1999 1998
-----------
<S> <C> <C>
Veggie Snack Foods $ ----- $10,000
Quantum License 34,602 24,602
Summa Formulas 16,000 -----
----------------------------
Total Investments $ 50,602 $34,602
Accumulated Amortization (10,777) (547)
----------------------------
$ 39,825 $34,055
</TABLE>
Marketing Design Program
During 1998, the Company incurred $35,975 in costs related to the
development of a marketing design program. During 1999 the program was curtailed
and the cost and related accounts payable were reduced by $13,418. The remaining
costs are expected to benefit the Company over the five-year amortization
period.
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Marketing design $22,557 $35,975
Accumulated amortization (8,708) (4,197)
----------------------
Net capitalized $13,849 $31,788
</TABLE>
NOTE 4 - NOTES PAYABLE-OFFICERS
During 1998 M. Keith Ives and JoEtta Hughes, officers of the Company loaned
the Company funds to cover operating expenses. The notes accrue interest at a
Rate of 10% per year and are payable on demand. During 1998 payments were made
to the officer in the amount of $81,711 to reduce the note balances. As of
December 31, 1998, there remained a balance due JoEtta Hughes of $41,752. During
1999 certain officers & shareholders of the company advanced $270,487 to the
company to cover certain operating expenses. During the year at total of
$191,101 was paid on these notes leaving a balance due of $121,137 at December
31, 1999.
F-12
<PAGE>
<TABLE>
<CAPTION>
NOTE 5 - NOTES PAYABLE 1999 1998
<S> <C> <C>
NationsBank, N.A.
Note dated June 17, 1998 bearing interest @ 9%, due $ 39,613 $ 48,660
in sixty monthly installments of $1,097, principle and
interest through June 2, 2003. Note is secured by
inventory and equipment, a security agreement with
William D. Elliott, a shareholder and by a personal
guarantee of M. Keith Ives, an officer and major
shareholder of the Company. Certain personal assets of
Mr. Ives also collateralize the note.
Seven Brothers, LLC
Interest @ 8.5%, due in one hundred twenty monthly $ 154,305 $ 165,840
installments of $1,888, principle and interest, through
August 1, 2008. Note is secured by land and building.
Interest @ 45% calculated according to the actuarial ------ $ 30,000
Method, principle and interest due December 20, 1998.
Dr. Bedeen - Balance due on technology purchase. ------ $ 9,600
Paid during 1999.
State Bank & Trust, N.A.
Interest @ Wall Street Prime plus 1.5%, currently ------ $ 102,804
9.25%, due January 25, 1999.
Paid with financing from Armstrong Bank.This note
was secured by personal stock and an annuity
owned by M. Keith Ives. Mr. Ives also personally
Guaranteed the note.
State Bank & Trust, N.A.
Interest @ Wall Street Prime plus 1.5%, currently ------ $ 20,000
9.25%, payable monthly with principle due January
25, 1999. The note was retired with proceeds from
the Armstrong Bank financing. Mr. Ives personally
guaranteed this note.
Local America Bank
Interest @ 9.99%, in monthly installments of ------- $ 20,000
approximately $1,200 monthly through June 15, 2000,
personally guaranteed by M. Keith Ives and secured
by personal automobiles. Paid during 1999.
NOTE 5 - NOTES PAYABLE (CONTINUED) 1999 1998
Dr. Craft Loan Agreement
Dr. Craft advanced Ives $160,000 under an agreement ----- $ 160,000
to provide additional funding. Dr. Craft defaulted on
agreement and under terms of agreement $160,000 was retained
by Ives and booked as gain on contract default.
Armstrong Bank
Interest @ 9.30%. Originated July 9, 1999. $ 121,382 ------
Personally guaranteed by Dr. Bill Elliot (shareholder)
and M. Keith Ives.
Armstrong Bank
Interest @ 8.75%. Originated July 9, 1999. $ 273,849 -------
Personally guaranteed by Dr. Bill Elliot (shareholder)
and M. Keith Ives.
</TABLE>
F-13
<PAGE>
<TABLE>
<S> <C> <C>
Armstrong Bank
Interest @ 9.50 %. Originated June 18, 1999. $ 42,379 -------
Personally guaranteed by Dr. Bill Elliot (shareholder)
and M. Keith Ives.
State Bank
Interest @ 10.12%. Originated September 24, 1999 $ 19,755 -------
Personally guaranteed by M. Keith Ives.
Ford Motor Credit
Interest @ 8.90%. Originated August 3, 1999. Loans $ 30,476 -------
to purchase three automobiles. Secured
by three 1998 Ford Taurus automobiles. Monthly
payment equals $1075.
