UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS UNDER SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
GO-RACHELS.COM CORP.
Minnesota
IRS EIN # 41 - 1766701
8120 Penn Avenue, Suite 140
Minneapolis, MN 55431
(612) 884-2305
Securities to be registered under Section 12(b) of the Act: None.
Securities to be registered under Section 12(g) of the Act: Common Stock,
no par value
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COMMON STOCK OTC BULLETIN BOARD
Title of each class Name of each exchange on which
to be registered each class is to be registered
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This Registration Statement on Form 10-SB contains forward-looking statements,
which reflect the Company's views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those identified below, which could cause actual
results to differ materially from historical results or those anticipated. The
words "aim," "believe," "expect," "anticipate," "intend," "estimate" and other
expressions which indicate future events and trends identify forward-looking
statements. Actual future results and trends may differ materially from
historical results or those anticipated depending upon a variety of factors,
including, but not limited to: the Company's ability to successfully and
profitably introduce Rachel's Gourmet Chocolates into the United States,
competition in the snack food business products, the Company's vendor
relationships, and the Company's ability to obtain additional equity or debt
financing on acceptable terms in order to continue operations and to retire debt
incurred by the Company.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL BUSINESS DEVELOPMENT
RLD Enterprises was incorporated under the laws of the State of Minnesota on
April 11, 1991. In 1995, RLD Enterprises acquired Rolar, Incorporated, a potato
chip manufacturing company in Menomonie, Wisconsin, as a wholly owned subsidiary
and launched the 's" line of gourmet potato chips. On October 31, 1997, Rolar,
Incorporated, changed its name to Rachel's Gourmet Snacks, Inc.
On June 30, 1997, RLD Enterprises acquired Triple-C-Inc., a Canadian corporation
with $16,000,000 in revenues, as a wholly owned subsidiary. Triple-C-Inc. is a
40 year old company based in Hamilton, Ontario that distributes name brand
confectionery products throughout Canada.
Square-Knot, Inc. was incorporated under the laws of the State of Minnesota on
June 11, 1996, and on October 31, 1997 acquired, as a wholly owned subsidiary,
RLD Enterprises, Inc. Square-Knot, Inc. changed its name on October 31, 1997 to
RLD Enterprises, Inc., and RLD Enterprises, Inc. changed its name effective
October 31, 1997 to Rachel's Gourmet Snacks, Inc. The officers and board of
directors of Rachel's Gourmet Snacks, Inc. were elected as the officers and
board of directors of RLD Enterprises, Inc. In addition, the Amended Articles of
Incorporation and Bylaws of Rachel's Gourmet Snacks, Inc. were approved as the
Amended Articles of Incorporation and Bylaws of RLD Enterprises, Inc. On January
29, 1999, RLD Enterprises changed its name to GO-RACHELS.COM CORP.
The "Company" means GO-RACHELS.COM CORP. and its subsidiaries Rachel's Gourmet
Snacks, Inc. and Triple-C-Inc. The Company's shares of common stock have been
quoted on the North American Securities Dealers Automated Quotation (NASDAQ)
Over-The-Counter Bulletin Board (OTC:BB) under the symbol "RACH," although the
Company's shares of common stock have recently been disqualified for quotation
on the NASDAQ OTC:BB (see "Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters" below).
The Company has not been the subject of any bankruptcy, receivership, or similar
proceedings.
PRODUCTS AND SERVICES
The Company, through its subsidiary Rachel's Gourmet Snacks, Inc., manufactures,
markets, and distributes great tasting, healthier "Home Style" gourmet potato
chips which are cholesterol free, and are relatively low in sodium and fat,
under the "Rachel's Made From the Heart" name. The Company, through its
subsidiary, Triple-C-Inc., a Canadian corporation, distributes confectionery and
specialty snacks. The Company intends to expand its current line of products to
include gourmet bagel chips, rye chips, and pretzels. The Company also intends
to introduce a line of confectionery products into the United States. There can
be no assurance, however, that the Company will be able to expand or introduce
new product lines (see "Products Offered" below).
In 1995, the Company developed and introduced the "Rachel's Made From the Heart"
line of gourmet potato chips while increasing its manufacturing capacity and
launching a Company-owned route operations.
In 1996, the Company acquired 100% of the assets, account base and distribution
routes of Lakeville Products, Inc. and DBR Enterprises, Inc., and formed
Rachel's Distributing, a division for the Company's route operations. On
December 31, 1998, the Company discontinued its route operations.
In May 1997, the Company entered into an agreement with Barrel O' Fun Snack
Foods, Co., whereby in June 1997 the Company began manufacturing potato chips
for Barrel O' Fun foodservice customers under the Barrel O' Fun brand, and
whereby Barrel O' Fun began distributing Rachel's Gourmet Potato Chips
throughout its eighty distributor network covering a ten state area. In August
1999, this relationship was terminated by Barrel O' Fun after Barrel O' Fun
increased production of its own potato chip products.
On June 30, 1997, the Company acquired in a purchase combination all of the
capital stock of Triple-C-Inc., a Canadian corporation that distributes
confectionery products throughout Canada. The acquisition price totaled
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$3,508,774 and consisted of 640,000 shares of the Company's common stock valued
at $1,811,200, cash of $1,360,755 (including $177,705 in acquisition costs), and
12% notes payable totaling $274,356. In connection with the transaction the
Company issued to Don Siemens as a "finder's fee" a warrant to purchase 100,000
shares of common stock of the Company at $3.00 per share (which was included in
the total acquisition price at a value of $62,463). The warrant issued to Mr.
Siemens expires on June 30, 2002. The allocation of the acquisition price was to
current assets of $4,585,082 (principally accounts receivable and inventory),
property and equipment of $294,819, other assets of $7,685, excess of cost over
net assets acquired of $2,624,624, notes payable to bank and others of
$1,963,603, and other current liabilities of $2,039,833 (principally accounts
payable and accrued expenses). The holders of the shares of the common stock
issued in connection with the acquisition had the right to require the Company
to purchase all or any part of 608,000 of those shares held by the holders on
any of the following dates at the share price stated:
Exercise Date Price
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April 1, 1999 $3.174
July 1, 1999 $3.127
October 1, 1999 $3.221
On October 1, 1999, the option of these holders to require the Company to
purchase their shares expired without the delivery of the prescribed notice of
exercise by the holders. Notwithstanding the expiration of this option, the
holders have asserted a claim that the Company must purchase their stock in the
Company, which assertion the Company disputes (see "Litigation" below).
In May 1998, the Company sponsored two Team Cheever Indy cars in the Indy Racing
League. The first race was the Indy 500 in which Eddie Cheever in the Team
Cheever Rachel's Gourmet Potato Chip Indy car took first place and Robbie Unser
driving the Rachel's Gourmet Potato Chip Indy car took fifth place. The Company
was unable to take advantage of the sales opportunities provided by the victory
and, on May 1, 1999, terminated the sponsorship agreement.
PRODUCTS OFFERED
GO-RACHELS.COM, CORP. produces "Home Style" gourmet potato chips under the
Rachel's "Made From the Heart" label. Rachel's Made From the Heart "Home Style"
gourmet potato chips are made with care and high-quality ingredients. Cooked one
batch at a time, Rachel's uses high oleic sunflower oil to achieve a healthy,
satisfying crunch that is 100% natural, low in polyunsaturates and high in
vitamin C. Rachel's potato chip products come in eight flavors: Steak & Onion,
Barbeque, Parmesan & Garlic, Salt & Vinegar, Jalapeno, Gourmet, Dill Pickle and
Hot Mustard. Each of these flavors is packaged in the following sizes: 1 oz.;
1.5 oz.; 5 oz.; 5 lb. Bulk, 10 lb. bulk and a Variety Pak consisting of six 1.5
oz. bags. Rachel's potato chip products are packaged in high-quality colorful
packaging to position the products in the gourmet potato chip market.
The Company intends to expand its current line of products to include bagel
chips, rye chips, pretzels, and other confectionery and specialty snacks in the
second half of calendar year 2000. This expansion will primarily be achieved
through private label arrangements, but may also be achieved through internal
development or through acquisitions. The costs for expansion through private
label arrangements in 2000 are estimated to be a total of $120,000, which will
be financed from cashflow of existing operations. There can be assurance,
however, that cash flow will be sufficient for this purpose. Costs for expansion
through other means are currently unknown, but could be substantially greater
than $120,000. In order to expand the Company's current product line by means
other than private label arrangements, the Company will probably be required to
raise additional capital, the prospects of which are uncertain (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" below).
Triple-C-Inc., a wholly-owned subsidiary of the Company, is one of Canada's
largest national distributors in its class and has gained a reputation as a
leading supplier to the children's candy market in Canada, the original
manufacturer of sour candy in North America, the company that established Advent
Calendars in Canada, and the company that introduced "Gummies" to the Canadian
market. Approximately 50% of Triple-C-Inc.'s confectionery sales are private
brand sales which sell under the Triple-C-Inc. name and/or various other
proprietary trademarks. The remainder of Triple-C-Inc.'s confectionery sales
consist of products manufactured by other companies.