TOTAL NOTES PAYABLE $ 681,759 $ 556,904
------------ ---------
Less current maturities: $ 151,434 $ 272,219
--------- ---------
Long-term Debt $ 530,325 $ 284,685
========= =========
</TABLE>
Maturities of long-term debt is as follows for the next five years:
<TABLE>
<S> <C> <C>
2000 $ 151,434
2001 116,760
2002 122,215
2003 107,204
2004 105,682
Thereafter 78,464
---------
Total $ 681,759
---------
</TABLE>
NOTE 6 - INCOME TAXES
The Company has incurred net operating losses since inception and has a
loss carry-forward of approximately $1,093,000 at December 31, 1999, expiring in
years beginning 2014. Deferred tax assets have not been recorded for future
reduction in income taxes that may result from the net operating loss
carry-forward.
The deferred tax assets and liabilities are as follows at December 31,1999:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Net operating loss carry-forward $1,092,988 $ 502,746
Depreciation 16,480 8,252
---------- ---------
Total 1,076,508 510,998
Less valuation allowance (1,076,508) (510,998)
---------- ---------
Net Deferred Tax Liability $ 0 $ 0
---------- ---------
</TABLE>
Deferred taxes reflect a combined federal and state tax rate of approximately
40%. For financial reporting purposes, a valuation allowance equal to the
deferred tax asset has been established in accordance with the provisions of
FASB Statement No. 109, "Accounting for Income Taxes". The Company will
continually review the adequacy of the valuation allowance and will recognize
these benefits only as assessment indicates that it is more likely than not that
the benefits will be realized.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is defendant in lawsuits arising from normal business
activities. Management has reviewed pending litigation with legal counsel and
believes that the action is without merit or that the ultimate liability, if
any, resulting from it will not have a material adverse affect on the Company's
earnings, cash flows or financial position.
F-14
<PAGE>
NOTE 8 - COMMON STOCK AND ADDITIONAL PAID-IN-CAPITAL
In February 11, 1998, the Company issued 7,000,000 shares of common stock
to M. Keith Ives and 1,700,000 common shares to Maxxon, Inc., in accordance with
the separation agreement between M. Keith Ives and Maxxon, Inc.. The shares were
issued in a tax free exchange under the terms of the agreement.
From April 20, 1998 through December 31, 1998 the Company sold 877,650
shares of common stock to various purchasers pursuant to Rule 504 of Regulation
D and Section 4 (2) of the Securities Act of 1933. The 552,650 shares issued
under the 504 offering to individual investors were sold at an average purchase
price of $0.72 per share. The 305,000 restricted shares issued to employees and
officers, and 20,000 restricted shares issued to Summa Laboratories for the
purchase of rights to product formulas were issued at par value at an average
price of $0.001 per share. The stock certificates for Summa Laboratories were
prepared in 1998, but the terms of the agreement were not completed until 1999
when the Summa formula investment was recorded at a fair market value of $0.80
per share.
From January 1, 1999 through December 31, 1999 the Company sold 400,736
shares of common stock to various purchasers pursuant to Rule 504 of Regulation
D and Section 4 (2) of the Securities Act of 1933. The average purchase price
was $0.72 per share which includes commissions, fees and expenses.
During 1999 the Company issued 2,868,560 to various employees, officers and
directors pursuant to Rule 504 of Regulation D and Section 4 (2) of the
Securities Act of 1933. These shares were issued to employees, officers and
directors for services rendered and were issued at an average price of $0.05 per
share.
NOTE 9 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 1998, officers loaned the Company
$91,044 to cover certain operating expenses. During 1998, the Company repaid a
total of $81,711. The remaining note payable-officer balance of $41,752 accrues
interest at a rate of 10% per year.
During 1999 certain officers & shareholders of the company advanced
$270,487 to the company to cover certain operating expenses. During the year a
total of $191,101 was paid on these notes leaving a balance due of $121,137 at
December 31, 1999.
NOTE 10 - EARNING PER SHARE
The following table reconciles the number of common shares outstanding as
shown on the Balance Sheet with the weighted average common shares outstanding
as shown on the Statement of Operations for the year ended December 31, 1999 and
1998.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Common shares outstanding 12,846,946 9,577,650
Effect of using weighted average common
and Common equivalent shares outstanding 2,700,328 543,574
---------- ---------
Weighted average common shares outstanding 10,146,618 9,034,076
---------- ---------
</TABLE>
F-15
<PAGE>
IVES HEALTH COMPANY, INC.
BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30 Dec. 31
2000 1999
-------
<S> <C> <C>
Current Assets
Cash $ 12,486 $ 3,165
Accounts Receivable 18,955 78,704
Less Allowance For Doubtful Accounts -- (10,000)
Inventories 207,868 153,970
Prepaid expenses 117,597 110,952
Loans to Subsidiaries or Officers 189,071 5,000
----------- -----------
Total Current Assets 545,976 341,791
----------- -----------
Property and Equipment
Property, Plant & Equipment 502,036 491,180
Less Accumulated Depreciation (62,097) (62,097)
-----------
Net Property and Equipment 439,939 429,083
Other Assets
Goodwill-net 284,700 284,700
Deposits 600 600
Marketing design program-net 13,849 13,849
IFC Assets 560,500 --
Investments - Ives Formulation & Other 275,108 39,825
Total Other Assets 1,134,757 338,974
TOTAL ASSETS $ 2,120,672 $ 1,109,848
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 115,930 $ 252,847
Payroll & sales taxes payable 60,934 22,924
Accrued Expenses 11,282 11,283
IFC Current Liabilities 26,166 --
</TABLE>
F-16
<PAGE>
Balance Sheets (Continued)
<TABLE>
<CAPTION>
JUNE 30 DEC. 31
2000 1999
<S> <C> <C>
Note payable to Officers 140,369 121,137
Factoring Advance 28,552 --
Current Portion of Long Term Debt 129,139 151,434
----------- -----------
Current Liabilities 512,372 559,625
----------- -----------
Long-Term Liabilities
Notes Payable 1,001,991 681,758
IFC Long Term Liabilities 631,538 --
Less current portion long-term debt (129,139) (151,434)
----------- -----------
Total Long-term Liabilities 1,504,390 530,324
----------- -----------
Total Liabilities 2,016,762 1,089,949
----------- -----------
Shareholders' Equity
Common Stock (Par $.001) 15,753 12,847
15,752,650 and 12,846,946 outstanding at
June 30, 2000 and Dec. 31, 1999 respectively
Additional Paid in Capital 1,861,875 1,100,040
Retained Earnings (1,092,988) (502,746
Net Income (Loss) (680,730) (590,242)
----------- -----------
Total Shareholder's Equity 103,910 19,899
----------- -----------
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $ 2,120,672 $ 1,109,848
----------- -----------
</TABLE>
(The accompanying notes are an integral part of these Financial Statements)
F-17
<PAGE>
IVES HEALTH COMPANY, INC
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 AND
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
APRIL 1 - JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
SALES $ 447,918 $ 226,490 $ 185,785 $ 154,068
COST OF SALES 173,836 102,619 86,609 58,682
TOTAL GROSS PROFIT $ 274,082 $ 123,871 $ 99,176 $ 95,386
OPERATING EXPENSE
SELLING EXPENSE $ 211,948 $ 28,274 $ 133,458 ($ 22,009)
GENERAL & ADMINIS. 481,341 166,183 338,935 64,775
INTEREST & FACTORING 104,606 19,270 87,876 6,803
IFC EXPENSES 101,843 -- 101,843 --
TOTAL OPERATING $ 899,738 $ 213,727 $ 662,112 $ 49,569
EXPENSE
NET OPERATING ($625,656) ($ 89,856) ($562,936) $ 45,817
INCOME (LOSS)
NET INCOME ($625,656) ($ 89,856) ($562,936) $ 45,187
(LOSS) BEFORE TAX
</TABLE>
(The accompanying notes are an integral part of these Financial Statements)
F-18
<PAGE>
IVES HEALTH COMPANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDING JUNE 30, 2000, MAR. 31, 2000, AND DEC. 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
June 30 March 31 Dec. 31
2000 2000 2000
----- ---- ----
<S> <C> <C> <C>
Net Cash Provided (Used) (654,189) 119,358 (456,134)
By Operating Activities --------- --------- ---------
Net Cash Provided (Used) (797,702) (777,480) (36,876)
By Investing Activities --------- --------- ---------
Net Cash Provided (Used) 1,460,791 661,731 471,388
By Financing Activities ---------- ---------- ---------
NET INCREASE (DECREASE) IN CASH 8,900 3,609 (21,622)
CASH AT BEGINNING OF PERIOD 6,744 3,165 24,787
CASH AT END OF PERIOD $ 15,644 $ 6,744 $ 3,165
========= ========== =========
</TABLE>
(The accompanying notes are an integral part of these Financial Statements)
F-19
<PAGE>
Ives Health Company, Inc.
Notes to Financial Statements
Three Months and Six Months Ended June 30, 2000 and 1999, and December 31, 1999
NOTE 1 - SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Ives Health Company, Inc.
(the "Company") is presented to assist in understanding the Company's financial
Statements. The financial statements and notes are representations of the
Company's management which is responsible for the integrity and objectivity
thereof. These accounting policies conform to generally accepted accounting
principles and have been consistently applied in the presentation of the
financial statements.