Using Triple-C-Inc.'s marketing and branding capabilities, the Company is
developing a line of Rachel's Gourmet Candy. This product will be introduced
into the U.S. in the second half of the year 2000. The costs for expansion of
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the gourmet candy line in 2000 are estimated to be a total of $50,000, which
will be financed from cash flow of existing operations. There can be no
assurance, however, that cash flow will be sufficient for this purpose. Costs
for expansion through other means are currently unknown, but could be
substantially greater than $50,000. In order to expand the Company's current
product line relative to gourmet candy by means other than private label
arrangements, the Company will probably be required to raise additional capital,
the prospects of which are uncertain (see "Management's Discussion and Analysis
of Financial Condition and Results of Operations" below).
STATUS OF ANY PUBLICLY ANNOUNCED NEW PRODUCTS OR SERVICES
Except as noted above, the Company has not publicly announced any new products
or services in the past three years.
MARKETING
The success of the Company's marketing efforts will depend largely on five basic
and related focuses. These focuses form the foundation of the Company's
marketing strategies and will allow the Company to penetrate all trade segments.
The focuses are: packaging, pricing, sampling, distribution, and
promotion/marketing.
While the biggest purchases of snacks may be during the key holidays or events,
it is the Company's experience that most purchases of salty snacks and
confectionery products are made on impulse (about 80%). The Company's packaging,
color, and name are designed to capitalize on the impulse buyer, to enhance
consumer loyalty, and create a unique brand image/position for the Company's
products in the marketplace. Current purchasers of the Company's products, when
polled by the Company, said the reason they bought the Company's chips was the
Company's unique product offering. The reason customers continue to buy the
Company's products is the taste of those products.
The Company has positioned itself to offer high quality and unique products and
has chosen not to discount its retail pricing as is widely prevalent in today's
snack business. Rather, the Company is positioning itself as a "Gourmet Snack
Company" offering high quality unique products at a fair everyday price. The
Company, through its distribution network, will manage and execute target market
everyday pricing.
DISTRIBUTION METHODS OF PRODUCTS OR SERVICE
Getting consumers to try new products is always important. The Company
recognizes this and plans to devote an undetermined amount of marketing dollars
annually to ongoing sampling events. The basic assumption is that once people
have an opportunity to try the Company's products they will be repeat purchasers
and "word-of-mouth advertisers."
To accomplish full-channel distribution, the Company has elected to distribute
their lines of products through its North American network of food
brokers/distributors and its wholly-owned subsidiary, Triple-C-Inc.
The Company is establishing a distribution network throughout North America with
food brokers and distributors. Also, the Company has entered into a distribution
relationship with Sysco Food of Minnesota, Inc., which may open doors to a
distribution relationship with the largest food service company in North
America, although the Company has not yet ascertained or realized the benefit of
this relationship, nor does it have reason to believe that its products will be
distributed nationwide by Sysco Corp. in the foreseeable future. The Company
will distribute Triple-C-Inc.'s product line in the United States to U.S.
accounts of Rachel's Gourmet Snacks, Inc.
The Company, through various promotional outlets, is increasing product sales,
distribution and consumer awareness. The Company had been one of the primary
sponsors of the Minnesota Timberwolves basketball team and the St. Paul Saints
baseball team. These two promotional outlets allowed the Company to market
Rachel's Chips at the Timberwolves basketball games and every other event
presented at the Target Center in Minneapolis, Minnesota, and to market Rachel's
Chips at the Saints' baseball games, both reaching thousands of people each
year. The Company was unable to take advantage of the sales opportunities
provided by the relationships with the Timberwolves and St. Paul Saints and, on
May 1, 1999, discontinued these active sponsorship relationships, but continues
to work with both teams on community activities.
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In 1999, the Company began actively participating with several non-profit
organizations such as The MS Society and Children's Heart Fund. In addition to
the goodwill such events generate for the Company, participation in such
fundraisers provides the opportunity to present sample products to event
participants.
NEED FOR ANY GOVERNMENT APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES
The Company is not currently subject to any preconditioned government approval
for the sale of any of its products or services.
EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON THE BUSINESS
The Company, as a manufacturer and marketer of food items, is subject to
regulation by various government agencies, including the United States Food and
Drug Administration. Under various statutes and regulations, such agencies
prescribe requirements and establish standards for quality, purity, and
labeling. The finding of a failure to comply with one or more regulatory
requirements can result in a variety of sanctions, including monetary fines
and/or a compulsory withdrawal of product from store shelves. The Company may
also be required to comply from time to time with state and local laws
regulating food handling and storage.
Under the Nutritional Labeling and Education Act of 1990, as amended ("NLEA"),
food manufacturers are required to disclose nutritional information on their
labels in a uniform manner. The Company does not believe that compliance with
NLEA regulations has materially increased its manufacturing costs or had a
material effect on operations to date, but is unable to predict NLEA'S
regulations' effect on future products or the costs of compliance in the event
NLEA regulations are amended in the future.
In addition to laws relating to food products, the Company is subject to various
federal, state, and local environmental laws and regulations that limit the
discharge, storage, handling, and disposal of a variety of substances. The
Company does not believe that compliance with these other environmental laws and
regulations has materially increased its manufacturing costs or had a material
effect on operations to date, but is unable to predict these other environmental
laws and regulations' effect on future products or the costs of compliance in
the event these other environmental laws and regulations are amended or
supplemented in the future.
COMPETITIVE BUSINESS CONDITIONS AND THE COMPANY'S COMPETITIVE POSITION IN THE
INDUSTRY AND METHODS OF COMPETITION
Competition with all of the Company's products occurs primarily on the basis of
price and product quality. There are numerous competitors providing the same or
similar products as the Company, none of whom dominate the market. However, many
of these competitors have significantly greater sales and capital resources than
that of the Company. Management believes that its technical competence, pricing
structure, and the packaging of its products into interrelated systems allows
the Company to compete effectively in the market.
SOURCES AND AVAILABILITY OF RAW MATERIALS AND NAMES OF PRINCIPAL SUPPLIERS
Raw materials are purchased and available from numerous sources. Approximately
32% and 28% of the Company's merchandise in 1998 and 1999, respectively, was
purchased from two suppliers in the United States and Belgium.
DEPENDENCE ON ONE OR FEW MAJOR CUSTOMERS
The Company receives an overwhelming majority of its revenues from a variety of
retail customers, none of whom represent more than 5% of its sales.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS, OR
LABOR CONTRACTS
The Company uses trademarks including "Rachel's," "Rachels Made From the Heart"
and "Gourmet America's Finest."
Triple-C-Inc. uses trademarks including "Sour Simon," "Sour Soother," "Gummy
Guy," "Frogs," "Gummy Frogs," "Cola Bottles," "Belly trademarks," "Loonies
Chocolate Coins," "Goldie Dollar," "Amero," "Droppies," "Sourbolts," "Peaches &
Cream," "Just Peachy," Coins," "Barclay," and "Windsor."
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The Company has pursued and will continue to selectively pursue registration of
its trademarks with relevant state and national registration authorities as
appropriate.
The Company does not hold any patents. The Company is not a party to any
material license, franchise, concession, royalty agreement, or labor contract.
RESEARCH AND DEVELOPMENT
In the past two fiscal years, the Company has spent only nominal amounts on
internal and external costs relating to research and development on new and
existing product lines. All costs relating to research and development were
expensed as they were incurred. The Company does not anticipate spending more
than nominal amounts on internal and external costs relating to research and
development on new and existing product lines in the foreseeable future. This
may have some material adverse effect on the Company's ability to successfully
expand or introduce new product lines (see "Products Offered" above).
ENVIRONMENTAL COMPLIANCE
There have been no significant costs borne by the Company in an effort to comply
with environmental laws, and none are anticipated in the foreseeable future (see
"Effect of Existing or Probable Governmental Regulations on the Business"
above).
EMPLOYEES
The Company (including Triple-C-Inc.) employs 74 full-time and 10 part-time
employees, including management. The number of employees engaged in particular
operations of the Company (including Triple-C-Inc.) is as follows:
Warehouse/
Executive Administrative Manufacturing Distribution Sales Merchandisers
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8 19 11 19 19 8
REPORTS TO SECURITY HOLDERS.
Prior to the filing of this Form 10-SB, the Company has not filed any other
reports with the United States Securities and Exchange Commission. Once the
Company becomes a reporting company under the Securities Exchange Act of 1934,
management anticipates that all required reports and information will be timely
filed with the United States Securities and Exchange Commission. Likewise, to
the extent that the Company is required to deliver annual and quarterly reports
to security holders through its status as a reporting Company, or as may be
required by the rules or regulations of any exchange upon which the shares of
the Company are traded or quoted, the Company will deliver annual and quarterly
reports to all shareholders. If the Company issues additional shares, the
Company may file additional registration statements for those shares.
This report and any other information that the Company has filed with the United
States Securities and Exchange Commission may be read or copied at the SEC's
Public Reference Room at 450 Fifth Street, NW, Washington, DC 20529. The public
may obtain information on the operation of the Public Reference Room by calling
1-800-SEC-0330. The Commission maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the Commission. The Internet address of the
Commission's site is (http://www.sec.gov).
The Company also maintains an Internet website at http://www.go-rachels.com/.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
The Company remains optimistic about the future, but its prospects must be
considered and evaluated in light of the risks, operating and capital
expenditures required, and uncertainty of economic conditions that may impact
its operations. To achieve and sustain profitability and to remain viable, the
Company must successfully introduce and
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market additional new products, meet the demands of its customers, respond
quickly to changes in its market, and control expenses and cash usage, as well
as continue to attract additional capital investments.
The Company incurred net losses of $3,423,352 and $1,893,215 in 1998 and 1999,
respectively, and as of December 31, 1999, had an accumulated deficit of
$11,282,038. The Company will need additional financing in 2000. The Company is
pursuing plans to improve sales, reduce operating expenses, and obtain financing
through debt and equity placements; however, there is no assurance that the
Company can raise additional financing. The Company also has a material
uncertainty regarding a shareholder dispute (see "Litigation" below). These
conditions, among others, raise substantial doubt about the Company's ability to
continue as a going concern.
Currency Risk
A substantial portion of the revenues of Triple-C-Inc., the Company's
wholly-owned subsidiary, are expected to be realized in Canadian dollars. The
operating expenses of Triple-C-Inc. are primarily paid in Canadian dollars.
Fluctuations in the exchange rate of the Canadian dollar may have a material
effect on the Company's results of operations to the extent that the operations
of Triple-C-Inc. affect the operations and financial condition of the Company.
In particular, the Company may be adversely affected by fluctuations of the
value of the Canadian dollar as compared to the U.S. dollar. Under our current
policies, we use currency hedges (forward contracts, options, etc) on an as-need
basis to manage exposure to currency risk. There can be no assurance, however,
that such hedging will be successful.
Recent effects of currency fluctuations on the Company's operating expenses are
discussed below (see "Discussion Regarding Financial Condition").
Discussion Regarding Financial Condition
The Company's results of operations are for the years ended December 31, 1999
and 1998 (audited) and the three month periods ended March 31, 2000 and 1999
(unaudited). The results for the year ended December 31, 1999 are compared to
the previous year ended December 31, 1998, and the results for the three month
period ended March 31, 2000 are compared to the three month period ended March
31, 1999. Financial results for Triple-C-Inc. are included in the consolidated
financial statements for the Company, but are presented in addition to
consolidated financial information below where relevant.
Sales of $20,282,793 for the year ended December 31, 1999 were approximately the
same as those for the year ended December 31, 1998. Net loss for the year ended
December 31, 1999, was $1,893,215, or $.23 per share, compared to a net loss of
$3,423,352, or $.54 per share for 1998.
Sales for the quarter ended March 31, 2000 decreased 6% to $4,526,789 compared
to $4,797,392 for the quarter ended March 31, 1999. Sales of Rachel's potato
chips fell 42% through March 31, 2000, versus the same period the prior year.
The 42% drop in sales was primarily due to the decision by Barrel O' Fun,
formerly a major distributor of the Company's potato chip products, to increase
production of its own line of potato chip products and to stop distribution of
the Company's potato chip products (see "Products and Services" above).
Sales of Triple-C-Inc. for the year ended December 31, 1999 were $18,748,885,
compared to $17,373,356 for the year ended December 31, 1998. Sales at
Triple-C-Inc. for the quarter ended March 31, 2000 decreased by 2% compared to
sales for the quarter ended March 31, 1999. Sales of Triple-C-Inc. for the
quarter ended March 31, 2000 were $4,284,486, compared to $4,381,153 for the
year ended March 31, 1999.
Cost of goods sold decreased by $252,813 to $15,140,726 in 1999 from $15,393,529
in 1998. Cost of goods sold as a percentage of sales decreased by 1.5% to 74.6%
as compared to 76.1% for 1998. The improvement was primarily due to margin
improvement of 2.8% at Triple-C-Inc., primarily due to stabilization of the
Canadian dollar. For the quarter ended March 31, 2000, cost of goods was 74.6%
or $3,378,394 as compared to 75.6% or $3,625,678 for the same period in 1999,
primarily due to continued margin improvement at Triple-C-Inc.
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Operating expenses were $6,622,689 for the year ended December 31, 1999 compared
to $7,530,590 in 1998, a decrease of 12%. Expenses in 1998 were impacted by the
launch of a North American marketing program, including the sponsorship of Team
Cheever, a member of the Pep Boys Indy Racing League. The sponsorship of Team
Cheever was terminated in May, 1999, as the Company was unable to take advantage
of the sales opportunities provided by the relationship. Costs associated with
the Team Cheever program were approximately $500,000 in 1999 and $1,100,000 in
1998. Another negative impact on 1998 was the operating expenses of Rachel's
distributing route operations which were discontinued at the end of 1998. The
operating expenses of the route operation were approximately $580,000 in 1998,
including the write-off of goodwill of approximately $100,000.
Operating expenses for the three months ended March 31, 2000 decreased 7% to
$1,700,119 from $1,825,578 in the same period the prior year. The decrease is
due mainly to the termination of the sponsorship agreement with Team Cheever.
Net nonoperating expenses for the year ended December 31, 1999 were $393,793
compared to $837,227 for the year ended December 31, 1998. Other nonoperating
expenses decreased by $661,454. This change was primarily related to the change
in foreign currency transaction gains. In the year ended December 31, 1999,
there was a $341,392 gain on foreign exchange compared to a loss on foreign
exchange of $248,456 in the year ended December 31, 1998. The fluctuations in
foreign exchange were primarily at Triple-C-Inc. and caused by fluctuations of
the Canadian dollar in relation to other foreign currencies. Interest expense
increased by $218,020 to $679,626 in 1999 from $461,606 in 1998 because of the
increased debt necessary to fund operations. For the quarter ended March 31,
2000, foreign currency gains were $44,510 compared to a gain of $85,347 in the
same period in 1999. Interest expense for the quarter ended March 31, 2000 was
$168,106 compared to $153,459 for the same period in 1999. The increase is
primarily due to increased borrowing expense at Triple-C-Inc.
Income taxes increased by $129,100 to an $18,800 expense in 1999 from a $110,300
benefit in 1998. Income taxes were primarily affected by utilization in 1998 and
1999 of the 1998 Canadian operating losses of Triple-C-Inc.
Net loss for the three months ended March 31, 2000 decreased 20% to $569,132 or
$.07 per share from $713,271 or $.10 per share in the comparable period in 1999.
The improvement is due mainly to the reduction in expenses.
The Company is currently a defendant to various claims in litigation, and
judgments in excess of $140,000 in the aggregate have been awarded to the
plaintiffs in those actions (see "Legal Proceedings" below). Satisfaction of
these judgments may have a material adverse affect upon the financial condition
of the Company.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Triple-C-Inc. has a $7,500,000 Canadian dollars ("CD") revolving line of credit
facility with Congress Financial Corporation (Canada) expiring in 2003, subject
to a four year extension. Borrowings are repayable on demand, bear interest at
the prime rate plus 1.5% to 2% (as defined in the loan agreement), and are
collateralized by substantially all Triple-C-Inc. assets. Advances are subject
to defined limitations on the collateralized assets. Triple-C-Inc.'s use of the
line of credit facility is subject to operating covenants relating to tangible
net worth, additional debt, and dividends, among others. The Triple-C-Inc. line
of credit may not be utilized by the Company for its U.S. operations, and may be
cancelled at any time by the lender.
On June 7, 2000, Congress Financial Corporation (Canada) notified Triple-C-Inc.
that certain covenant defaults relative to the revolving line of credit facility
exist under the loan agreement. In discussions between the parties between June
7, 2000 and the date of this filing, Congress Financial Corporation (Canada) has
indicated that, in its opinion, Triple-C-Inc. has failed to meet the minimum
Adjusted Tangible Net Worth as required under the loan agreement, and that
Triple-C-Inc. had granted a security interest to a third party in violation of
the loan agreement. Triple-C-Inc. feels that the calculation of the Adjusted
Tangible Net Worth of the Company by Congress Financial Corporation (Canada) is
incorrect, as Congress Financial Corporation (Canada) is treating certain
chocolate coin inventory as having no value, while Triple-C-Inc. feels that this
chocolate coin inventory should be valued at its historical book value.
Triple-C-Inc. does not dispute that it has granted a security interest to a
third party in violation of the loan agreement, and is attempting to terminate
this security interest. As of the date of this filing, Triple-C-Inc. and
Congress Financial Corporation (Canada) continue discussions to resolve these
matters, although Congress Financial Corporation (Canada) has not, as of the
date of this filing, waived any default under the loan agreement, and there can
be no assurance that Congress Financial Corporation (Canada) will waive any
default under the loan agreement, and it is possible that Congress Financial
Corporation (Canada) will terminate the line of credit facility, which will have
a material adverse effect on Triple-C-Inc. and the Company.
The Company does not currently have any material credit facilities in place to
finance its U.S. operations, and is currently financing its U.S. operations out
of current cashflow. The Company is actively exploring alternatives to provide
operating capital for its U.S. operations. The Company estimates that it will
need at least $400,000 in operating capital over the next 12 months, of which
there can be no assurance of availability. The inability of the Company to
obtain additional capital financing will have a material adverse affect on the
Company's ability to continue operations.