ORGANIZATION
The Company was incorporated on February 12,1998 pursuant to an agreement
between Maxxon, Inc. and M. Keith Ives, entered into and made effective December
31, 1997. SEVI, (a wholly owned subsidiary of Maxxon, Inc.) and Maxxon agreed to
separate. The separation was accomplished by, a non-pro-rata split-off of
non-monetary assets in accordance with Issue 96-4 of the Emerging Issues Task
Force, a recapitalization and the issuance of 7,000,000 shares of The Company
common stock to M. Keith Ives, and 1,700,000 shares of The Company common shares
to Maxxon, Inc. The Company began operations January 1, 1998 and was
incorporated in Oklahoma on February 12, 1998.
The Company is engaged in developing and marketing innovative, safe, high
quality natural non-prescription medicines and nutritional supplements. The
Company's products, which are guaranteed for potency and purity, include natural
medicines, herbal formulas, vitamins, minerals and homeopathic medicines. The
Company wholesales their products to national, regional and local pharmacies.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid assets with maturities of three
months or less to be cash equivalents.
INVENTORY
Inventory consists primarily of bulk product that will be packaged into
capsules, bottled, and packaged for distribution to customers. Inventory is
stated at the lower of cost or market value using the first-in, first-out
method. Obsolete products are written off in the year they are determined to be
obsolete.
FISCAL YEAR END
The Company's fiscal year ends on December 31.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. All material property and
equipment additions are capitalized and depreciated on a straight-line basis
over the estimated useful life of the asset.
USE OF 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
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INCOME TAXES
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires the
measurement of deferred tax assets for deductible temporary differences and
operating loss carry-forwards, and of deferred tax liabilities for taxable
temporary differences. Measurement of current and deferred tax liabilities and
assets is based on provisions of enacted tax law. The effects of future changes
in tax laws or rates are not included in the measurement. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable for the period
and the change during the period in deferred tax assets and liabilities.
EARNINGS PER SHARE
Earnings (Loss) per Share
F-20
<PAGE>
The Company computes net income per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under
provision of SFAS No. 128 and SAB 98 basic net income (loss) per share is
calculated by dividing net income (loss) available to common stockholders for
the period by the weighted average shares of common stock of the Company
outstanding during the period. Diluted net income per share is computed by
dividing the net income for the period by the weighted average number of common
and common equivalent shares outstanding during the period. The calculation of
fully diluted income (loss) per share of common stock assumes the dilutive
effect of stock options outstanding.
Segment Information
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." The
Company identifies its operating segments based on business activities,
management responsibility and geographical location. During the years ended
December 31, 1999 and 1998, and in the first quarter of 2000, the Company
operated in the single business segment engaged in developing and marketing
selected healthcare products.
New Accounting Standards
During 1998 the Company adopted SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." Therefore, net loss equals comprehensive income. The
Company had no comprehensive income items during 1999 and 1998. The Company
operates in only one business segment. The Company adopted SFAS No. 133,
"Accounting for Derivative Investments and Hedging Activities" during 1999. As
of June 30, 2000, the Company did not engage in hedging activities or other
transactions involving derivatives.
REVENUE RECOGNITION
Revenue is recognized monthly based upon the terms of the sale. The Company
issues credit to customers on a discount basis of 2% if paid within ten days of
the invoice or the full balance due within thirty days of the invoice.
Management uses the allowance method of recognizing bad debts. A provision for
doubtful accounts was required at December 31, 1999, for a doubtful account of
$10,000.
F-21
<PAGE>
NOTE 2 - PROPERTY AND EQUIPMENT
The following is a summary of the major classes of property and
equipment:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE 1999
----------- ------
<S> <C> <C>
Building 30 years $ 249,347
Building Improvements 30 years 100,400
Land - 20,000
Equipment 5-7 years 68,387
Furniture 5-7 years 11,075
Master Dies 5 years 4,355
Vehicles 3 years 37,616
---------------------------
491,180
Accumulated Depreciation 62,097
-----------
Property and equipment (net) $ 429,083
----------
</TABLE>
NOTE 3 - OTHER ASSETS
GOODWILL
Effective December 31, 1997 M. Keith Ives exchanged 275,360 shares of Maxxon
Inc. common shares valued at $1.01 per share (using the average of the last five
trading days in 1997) for 7,000,000 common shares of the Company's stock. Maxxon
retained 1,700,000 shares of the newly formed Ives Health Company, Inc. After
the issuance of the 8,700,000 common shares, M. Keith Ives owned 80.5% of the
outstanding shares and Maxxon owned 19.5% of the outstanding shares. The
exchange was accounted for as a purchase using the fair market value of the
Maxxon common stock as consideration for 80.5% of the newly formed company. The
transaction was a non-pro-rata split-off of certain non-monetary assets, whereby
Maxxon exchanged assets for a non-controlling interest in a new entity. The
transaction was recorded in accordance with the Emerging Issues Task Force
Issues # 96-4 and #89-7. Goodwill in the amount of $328,500 was recorded with a
resulting credit to Paid-in Capital. The Goodwill is being amortized over its
estimated useful life of fifteen years.