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On December 31, 1999, the Company had outstanding bank letters of credit for
approximately $137,000 which are collateralized by a $70,000 restricted term
deposit included in other noncurrent assets. These letters of credit were put in
place because of the supplier relationships between Triple-C-Inc. and various
foreign suppliers of raw materials. In the Company's past experience, virtually
no claims have been made against these letters of credit. Management does not
expect any material loss will result from these instruments and, therefore, is
of the opinion that the liability value of these instruments is zero.
The Company issued $734,296, $1,285,997 and $145,000 of one year 12% unsecured
convertible subordinated debentures in calendar years 1998 and 1999, and the
three months ended March 31, 2000, respectively. The debentures issued in 1998,
1999 and 2000 were convertible into Company common stock at $4.80, $2.50 and
$2.50 per share, respectively, and were subordinated to other borrowings.
Debentures for $925,976 (including $191,680 of the 1999 debentures) were repaid
in 1999 and all of the debentures outstanding at December 31, 1997, were repaid
in 1998.
In 1999, Triple-C-Inc. issued $419,429 of one year 12% unsecured convertible
subordinated debentures. The debentures are subordinated to borrowings under the
bank line of credit and are convertible into common stock of Triple-C-Inc. at
80% of the Initial Public Offering (IPO) price only upon completion of a
Triple-C-Inc. IPO.
Net cash used in operating activities totaled $2,813,668 and $1,077,416 in 1998
and 1999, respectively, and $997,106 and $641,787 in the three months ended
March 31, 1999 and 2000, respectively. Operating cash flows resulted primarily
from net losses.
Net cash provided by (used in) investing activities totaled $4,220,180 and
$12,745 in 1998 and 1999, respectively, and $70,404 and $(19,382) in the three
months ended March 31, 1999 and 2000, respectively. Investing cash flows
resulted primarily from proceeds on the sale of marketable securities.
Net cash provided by (used in) financing activities totaled $(1,518,327) and
$1,085,344 in 1998 and 1999, respectively, and $915,008 and $700,333 in the
three months ended March 31, 1999 and 2000, respectively. Financing cash flows
resulted primarily from fluctuations in proceeds and payments on Company debt.
The following financial data has been taken from the Company's audited and
unaudited consolidated financial statements and is qualified in its entirety by
the financial statements and footnotes thereto included elsewhere in this
filing:
<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended March 31,
1998 1999 1999 2000
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales $ 20,227,704 $ 20,282,793 $ 4,797,392 $ 4,526,789
Net Loss $ (3,423,352) $ (1,893,215) $ (713,271) $ (569,132)
Total Assets $ 10,450,667 $ 10,032,119 $ 10,747,920 $ 10,397,583
Long-Term Debt $ 124,721 $ 56,521 $ 85,931 $ 47,274
Stockholders' Equity $ 2,595,242 $ 1,906,250 $ 2,188,020 $ 1,376,346
Per Share Data:
Dividends Per Share $ 0 $ 0 $ 0 $ 0
Net Loss $ (0.54) $ (0.23) $ (0.10) $ (0.07)
Weighted Average Number
of Shares Outstanding 6,382,208 8,079,345 7,433,926 8,622,824
</TABLE>
ITEM 3. DESCRIPTION OF PROPERTY
The Company leases the following real property with rental rates as follows:
* An 800 square feet of corporate offices in Bloomington, Minnesota for $1,070
per month on a month-to-month lease;
* a 10,000 square foot manufacturing plant in Menomonie, Wisconsin for $4,000
per month, increasing over the term of the lease to $4,800 per month, for a
period ending February 28, 2009;
* a 55,000 square foot Canadian Headquarters and warehouse in Hamilton,
Ontario for CD$27,656 per month for a period ending January 1, 2002;
* a 7,740 square foot office and warehouse in Calgary, Alberta for CD$8,345
per month for a period ending June 30, 2002;
* an 800 square foot office in Langley, British Columbia for CD$1,118 per
month for a period ending May 31, 2001; and
* a 600 square foot office in Montreal, Quebec for CD$876 per month for a
period ending March 31, 2002.
9
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of
the Company's common stock as of March 31, 2000 by each of the Company's
directors and executive officers.
<TABLE>
<CAPTION>
Name & Address Shares Owned Beneficially & Of Percentage of Total Stock
Record Outstanding
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lawrence J. Castriotta 300,000(1) 2.3%
President, CEO & Chairman of the Board of Directors,
GO-RACHELS.COM CORP.
Leo Short 210,000(2) 1.6%
Executive V.P., Sales & Marketing, GO-RACHELS.COM CORP.
Kent W. Hammond 100,000 *
V.P. Specialty Marketing, GO-RACHELS.COM CORP.
Harm Scholtens 277,536(3) 1.9%
Director, GO-RACHELS.COM CORP.
V.P. Sales & Marketing, Triple-C-Inc.
Curtis Russell 200,000 1.5%
C.O.O., Triple-C-Inc.
Danny Bob Berenberg 0 *
Director, GO-RACHELS.COM CORP.
ALL OFFICERS AND DIRECTORS 1,053,536 7.3%
</TABLE>
* Less than 1%
(1) Includes Mr. Castriotta's option to purchase 200,000 shares of common stock
within the next 60 days at $1.00 per share.
(2) Includes Mr. Short's option to purchase 210,000 shares of common stock
within the next 60 days at $1.00 per share.
(3) Includes Mr. Scholtens' option to purchase 100,000 shares of common stock
within the next 60 days at $5.50 per share.
No person, group or entity has beneficial ownership of 5% or more of the
outstanding equity in the Company.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Lawrence Castriotta
Lawrence Castriotta joined the Company and was named President, CEO and elected
a Member of the Board of Directors of the Company in August 1999. Mr. Castriotta
has assumed the title of Chairman of the Board of Directors upon the resignation
of Mr. James Garlie as Chairman of the Board of Directors on November 2, 1999,
and the subsequent resignations of all other previous Board Members at about the
same time.
Mr. Castriotta has more than 30 years in consumer marketing and retailing
experience. From 1990 to 1997, he served as Chairman and CEO of Spectrum
Services, Inc. a Minneapolis manufacturer of custom designed horse trailers. He
Co-Founded (in 1985) and served as President and Board Member of Image
Retailing, Inc., a publicly traded retailer of consumer electronics located in
Edina, Minnesota from 1985 to 1989. He was also Executive Vice President and
Board Member of Schaak Electronics, Inc., a St. Paul electronics retailer, from
1980 to 1984 and Vice President of Merchandising for Dayton-Hudson's Team
Electronics division from 1977 to 1980. Mr. Castriotta received his B.S. from
Boston University and his MBA from Harvard University.
10
<PAGE>
Leo Short III
Leo Short III joined the Company as Executive Vice President in February 1996.
Mr. Short has significant experience in the snack food industry. After starting
his career at Campbell Soup Company where he was employed from 1974 to 1978, he
worked for Frito-Lay (the largest US manufacturer of potato chips) from 1978 to
1992, and was a self-employed consultant from 1993 to 1996. In addition to
working his way up from District Sales Manager to Regional Sales Manager to
Division Sales Manager to one of twenty-two Area Vice Presidents, building and
managing hundreds of routes along the way, Leo received several awards including
"Division Manager of the Year" and runner-up to Frito-Lay's highest honor, the
"Herman Lay Award". He was also responsible for launching Sunchips, which became
a $200,000,000 line for Frito-Lay.
Curtis Russell
Curtis Russell became Chief Operating Officer of Triple-C-Inc. in June, 1999.
Mr. Russell has 10 years experience in the food service industry where he was
responsible for purchasing, production, inventory and cost controls for such
companies as Campbell Soup Co., where he was employed from 1976 to 1977, and
International Multifoods, where he was employed from 1977 to 1981. Mr. Russell
was employed in the hospitality and food service industries from 1981 to 1985,
was employed in the investment banking industry, including as head trader and as
compliance officer for various banking and investment companies from 1985 to
1997, and was employed by the Company from 1997 until his appointment as the COO
of Triple-C-Inc. in June, 1999.
Harm Scholtens
Harm Scholtens is Vice President of Sales and Marketing of Triple-C-Inc. He has
34 years of service with the Company and is responsible for the development of
the successful proprietary brands that the Company markets throughout Canada and
the development of the extensive distribution network of the Company.
Kent W. Hammond
Kent W. Hammond joined the Company on November 1, 1999, as Vice President for
Specialty Marketing. Mr. Hammond has in excess of 25 years of consumer marketing
and retailing experience. He has worked as a buyer at Dayton Hudson Corp.'s Team
Electronics in Minneapolis, where he was employed from 1975 to 1978, was
employed with SER, Inc., a consumer electronics manufacturer's representative
firm in Chicago, from 1978 to 1981, and was the National Merchandise Manager for
Sanyo America in Los Angeles from 1981 to 1988 . He was the Vice-President of
Marketing for Solar Reflective Fabric, Inc., a Minnesota fabric company, from
1991 to 1997, and was also employed with Klein Volvo, a large Minneapolis
automobile dealer, from 1997 to 1999 . Mr. Hammond is responsible for the
e-commerce web sites operated by the Company and heads up the development of
Rachel's Gourmet Chocolates.