The Company owns certain assets presently located in San Diego, California,
which are part of the April 30,2000, acquisition of assets of a formulation
company which are now operated under the name of Ives Formulation Company, Inc.,
a wholly owned subsidiary of the Company. These assets have a net value in
excess of $502,000.
NOTE 3 (CONTINUED)
INVESTMENT IN LICENSING AND OPTION TO PURCHASE AND PURCHASE AGREEMENTS
On August 24, 1998, the Company entered into a License Agreement with Dr.
Robert Bedeen for the rights to certain technology known as (1) the T-Factor
Immune System Optimizer and (2) the Burn Treatment Therapy. The rights to the
technology were acquired for future development of the technology for the
consumer market. These products achieved technological feasibility as of the
licensing date and have future uses in research and development and other
aspects of Ives' business. Dr. Bedeen conducted an 18 month study in Jakarta,
Indonesia, in which 186 AIDS patients were given the T-Factor medicine and their
T-cell count increased favorably from 3 to 22 points with an average increase in
T-cell count of 11 points per month. Studies performed on the burn creme showed
it to be very effective in clinical trials. The products have already been
developed for the consumer market by Dr. Bedeen and are expected to
F-22
<PAGE>
become two of Ives' primary products as soon as funds are available for
inventory build up and marketing. The rights to the license, which included a
royalty provision to Dr. Bedeen extends through August 24, 2049, were acquired
for approximately $25,000. The cost related to the license and rights were
capitalized and is being amortized over five years.
On July 30, 1999, the Company purchased for $10,000 and expensed the cost of
the royalty provision that was required under the License Agreement. The
purchase eliminated any future royalty obligations to the previous owner of the
technology.
In January 1998, Ives Health Company paid $10,000 for the option to purchase
VEGI-Snack Foods, Inc., in which Ives had the exclusive right to sell VEGI BEARS
and related products and retained the right to purchase VEGI-Snack Foods, Inc.
until the end of 1999. The option to purchase VEGI-Snack Foods expired at the
end of 1999 and the $10,000 investment made to secure this purchase option was
written off during 1999.
In April 2000, Ives Formulation Company, Inc., a wholly owned subsidiary of
Ives Health Company Inc., acquired the assets of International Formulation and
Manufacturing Inc., of San Diego, CA., a pharmaceutical formulation facility and
the primary vendor of the company. The acquired assets were as follows:
manufacturing equipment, office and lab equipment, inventory and intellectual
property. As of June 30, 2000, a total of $235,283 was booked as investment in
that transaction.
<TABLE>
<CAPTION>
Investments 2000 1999 1998
----------- ---- ---- ----
<S> <C> <C> <C>
Veggie Snack Foods $ ----- $ ------ $ 10,000
Quantum License ----- 34,602 24,602
Summa Formulas ----- 16,000 ------
Ives Formulation $ 235,283 ------ ------
----------------- -----------------------------------------------
Total Investments $ 235,283 $ 50,602 $ 34,602
Accumulated Amortization $ 0 (10,777) (547)
-----------------------------------------------
$ 235,283 $ 39,825 $ 34,055
</TABLE>
NOTE 4 - NOTES PAYABLE-OFFICERS
During 1998 M. Keith Ives and JoEtta Hughes, officers of the Company loaned
the Company funds to cover operating expenses. The notes accrue interest at a
rate of 10% per year and are payable on demand. During 1998 payments were made
to the officer in the amount of $81,711 to reduce the note balances. As of
December 31, 1998, there remained a balance due JoEtta Hughes of $41,752. During
1999 certain officers and shareholders of the Company advanced $270,487 to the
Company to cover certain operating expenses. During the year a total of $191,101
was paid on these notes, leaving a balance due of $121,137 at December 31, 1999.
<TABLE>
<CAPTION>
NOTE 5 - NOTES PAYABLE JUNE 30, 2000
<S> <C>
NationsBank, N.A.
Interest @ 9%. This Note originated June 17, 1998 $ 36,391
due in sixty monthly installments of $1,097, principal and
interest through June 2, 2003. This Note is secured by inventory
and equipment, a security agreement with William D. Elliott
a shareholder and by a personal guarantee of M. Keith Ives,
an officer and major shareholder of the Company. Certain
personal assets of Mr. Ives also collateralize this Note.
Seven Brothers, LLC
Interest @ 8.5%, due in one hundred twenty monthly $ 149,161
</TABLE>
F-23
<PAGE>
<TABLE>
<S> <C>
installments of $1,888, principal and interest, through
August 1, 2008. This Note is secured by land and building.
Armstrong Bank
Interest @ 9.30%. This Note originated July 9, 1999 $ 113,821
And is personally guaranteed by William Elliot
(shareholder) and M. Keith Ives.
Armstrong Bank
Interest @ 8.75%. This Note originated July 9, 1999 $ 257,807
And is personally guaranteed by William Elliot (shareholder)
and M. Keith Ives.
Armstrong Bank
Interest @ 9.50%. This Note originated June 18, 1999 $ 27,374
And is personally guaranteed by William Elliot (shareholder)
and M. Keith Ives.
State Bank
Interest @ 10.12%. This Note originated September 24, 1999 $ 16,554
And is personally guaranteed by M. Keith Ives.
Ford Motor Credit
Interest @ 8.90%. This Note originated August 3, 1999, as $ 25,882
to purchase three automobiles. This Note is secured by three
1998 Ford Taurus automobiles and bears a monthly
payment equaling $1075.
Loan From a Shareholder (Storms) $ 335,000
Interest @ 10% annually. This note is due on demand.
Loan From a Shareholder (Elliot) $ 40,000
Interest @ 10% annually. This note is due on demand.
TOTAL NOTES PAYABLE $ 1,001,991
------------------
Less current maturities: $ (129,139)
------------------
Long-term Debt $ 872,852
===========
</TABLE>
Maturities of long-term debt are as follows for the next five years:
<TABLE>
<S> <C>
2000 $ 151,434
2001 116,760
2002 122,215
2003 107,204
2004 105,682
Thereafter 78,464
-----------
Total $ 681,759
----------
</TABLE>
NOTE 6 - INCOME TAXES
F-24
<PAGE>
The Company has incurred net operating losses since inception and
has a loss carry-forward of approximately $1,093,000 at December 31, 1999,
expiring in years beginning 2014. Deferred tax assets have not been recorded for
future reduction in income taxes that may result from the net operating loss
carry-forward.
The deferred tax assets and liabilities are as follows at December
31,1999:
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Net operating loss carry-forward $1,092,988
Depreciation 16,480
-----------
Total 1,076,508
Less valuation allowance (1,076,508)
-----------
Net Deferred Tax Liability $ 0
-----------
</TABLE>
Deferred taxes reflect a combined federal and state tax rate of
approximately 40%. For financial reporting purposes, a valuation allowance equal
to the deferred tax asset has been established in accordance with the provisions
of FASB Statement No. 109, "Accounting for Income Taxes". The Company will
continually review the adequacy of the valuation allowance and will recognize
these benefits only as assessment indicates that it is more likely than not that
the benefits will be realized.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is defendant, in a lawsuit, arising from normal business
activities. Management has reviewed pending litigation with legal counsel and
believes that the action is without merit or that the ultimate liability, if
any, resulting from the action will not have a material adverse affect on the
Company's earnings, cash flows or financial position.
NOTE 8 - COMMON STOCK AND ADDITIONAL PAID-IN-CAPITAL
In February 12, 1998, the Company issued 7,000,000 shares of common stock to
M. Keith Ives and 1,700,000 common shares to Maxxon, Inc., in accordance with
the separation agreement between M. Keith Ives and Maxxon, Inc. The shares were
issued in a tax free exchange under the terms of the agreement.
From April 20, 1998 through December 31, 1998 the Company sold 877,650
shares of common stock to various purchasers pursuant to Rule 504 of Regulation
D and Section 4 (2) of the Securities Act of 1933. The 552,650 shares issued
under the 504 offering to individual investors were sold at an average purchase
price of $0.72 per share. The 305,000 restricted shares issued to employees and
officers, and 20,000 restricted shares issued to Summa Laboratories for the
purchase of rights to product formulas were issued at par value of $0.001 per
share, which was the fair market value at the time of sale. The stock
certificates for Summa Laboratories were prepared in 1998, but the terms of the
agreement were not completed until 1999 when the Summa formula investment was
recorded at a fair market value of $0.80 per share.
From January 1, 1999 through December 31, 1999 the Company sold 400,736
shares of common stock to various purchasers pursuant to Rule 504 of Regulation
D and Section 4 (2) of the Securities Act of 1933. The average purchase price
was $0.72 per share which includes commissions and expenses.
F-25
<PAGE>
During 1999 the Company issued 2,868,560 to various employees, officers and
directors pursuant to Rule 504 of Regulation D and Section 4 (2) of the
Securities Act of 1933. These shares were issued for services rendered and were
issued at an average price of $0.05 per share which was the fair market value at
the time of sale.