Danny Bob Berenberg
Danny Bob Berenberg is the President and CEO of Lincoln Dels, Inc., and
President of Lincoln Baking, of which he has been the owner since his purchase
of the companies in 1993, and Chief Manager of Crystals International, LLC, of
which he has been the owner since his purchase of the company in 1996. Each of
Lincoln Dels, Inc., Lincoln Baking, and Crystals International, LLC are food
service companies located in the Minneapolis area. He is Chairman of the Board
of the Bloomington Minnesota Convention and Visitors Bureau, Member of the Board
of the Bloomington Hospitality Association, Vice Chair of the Bloomington
Community Foundation, and a Member of the Board of Directors of The Thunderbird
Hotel and Convention Center Corporation, both Bloomington, Minnesota
hospitality companies. He received his Bachelors and JD degrees from the
University of Minnesota.
11
<PAGE>
The names, ages, and respective positions of the officers and directors of the
company are set forth below:
Name Age Position
--------------------------------------------------------------------------------
Lawrence J. Castriotta 54 Chairman of the Board, President and
CEO, GO-RACHELS.COM CORP.
Leo Short III 47 Exec. V. P. of Sales & Marketing,
GO-RACHELS.COM CORP.
Curtis Russell 41 C.O.O., Triple-C-Inc.
Harm Scholtens 54 V. P. Sales and Marketing, Triple-C-Inc.
Director, GO-RACHELS.COM CORP.
Kent W. Hammond 48 V. P. Specialty Marketing,
GO-RACHELS.COM CORP.
Danny Bob Berenberg 55 Director, GO-RACHELS.COM CORP.
The Company's directors are elected at the annual meeting of stockholders and
hold office for a three-year term or until their successors are elected and
qualified. The Company's officers are appointed by the Board of Directors and
serve at the pleasure of the Board and subject to employment agreements, if any,
approved and ratified by the Board. The current directors of the Company intend
to nominate for election two additional outside persons and one additional
insider to the Board of Directors at the next annual meeting of the shareholders
scheduled to be held in the October, 2000.
A significant change in the executive leadership and the composition of the
Company's Board of Directors occurred in 1999. Upon evaluation of the
then-current state of the Company, the Board of Directors hired Lawrence J.
Castriotta as the new President and Chief Executive Officer of the Company in
August, 1999, with the intent that Mr. Castriotta would provide refreshed
executive leadership to the Company. Satisfied with Mr. Castriotta's
performance, the Board of Directors selected Mr. Castriotta to be the Chairman
of the Board of Directors in November, 1999, and the remaining directors
resigned at about the same time to pursue other interests (resigning directors
also resigned as executive officers at the same time). Since November, 1999, Mr.
Castriotta, as the sole member of the Board of Directors, has elected Danny Bob
Berenberg and Harm Scholtens to fill vacancies of the Board of Directors until
the next annual meeting of the shareholders.
ITEM 6. EXECUTIVE COMPENSATION
Employment Agreements
The Company has entered into an employment agreement with Lawrence C.
Castriotta, the Chairman of the Board, President and Chief Executive Officer of
the Company. Mr. Castriotta's employment agreement commenced on August 1, 1999
and has an initial two-year term ending July 31, 2001. Mr. Castriotta is
entitled to receive a salary of not less than $108,000 annually, which is
subject to adjustment on an annual basis. In addition to the annual salary, Mr.
Castriotta was granted 100,000 shares of common stock of the Company, and was
issued an option to purchase 200,000 shares of common stock of the Company at an
exercise price of $1.00 per share, all of which are exercisable immediately,
with an expiration date of September 19, 2009. Under the agreement, Mr.
Castriotta is entitled to an automobile expense allowance of $525 per month and
reimbursement for all other expenses related to said automobile, although Mr.
Castriotta has chosen not to take advantage of the $525 per month automobile
expense allowance and other automobile reimbursement benefits. Mr. Castriotta's
employment agreement also provides for other customary fringe benefits. The
agreement does not contain any "Golden Parachute" provisions. The agreement does
contain certain protections for Mr. Castriotta, including indemnification for
any individual liability relating to Mr. Castriotta's employment for liabilities
of the Company existing or arising out of occurrences prior to August 1, 1999.
The contract provides for disability payments under certain circumstances.
12
<PAGE>
Triple-C-Inc. has entered into an employment agreement with Harm Scholtens, the
V. P. Sales & Marketing, Triple-C-Inc. Mr. Scholtens' employment agreement
commenced on June 30, 1997 and had an initial three-year term which ended May
31, 2000. The agreement is automatically renewed and subject to one year terms,
unless notice of termination is given by either party six months prior to the
end of any termination date. Mr. Scholtens will receive a salary of not less
than CD$140,000 annually. In addition to the annual salary, Mr. Scholtens is
entitled to receive an earnings bonus based upon the revenues of Triple-C-Inc.
(Mr. Scholtens received $0 in 1998 and CD$9,177 in 1999), and was issued an
option to purchase 100,000 shares of common stock of the Company at an exercise
price of $5.50 per share, all of which have vested, with an expiration date of
June 30, 2002. In the event that Mr. Scholtens' employment with Triple-C-Inc. is
terminated, Mr. Scholtens is entitled to receive severance pay of at least six
months' salary and all bonuses earned to the date of termination. Under the
agreement, Mr. Scholtens is entitled to an automobile expense allowance and
reimbursement for all other expenses related to said automobile (approximately
CD$750 per month). Mr. Scholtens' employment agreement provides for other
customary fringe benefits. The agreement does not contain any "Golden Parachute"
provisions. The agreement contains certain protections for Triple-C-Inc.,
including covenants against: (i) disclosure of proprietary information; and (ii)
competition; and (iii) post-employment solicitation of employees. Triple-C-Inc.
may terminate the agreement for "cause" (as defined in the agreement) or upon
Mr. Scholtens' death or disability, and Mr. Scholtens' may terminate the
agreement upon the occurrence of certain other events. The contract provides for
disability payments under certain circumstances.
13
<PAGE>
Compensation Table
The following Summary Compensation Table sets forth the cash compensation paid
or accrued for services performed during the year ended December 31, 1999 for
the executive officers of the Company (all compensation expressed in U.S.
Dollars unless otherwise noted):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long term compensation
--------------------------------------------------------------------------------------------
Awards Payouts
----------------------------------------------------
Name and Principal Position Year Salary Bonus Other Annual Restricted Securities LTIP payouts All other
Compensation Stock underlying compensation
Award(s) options/SARs
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James Garlie, Chairman of the Board,
President, CEO(1) 1999 $4,947 $0 $0 $0 $0 $0 $0
Lawrence J. Castriotta, Chairman of
the Board, President, CEO(2) 1999 $45,000 0 (5) 0 0 0 0
Leo Short, Executive VP Sales &
Marketing 1999 $81,600 0 0 0 0 0 0
Curtis Russell, COO, Triple-C-Inc.(3) 1999 $37,500 0 0 0 0 0 0
Harm Scholtens, V.P. Sales & Marketing,
Triple-C-Inc. 1999 $100,000 $9,177(6) (5) 0 0 0 0
Kent W. Hammond, VP Specialty
Marketing(4) 1999 $12,500 0 0 0 0 0 0
</TABLE>
(1) Mr. Garlie resigned all positions effective November 2, 1999
(2) Mr. Castriotta joined the Company as President and CEO on August 1, 1999
(3) Mr. Russell joined the Company as COO of Triple-C-Inc. on July 1, 1999
(4) Mr. Hammond joined the company on November 1, 1999
(5) Less than 10% of executive's total annual salary and bonus
(6) Mr. Scholtens' bonus is expressed in Canadian Dollars.
In addition to the compensation noted above, (a) in 1999 Lawrence J.
Castriotta was issued an option to purchase 200,000 shares of common stock of
the Company at an exercise price of $1.00 per share, exercisable immediately,
with an expiration date of September 19, 2009, and (b) pursuant to the terms of
the employment agreement set forth at exhibit 6.1, Harm Scholtens holds an
option to purchase a total of 100,000 shares of common stock of the Company at
an exercise price of $5.50 per share, all of which are exercisable at any time,
with an expiration date of June 30, 2002. The Company follows the disclosure
provisions of SFAS No. 123 "Accounting for Stock-Based Compensation," and
applies APB Opinion No.25, "Accounting for Stock Issued to Employees" for
measurement and recognition of stock-based transactions with its employees.
14
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
ITEM 8. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
Stock
The Company is currently authorized to issue 70,000,000 shares, of which
50,000,000 shares are common stock, $.01 per value, and 20,000,000 shares are
undesignated preferred stock. Holders of the common stock do not have preemptive
rights to purchase additional shares of common stock or other subscription
rights. The common stock carries no conversion rights and is not subject to
redemption or to any sinking fund provisions. All shares of common stock are
entitled to share equally in all dividends from sources legally available
therefor, when, as and if declared by the Board of Directors and upon
liquidation or dissolution of the Company, whether voluntary or involuntary, to
share equally in the assets of the Company available for distribution to
shareholders. All outstanding shares are fully paid and non-accessible. Each
holder of common stock is entitled to one vote per share on all matters on which
such shareholder is entitled to vote.
As of December 31, 1998, 7,205,689 shares of common stock of the Company were
outstanding. As of December 31, 1999 and March 31, 2000, 8,622,824 shares of
common stock of the Company were outstanding.