During the first quarter of 2000 a total of 10,000 shares of Ives Common
stock were sold to one investor for a price of $.70 per share pursuant to Rule
506 of Regulation D and Section 4(2) of the Securities Act of 1933.
During the second quarter of the year the Company issued 1,995,704 shares of
common stock in two different 506 offerings. In the first offering, commencing
April 7, 2000, 140,000 shares of common stock were sold for $.70 per share to
various investors pursuant to Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933. In the second offering, commencing May 7, 2000 and
continuing to June 30, 2000, 1,055,704 shares of common stock were sold and
traded for services rendered at an average price of $.48/share to various
individuals pursuant to Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933. A total of 800,000 shares were traded in the same
offering for interest reduction on debt.
As part of an asset purchase agreement the Company issued 150,000 shares of
common stock to International Formulation and Manufacturing Inc., of San Diego,
California. In addition, 750,000 shares of Company common stock were issued to
Dr. Jack Watkins for services rendered during the year 2000. This total of
900,000 shares of Company common stock were issued in a transaction exempt from
registration pursuant to Section 4(2) of the Securities Act.
As of June 30, 2000 there were 15,752,650 shares of common stock issued and
outstanding.
F-26
<PAGE>
PART II
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The General Corporation Act of the State of Oklahoma grants every
corporation the power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
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 expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding 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.
The Oklahoma statute also grants every corporation the power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action or suit by or in the right of
the corporation to procure a judgment in its favor 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 expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believes to be in
or not opposed to the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only to
the extent that the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
The Oklahoma statute provides that to the extent that a present or
former director or officer of a corporation has been successful on the merits or
otherwise in defense of any action, suit, or proceeding referred to in the
statute, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses, including attorneys' fees, actually incurred by
him in connection therewith.
Our bylaws provide that we shall indemnify to the full extent permitted
under the General Corporation Act of the State of Oklahoma any of our directors,
officers, employees, or agents, and provide for the mandatory advancement of
expenses incurred by our directors, officers, employees, and agents in defending
any action for which this indemnification may be available.
Our certificate of incorporation exculpates our directors from and
against certain liabilities. The certificate of incorporation provides that each
of our directors will have no personal liability to us or our shareholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (a) for any breach of the director's duty of loyalty to us or our
stockholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) for acts or omissions
specified in Section 1053 of the General Corporation Act of the State of
Oklahoma regarding the unlawful payment of dividends and the unlawful purchase
or redemption of the Registrant's stock, and (d) for any transaction from which
the director derived an improper personal benefit.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the certificate of incorporation. We are not aware
of any threatened litigation or proceeding that may result in a claim for such
indemnification.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses to be paid by Ives
in connection with the issuance and distribution of the securities being
registered, other than sales commissions. All amounts shown are estimates except
for amounts of filing and listing fees.
<TABLE>
<S> <C>
Filing fee of SEC...................................$ 633.60
Accounting fees and expenses........................$ 1,000
Legal fees and expenses.............................$35,000
Printing and engraving expenses.....................$10,000
Miscellaneous.......................................$ 1,366.40
----------
Total..............................................$48,000
==========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Registrant has sold the securities
listed below pursuant to exemptions from registration under the Securities Act.
February 12, 1998, the Company issued 7,000,000 shares of common stock
to M. Keith Ives and 1,700,000 common shares to Maxxon, Inc. at par value of
$0.001 per share in accordance with the split-off and separation agreement
between M. Keith Ives and Maxxon, Inc. The shares were issued in a tax free
exchange under the terms of the agreement.
From April 20, 1998 through December 31, 1998 the Company sold 552,650
shares of common stock to accredited individual investors pursuant to Rule 504
of Regulation D and Section 4(2) of the Securities Act of 1933 at an average
purchase price of $0.72 per share. The Company also sold 305,000 restricted
share to employees and officers for a price of $.001.
On September 28, 1998, the Company sold 20,000 restricted shares
pursuant to Rule 504 of Regulation D to Summa Laboratories for the purchase of
rights to product formulas, at par value of $0.001 per share. The stock
certificates for Summa Laboratories were prepared in 1998, but the terms of the
agreement were not completed until 1999 when the Summa formula investment was
recorded at a fair market value of $0.80 per share.
II-2
<PAGE>
From January 1, 1999 through December 31, 1999,, the Company sold
400,736 shares of common stock to accredited investors pursuant to Rule 504 of
Regulation D and Section 4(2) of the Securities Act of 1933. The purchase price
was $0.70 per share.