No shares of preferred stock have ever been issued by the Company. The Articles
of Incorporation of the Company authorize the Board of Directors to set the
preferences which the holders of preferred stock may enjoy, which preferences
may, if the Board of Directors determines to issue preferred stock, include
dividend, voting, and liquidation preferences, among others.
Cumulative voting for the election of directors is not permitted. Accordingly,
the owners of a majority of shares of common stock outstanding may elect all of
the directors if they choose to do so, and the owners of the balance of such
shares will not be able to elect any directors.
Options and Warrants
The Company has a nonqualified stock option plan which authorizes the granting
of stock options to employees, directors, and others to purchase up to 2,500,000
shares of common stock. Vesting and award terms are at the discretion of the
Board of Directors, but cannot exceed ten years. As of December 31, 1999,
options to purchase 2,297,498 shares of common stock of the Company were
outstanding, with a weighted-average exercise price of $1.84 with 5.6 weighted -
average remaining contractual life-years for the options.
The Company has granted warrants to purchase common stock of the Company related
to short-term debt financing, services provided to the Company, and issuance of
common stock. As of December 31, 1999, warrants to purchase 2,726,527 shares of
common stock of the Company were outstanding, with a weighted-average remaining
contractual life of 2.7 years and a weighted-average exercise price of $1.62.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Dividends
The Company has never paid cash dividends on its common stock and does not
intend to do so in the foreseeable future. The Company currently intends to
retain its earnings for the operation and expansion of its business. The
Company's continued need to retain earnings for operations and expansion are
likely to limit the Company's ability to pay future cash dividends.
15
<PAGE>
Market Information
The Company's Common Stock is currently quoted in the "pink sheets" under the
trading symbol "RACH." The Company's common stock has recently been quoted on
the NASDAQ OTC:BB, but its shares of common stock have recently become
ineligible for quotation on the NASDAQ OCT:BB. The Company intends to once again
apply to have its shares quoted on the NASDAQ OTC:BB once this Form 10-SB
becomes effective.
The following table sets forth, for the periods indicated, the range of high and
low quoted prices of the Company's common stock on the OCT:BB. The prices
represent quotations between dealers without adjustment for retail markups,
markdowns, or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
FY end December 31, 1998 FY end December 31, 1999 Quarter end March 30, 2000
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Qtr. 1 (End March) 6 1/4 4 3/4 3 9/16 3/8 3/16(1)
Qtr. 2 (End June) 9 3/8 5 3 5/8 5/8
Qtr. 3 (End Sept.) 7 1/2 13/16 5/32
Qtr. 4 (End Dec.) 3 5/8 3/4 1/4
</TABLE>
(1) The Company's shares of common stock ceased to be quoted on the NASDAQ
OTC:BB on March 22, 2000. The prices listed above reflect the closing bid and
ask prices on that date.
There can be no assurance that an active public market for the common stock will
ever be restored. In addition, the shares of common stock are subject to various
governmental or regulatory body rules which affect the liquidity of the shares.
Since less than 5% of the Company's stock was traded throughout 1998 and 1999,
the Company is essentially a nonpublic entity.
Holders:
There were approximately 400 holders of record of the Company's common stock as
of June 30, 2000.
ITEM 2. LEGAL PROCEEDINGS
In conjunction with the acquisition of the stock of Triple-C-Inc., the Company
issued 640,000 shares of its common stock to former shareholders of
Triple-C-Inc. stock (see "Products and Services" above). According to the
acquisition agreement between the Company and the shareholders, these
shareholders retained the right to require the Company to purchase all or part
of 608,000 of their shares at predetermined prices on stipulated dates. Prior to
October 1, 1999, these shareholders indicated their general intent to exercise
their right to require the Company to purchase their shares, and the Company and
these shareholders conducted negotiations regarding method of payment and
extension of the date of exercise of the shareholders' right to require the
Company to purchase their shares. During these discussions, counsel for the
shareholders delivered a draft promissory note to be used by the parties to
evidence the payment obligation from the Company to the shareholders. On October
1, 1999, the option of these shareholders to require the Company to purchase
their shares at $3.221 per share expired without the delivery of the prescribed
notice of exercise by the shareholders. Nevertheless, the shareholders have
asserted and continue to assert that the Company is obligated to purchase these
shares, arguing that the delivery of the draft promissory note from
shareholders' counsel to the Company constituted "constructive" notice of
exercise of the shareholders' option. It is the Company's position that the
delivery of the draft promissory note from shareholders' counsel to the Company
did not constitute notice of exercise of the shareholders right to require the
Company to purchase their shares, as the form and means of exercise were
specifically described in the acquisition agreement, and the Company never
received definitive notice of exercise. The Company has continued to communicate
with these shareholders in an attempt to resolve this matter, but negotiations
have been unsuccessful to date. It is possible that either party may resort to
judicial resolution of this matter. While the Company is confident in its
position that it did not receive actual or constructive notice of exercise of
the shareholders' right to require the Company to purchase all or part of its
shares, it is a possibility that litigation with the former Triple-C-Inc.
shareholders will result in an adverse judgment against the Company, which
adverse judgment may have a material adverse effect on the Company and its
operations, and any adverse judgment may jeopardize the Company's ability to
continue its operations.
The Company is a defendant in a lawsuit in the District Court of the State of
Minnesota in Hennepin County commenced on April 26, 2000, in which Sinclair
Communications, Inc. (doing business under several different television
stations) claimed that the Company was indebted to Sinclair in the amount of
$68,375 for advertising and broadcast services. On June 1, 2000, Sinclair
obtained a judgment for $71,135.88 against the Company, and Sinclair has
subsequently commenced collection proceedings against the Company. The Company
is currently examining possible resolution of this matter, including
satisfaction of the judgment. However, the Company is not currently able to
satisfy this judgment, and continued collection actions, including possible levy
and attachment against assets of the Company, may have a material adverse affect
on the Company and its financial situation.
16
<PAGE>
The Company is a defendant in a lawsuit in the Circuit Court of the State of
Illinois in Cook County commenced on April 21, 2000, in which Hinshaw &
Culbertson, former counsel to the Company, claimed that the Company was indebted
to Hinshaw & Culbertson in the amount of $57,148 for providing legal services to
the Company. On June 19, 2000, Hinshaw & Culbertson obtained a judgment for
$59,058.15, plus court costs, against the Company, and Hinshaw & Culbertson has
subsequently commenced collection proceedings against the Company. The Company
is currently examining possible resolution of this matter, including
satisfaction of the judgment. However, the Company is not currently able to
satisfy this judgment, and continued collection actions, including possible levy
and attachment against assets of the Company, may have a material adverse affect
on the Company and its financial situation.
The Company is a defendant in at least four other lawsuits in the District Court
of the State of Minnesota in Hennepin County in which judgments have been
entered against the Company. The total amount of such judgments is less than
$20,000. The Company is currently examining possible resolution of these
matters, including satisfaction of the judgments. However, the Company is not
currently able to satisfy these judgments, and continued collection actions,
including possible levy and attachment against assets of the Company, may have a
material adverse affect on the Company and its financial situation.
Except as disclosed above, the Company is not a party to any material existing
or pending legal proceedings nor has its property been the subject of any such
proceeding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has not changed nor has it had any disagreements with its
accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The Company has conducted a series of unregistered sales of common stock in
reliance upon Rule 506 of Regulation D (17 C.F.R. ss.ss. 230.504 and 230.506),
Regulation S (17 C.F.R. . ss. 230.901 et seq.), and Section 4(2) of the
Securities Act of 1933 (15 U.S.C. ss. 77d(2)) during the three years ended
December 31, 1999. All of the sales were conducted by officers and employees of
the Company, and no underwriters were engaged in the offerings. The unregistered
securities were not sold publicly, but sold to certain U.S. and foreign
investors identified by the Company. The Company made these private placements
based on the following factors: (1) each issuance was an isolated private
transaction by the Company which did not involve a public offering; (2) there
were a limited number of offerees who were issued stock or other securities for
services rendered to the Company; (3) the offerees stated an intention not to
resell the stock or other securities and have continued to hold it for at least
two years, or since the date of issuance if less than two years; (4) there were
no subsequent or contemporaneous public offerings of the stock or other
securities; (5) the stock or other securities was not broken down into smaller
denominations; and (6) the negotiations for the sale of the stock or other
securities took place directly between the offerees and the Company.
Private Placements of Common Stock
* Between January 1, 1997 and November 30, 1997, the Company issued a total of
802,615 shares of common stock for a total consideration of $3,185,629
(including cash, consulting, manufacturing, and acquisition services and
financing). Total offering expenses during this period were $383,435. The
issuance of common stock during this period was unregistered in reliance
upon Rule 506 and Section 4(2) of the Securities Act of 1933.
* On December 1, 1997, the Company issued a total of 1,200,542 shares of
common stock for a total cash consideration of $4,414,384. Total offering
expenses on this date were $531,334. The issuance of common stock during
this period was unregistered in reliance upon Rule 506 and Regulation S.
* Between December 2, 1997 and December 31, 1999, the Company issued a total
of 2,512,568 shares of common stock for a total consideration of $ 2,214,149
(including cash, consulting, manufacturing, and acquisition services and
financing). Total offering expenses during this period were $157,735. The
issuance of common stock during this period was unregistered in reliance
upon Rule 506 and Section 4(2) of the Securities Act of 1933.
Convertible Debenture Offerings
The Company issued $734,296, $1,285,997, and $145,000 of one year 12% unsecured
convertible subordinated debentures, in calendar years 1998 and 1999, and the
three months ended March 31, 2000, respectively, in a series of private sales to
certain parties known to the Company. The debentures issued in 1998, 1999 and
2000 were convertible into Company common stock at $4.80, $2.50 and $2.50 per
share, respectively, and were subordinated to other borrowings. The issuance of
the debentures was exempt from registration under Section 4(2) of the Securities
Act of 1933 (15 U.S.C. ss. 77d(2)). None of the debentures has been converted
into common stock of the Company.
In 1999, Triple-C-Inc. issued $419,429 of one year 12% unsecured convertible
subordinated debentures in a series of private sales to certain parties known to
Triple-C-Inc.. The debentures are subordinated to borrowings under
Triple-C-Inc.'s bank line of credit and are convertible into common stock of
Triple-C-Inc. at 80% of the Initial Public Offering (IPO) price for shares of
common stock of Triple-C-Inc. only upon completion of a Triple-C-Inc. IPO. The
issuance of the debentures was exempt from registration in the United States
under Section 4(2) of the Securities Act of 1933 (15 U.S.C. ss. 77d(2)). None of
the debentures has been converted into common stock of Triple-C-Inc.
17
<PAGE>
Warrant Issuances - 1997
The Company issued warrants to purchase 1,292,252 shares of common stock at
prices ranging from $3.75 to $7.50 per share in 1997 to certain parties known to
the Company. The warrants were issued in connection with the sale of common
stock, acquisition services and financing. The issuance of the warrants was
exempt from registration under Section 4(2) of the Securities Act of 1933 (15
U.S.C. ss. 77d(2)). A breakdown of these sales is as follows:
Issuance of Common Stock:
843,790 warrants at $7.50
88,395 warrants at $6.60
7,100 warrants at $4.50
241,467 warrants at $3.75
Acquisition Services:
100,000 warrants at $3.00
Financing:
11,500 warrants at $3.75
All of these warrants are outstanding.
Warrant Issuances - 1998
The Company issued warrants to purchase 717,455 shares of common stock at prices
ranging from $1.00 to $7.50 per share in 1998 to certain parties known to the
Company. The warrants were issued in connection with the sale of common stock
and financing. The issuance of the warrants was exempt from registration under
Section 4(2) of the Securities Act of 1933 (15 U.S.C. ss. 77d(2)). A breakdown
of these sales is as follows:
Issuance of Common Stock:
13,155 warrants at $7.50
183,300 warrants at $3.75
11,000 warrants at $2.50
Financing:
15,000 warrants at $5.50
10,000 warrants at $1.30
325,000 warrants at $1.20
160,000 warrants at $1.00
All of these warrants are outstanding.
Warrant Issuances - 1999
The Company issued warrants to purchase 217,280 shares of common stock at prices
ranging from $1.00 to $1.20 per share in 1999 to certain parties known to the
Company. The issuance of the warrants was exempt from registration under Section
4(2) of the Securities Act of 1933 (15 U.S.C. ss. 77d(2)). A breakdown of these
sales is as follows:
Issuance of Common Stock:
75,114 warrants at $1.20
Financing:
142,166 warrants at $1.00
All of these warrants are outstanding.
18
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article XI of the Company's amended and restated Articles of Incorporation
states as follows:
Article XI Indemnification
11.1) The directors of the Corporation shall be indemnified by the Corporation
for their actions as directors to the fullest extent permitted by the Minnesota
Corporation act as amended from time to time.
11.2) No director shall have personal liability to the Corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director
except as otherwise required by law.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the United States Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any such action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Company 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 of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: August 11, 2000
GO-RACHELS.COM CORP.
By: /s/ Kent W. Hammond
------------------------------------
Kent W. Hammond
Its Vice President
20
<PAGE>
INDEX TO EXHIBITS AND FINANCIAL STATEMENTS
The following exhibits are filed with this Form 10-SB:
Assigned Number Description
--------------- -----------
Part F/S Independent Auditor's Report and Consolidated Financial
Statements of GO-RACHELS.COM CORP. For Years Ended December 31,
1999 and 1998 and Three Months Ended March 31, 1999 and 2000
Exhibit 3.1.1 Restated Articles of Incorporation
Exhibit 3.1.2 Notice of Change of Registered Office/Registered Agent
Exhibit 3.1.3 Bylaws
Exhibit 10.1 Employment Agreement - Lawrence J. Castriotta
Exhibit 10.2 Employment Agreement - Harm Scholtens
Exhibit 11 Statement Regarding Computation of Earnings Per Share
Exhibit 21 Subsidiaries of the Registrant
Exhibit 27 Financial Data Schedule
Exhibit 99 Other Exhibits: None
<PAGE>
GO-RACHELS.COM CORP.
CONSOLIDATED (AUDITED AND INTERIM) FINANCIAL STATEMENTS
FOR FISCAL YEARS ENDED
DECEMBER 31, 1999 AND 1998
AND FOR QUARTERS ENDED
MARCH 31, 1999 AND 2000
<PAGE>
INDEX
Page
----
INDEPENDENT AUDITOR'S REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets F2-F3
Statements of Operations F4
Statements of Stockholders' Equity F5
Statements of Cash Flows F6
Notes to Consolidated Financial Statements F7 - F21
<PAGE>
F-1
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
GO-RACHELS.COM CORP.
Bloomington, Minnesota
We have audited the accompanying consolidated balance sheets of GO-RACHELS.COM
CORP. (formerly RLD ENTERPRISES, INC.) AND SUBSIDIARIES as of December 31, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GO-RACHELS.COM CORP.
AND SUBSIDIARIES as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that GO-RACHELS.COM CORP. AND SUBSIDIARIES will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements, the Company
incurred losses of $1,893,215 and $3,423,352 for 1999 and 1998, respectively,
and as of December 31, 1999, had an accumulated deficit of $11,282,038. As
discussed in Note 5 to the consolidated financial statements, the Company is in
default on its line of credit facility, and the line of credit could be called.
As discussed in Note 15 to the consolidated financial statements, the Company
also has a material uncertainty regarding a shareholder dispute. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans regarding these matters are also described in
Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ LURIE, BESIKOF, LAPIDUS & CO., LLP
Minneapolis, Minnesota
February 25, 2000, except for Notes 2 and 5,
as to which the date is June 7, 2000
<PAGE>
F-2
GO-RACHELS.COM CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------- March 31,
1998 1999 2000
------------ ------------ ------------
(unaudited)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 11,720 $ 32,393 $ 71,557
Marketable securities 259,140 206,400 236,175
Accounts receivable, less allowance for bad debts,
discounts and returns of $85,000, $71,000 and $63,000 2,016,095 1,855,654 1,952,901
Inventories 3,814,681 3,785,988 4,155,939
Prepaid expenses and other 133,954 100,081 274,946
------------ ------------ ------------
TOTAL CURRENT ASSETS 6,235,590 5,980,516 6,691,518
PROPERTY AND EQUIPMENT 887,145 671,808 651,638
GOODWILL 3,199,061 3,019,627 2,974,769
OTHER ASSETS 128,871 360,168 79,658
------------ ------------ ------------
$ 10,450,667 $ 10,032,119 $ 10,397,583
============ ============ ============
</TABLE>
(continued)
See notes to consolidated financial statements.
<PAGE>
F-3
GO-RACHELS.COM CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (cont.)