On December 28, 1999, the Company issued 2,868,560 common shares to
employees, officers and directors pursuant to Rule 504 of Regulation D and
Section 4(2) of the Securities Act of 1933. These shares were issued to
employees and officers for services rendered and were issued at a price of $0.05
per share.
There was no public offering of the shares. The shares were sold to
officers, directors and key consultants, and to purchasers in compliance with
Regulation D, Rule 504 of the Securities Exchange Act of 1933 or in compliance
with Rule 701.
The total offering price for the common stock sold for cash in 1998 and
1999 was $413,112 and $290,258, respectively. Ives paid $13,897 in commissions
and $87,222 in offering costs in connection with the sale of shares of Ives'
common stock. The total offering price for the common stock exchanged for
services rendered was $151,436.
During July 2000, Ives issued 200,000 shares of common stock to Bondy &
Schloss LLP in consideration for services rendered, valued at $.50 per share, in
reliance upon the exemptions from registration provided under Section 4(2) of
the 1933 Act.
The issuances described above were made in reliance upon the exemptions
from registration set forth in Section 4(2) of the Securities Act relating to
sales by an issuer not involving any public offering. None of the foregoing
transactions involved a distribution or public offering. No underwriters were
engaged in connection with the foregoing issuances of securities, and no
underwriting commissions or discounts were paid.
ITEM 27. EXHIBITS
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------
<S> <C>
3.1* Certificate of Incorporation of Ives Health Company, Inc.
3.2* Amended and Restated Certificate of Incorporation of Ives Health Company, Inc.
3.3* Certificate of Incorporation of Ives Health Company, Inc.
3.4* Amended and Restated Certificate of Incorporation of Ives Health Company, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
3.5* Amended and Restated Certificate of Incorporation of Ives Health Company, Inc.
3.6* Bylaws of Ives Health Company, Inc.
4.1* Specimen certificate for common stock of Ives Health Company, Inc.
5.1 Opinion of Bondy & Schloss LLP
10.1** Share exchange agreement between M.Keith Ives and Maxxon, Inc. dated December 31,
1997
10.2 Form of Common Stock Purchase Agreement dated July, 2000.
10.3 Form of Registration Rights Agreement dated July, 2000.
10.4 Form of Stock Purchase Warrant dated July, 2000.
10.5 Form of Employment Contract for Key Employees.
21.1 List of Subsidiaries of Ives Health, Inc.
23.1 Consent of Henderson Sutton & Co., P.C.
23.2 Consent of Bondy & Schloss LLP (included in Exhibit 5.1)
24.1 Power of Attorney (contained on page II-7 of the registration statement)
27.1 Financial Data Schedule for period ended June 30, 2000.
</TABLE>
----------------
* Filed as part of the Form 10SB-12G filed on December 15, 1999.
** Filed as part of the Form 10SB-12G/A filed on March 17, 2000.
(b) FINANCIAL STATEMENT SCHEDULES
Report of Independent Accountants
All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or the related notes.
II-4
<PAGE>
ITEM 28. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to :
(1) File, during any period in which it offers or sells securities,
a post-effective amendment to this Registration Statement to;
(i) Include any prospectus required by Section 10(a)(3) for the
Securities Act of 1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information set
forth in the Registration Statement; and
(iii) Include any additional changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
such post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial BONA
FIDE offering thereof.
(3) File a post-effective amendment to remove from registration any
of the securities which remain unsold at the end of the offering.
(4) Provide to the transfer agent at the closing, certificates in
such denominations and registered in such names as are required by the transfer
agent to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of
1933, as amended, the registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements of filing on Form SB-2 and
authorized this registration statement to be signed on its behalf by the
undersigned, in the City of Tulsa, State of Oklahoma on October 25, 2000.
IVES HEALTH COMPANY, INC.
/s/ Michael Harrison
--------------------
By: Michael Harrison
Chief Executive Officer
II-6
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael Harrison and/or M. Keith Ives,
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)
of and supplements to this Registration Statement and to file the same, with all
exhibits thereto, any other documents in connection therewith, with the
Securities and Exchange Commission, granting unto such 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, to all intents and
purposes and as fully as they might or could do in person, hereby ratifying and
confirming all that such attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the 25th day of October, 2000.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ M. KEITH IVES President and Director October 25, 2000
-----------------
M. Keith Ives
/s/ MICHAEL HARRISON CEO and Director October 25, 2000
--------------------
Michael Harrison
/s/ PERRY IVES Vice-President and Director October 25, 2000
--------------
Perry Ives
/s/ JOETTA HUGHES Secretary, Treasurer & Director October 25, 2000
-----------------
JoEtta Hughes
</TABLE>
II-7
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as ........................... 'TM'
The section symbol shall be expressed as ............................. 'SS'