<TABLE>
<CAPTION>
December 31,
----------------------------- March 31,
1998 1999 2000
------------ ------------ ------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES
Bank lines of credit $ 1,474,878 $ 1,442,512 $ 2,071,393
Convertible subordinated debt 734,296 1,513,746 1,658,197
Notes payable to stockholders 568,700 668,972 605,258
Current maturities of long-term debt 52,832 39,576 39,538
Accounts payable 4,178,657 3,338,112 3,593,841
Accrued expenses 721,341 1,066,430 1,005,736
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 7,730,704 8,069,348 8,973,963
------------ ------------ ------------
LONG-TERM DEBT, less current maturities 124,721 56,521 47,274
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 20,000,000 shares authorized;
no shares issued and outstanding -- -- --
Common stock, $.01 par value; 50,000,000 shares authorized;
issued and outstanding - 7,205,689, 8,622,824 and 8,622,824,
respectively 72,057 86,228 86,228
Additional paid-in capital 11,846,886 13,002,078 13,002,078
Accumulated other comprehensive income 65,122 99,982 139,210
Accumulated deficit (9,388,823) (11,282,038) (11,851,170)
------------ ------------ ------------
2,595,242 1,906,250 1,376,346
------------ ------------ ------------
$ 10,450,667 $ 10,032,119 $ 10,397,583
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
F-4
GO-RACHELS.COM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended March 31,
----------------------------- -----------------------------
1998 1999 1999 2000
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
SALES $ 20,227,704 $ 20,282,793 $ 4,797,392 $ 4,526,789
COST OF GOODS SOLD 15,393,539 15,140,726 3,625,678 3,378,394
------------ ------------ ------------ ------------
GROSS MARGIN 4,834,165 5,142,067 1,171,714 1,148,395
OPERATING EXPENSES 7,530,590 6,622,689 1,825,578 1,700,119
------------ ------------ ------------ ------------
OPERATING LOSS (2,696,425) (1,480,622) (653,864) (551,724)
------------ ------------ ------------ ------------
NONOPERATING EXPENSES (INCOME)
Interest 461,606 679,626 153,459 168,106
Loss (gain) on foreign exchange 248,456 (341,392) (85,347) (44,510)
Other 127,165 55,559 (8,705) (86,688)
------------ ------------ ------------ ------------
837,227 393,793 59,407 36,908
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (3,533,652) (1,874,415) (713,271) (588,632)
INCOME TAX PROVISION (BENEFIT) (110,300) 18,800 -- (19,500)
------------ ------------ ------------ ------------
NET LOSS $ (3,423,352) $ (1,893,215) $ (713,271) $ (569,132)
============ ============ ============ ============
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.54) $ (0.23) $ (0.10) $ (0.07)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING -
BASIC AND DILUTED 6,382,208 8,079,345 7,433,926 8,622,824
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
F-5
GO-RACHELS.COM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
----------------------- Paid-In Comprehensive Accumulated
Shares Amount Capital Income Deficit Total
---------- ---------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 6,114,256 $ 61,143 $ 10,825,743 $ 204,252 $ (5,965,471) $ 5,125,667
-----------
Comprehensive loss:
Net loss -- -- -- -- (3,423,352) (3,423,352)
Unrealized losses on securities -- -- -- (83,134) -- (83,134)
Foreign currency translation -- -- -- (55,996) -- (55,996)
-----------
Total comprehensive loss -- -- -- -- -- (3,562,482)
-----------
Common stock issued for:
Cash:
Options exercised 64,000 640 78,080 -- -- 78,720
Other 584,629 5,846 654,261 -- -- 660,107
Services 183,302 1,833 181,469 -- -- 183,302
Financing 154,302 1,543 152,759 -- -- 154,302
Merger 109,200 1,092 (1,092) -- -- --
Repurchase of common stock (4,000) (40) (19,960) -- -- (20,000)
Issuance of options and warrants -- -- 86,826 -- -- 86,826
Stock issuance costs -- -- (111,200) -- -- (111,200)
---------- ---------- ------------ ----------- ------------ -----------
BALANCE AT DECEMBER 31, 1998 7,205,689 72,057 11,846,886 65,122 (9,388,823) 2,595,242
-----------
Comprehensive loss:
Net loss -- -- -- -- (1,893,215) (1,893,215)
Unrealized gains on securities -- -- -- 8,704 -- 8,704
Foreign currency translation -- -- -- 26,156 -- 26,156
-----------
Total comprehensive loss -- -- -- -- -- (1,858,355)
-----------
Common stock issued for:
Cash - other 361,979 3,620 362,359 -- -- 365,979
Services 616,000 6,160 485,340 -- -- 491,500
Financing 439,156 4,391 275,848 -- -- 280,239
Issuance of warrants -- -- 78,180 -- -- 78,180
Stock issuance costs -- -- (46,535) -- -- (46,535)
---------- ---------- ------------ ----------- ------------ -----------
BALANCE AT DECEMBER 31, 1999 8,622,824 86,228 13,002,078 99,982 (11,282,038) 1,906,250
-----------
Comprehensive loss:
Net loss (unaudited) -- -- -- -- (569,132) (569,132)
Unrealized gains on securities (unaudited) -- -- -- 39,751 -- 39,751
Foreign currency translation (unaudited) -- -- -- (523) -- (523)
-----------
Total comprehensive loss (unaudited) -- -- -- -- -- (529,904)
---------- ---------- ------------ ----------- ------------ -----------
BALANCE AT MARCH 31, 2000 (unaudited) 8,622,824 $ 86,228 $ 13,002,078 $ 139,210 $(11,851,170) $ 1,376,346
========== ========== ============ =========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
F-6
GO-RACHELS.COM CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, Three Months Ended March 31,
----------------------------- -----------------------------
1998 1999 1999 2000
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (3,423,352) $ (1,893,215) $ (713,271) $ (569,132)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 227,473 213,253 51,784 49,528
Amortization 297,007 179,434 44,858 44,858
Deferred taxes -- (70,000) -- --
Loss on disposal of property and equipment -- 50,783 3,646 --
Common stock issued for:
Services 183,302 491,500 -- --
Financing 154,302 280,239 -- --
Options and warrants issued 44,006 78,180 -- --
Changes in operating assets and liabilities:
Accounts receivable 243,860 160,441 (406,924) (97,247)
Inventories (722,041) 28,693 (353,658) (369,951)
Prepaid expenses and other (101,015) (101,268) 275,548 105,122
Accounts payable 1,344,745 (840,545) 125,411 255,729
Accrued expenses (1,061,955) 345,089 (24,500) (60,694)
------------ ------------ ------------ ------------
Net cash used by operating activities (2,813,668) (1,077,416) (997,106) (641,787)
------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Proceeds from sale of marketable securities 4,335,730 61,444 40,050 9,976
Purchases of property and equipment (115,550) (101,199) (22,146) (29,358)
Proceeds from sale of property and equipment -- 52,500 52,500 --
------------ ------------ ------------ ------------
Net cash provided (used) by investing activities 4,220,180 12,745 70,404 (19,382)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES
Net proceeds (payments) on bank lines of credit 151,483 (32,366) 540,884 628,881
Proceeds from debt 1,291,939 2,045,668 181,450 183,725
Payments on debt (3,612,196) (1,247,402) (118,770) (112,273)
Proceeds from sale of common stock 738,827 365,979 357,979 --
Stock issuance costs (68,380) (46,535) (46,535) --
Repurchase of common stock (20,000) -- -- --
------------ ------------ ------------ ------------
Net cash provided (used) by financing activities (1,518,327) 1,085,344 915,008 700,333
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (111,815) 20,673 (11,694) 39,164
CASH
Beginning of period 123,535 11,720 11,720 32,393
------------ ------------ ------------ ------------
End of period $ 11,720 $ 32,393 $ 26 $ 71,557
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
F-7
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Three Months Ended March 31, 1999 and 2000 (unaudited)
1. Nature of Business and Significant Accounting Policies -
Nature of Business
The Company manufactures, markets and distributes "Rachel's Made From the
Heart" gourmet potato chips. The potato chips are sold by independent
distributors and Company sales personnel to grocery and convenience
stores, restaurants, and other retail and institutional accounts. The
Company also manufactures potato chips for others under private labels.
In addition, the Company distributes confectionery and specialty snacks
in Canada.
On January 29, 1999, the Company changed its name to GO-RACHELS.COM CORP.
from RLD Enterprises, Inc.
Unaudited Interim Financial Statements
The consolidated financial statements as of March 31, 2000 and for the
three month periods ended March 31, 1999 and 2000, are unaudited. In the
opinion of management, all adjustments necessary for a fair presentation
of the consolidated financial position, results of operations and cash
flows for the above periods were made and are of a normal, recurring
nature. Accounting requirements at interim dates inherently involve
greater reliance on estimates than at year end. The results of the
interim periods are not necessarily indicative of the results for the
full year.
Principles of Consolidation
The consolidated financial statements include the accounts of
GO-RACHELS.COM CORP., its U.S. subsidiary, Rachel's Gourmet Snacks, Inc.,
and its Canadian subsidiary, Triple-C-Inc. (collectively "the Company").
All significant intercompany balances and transactions are eliminated.
Management Estimates
The preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that may affect the reported amounts and
disclosures in the financial statements accompanying notes. Actual
results could differ from these estimates. Significant management
estimates relate to amortization periods for goodwill and the valuation
allowance on deferred tax assets.
Revenue Recognition
The Company recognizes revenue at the time product is shipped to a
customer. Estimated allowances are recorded at the time of sale.
(continued)
<PAGE>
F-8
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Three Months Ended March 31, 1999 and 2000 (unaudited)
1. Nature of Business and Significant Accounting Policies - (continued)
Foreign Currency Translation and Transactions
Assets and liabilities of Triple-C-Inc. are translated at the exchange
rate in effect at the balance sheet date. Revenue and expenses are
translated at the average yearly exchange rate. Translation adjustments
arising from the use of differing exchange rates are reported as other
comprehensive income (loss) in stockholders' equity.
Triple-C-Inc. had approximate foreign transaction losses of $248,000 in
1998 and gains of approximately $341,000, $85,000 (unaudited), and
$45,000 (unaudited) in 1999 and the three months ended March 31, 1999 and
2000, respectively. The gains and losses are reported as nonoperating
expenses (income) in the statements of operations.
Fair Value of Financial Instruments
The carrying amounts of financial instruments consisting of cash,
marketable securities, receivables, notes payable-banks, convertible
subordinated debt, long-term debt, accounts payable and off balance sheet
foreign exchange contracts approximate their fair values. It is not
practicable to determine the fair value of the notes to stockholders due
to the related party nature of the transactions.
Marketable Securities
Marketable securities are classified as available-for-sale securities and
are recorded at fair value. Unrealized gains and losses on
available-for-sale securities are included in accumulated other
comprehensive income in stockholders' equity. The cost of
available-for-sale securities is $98,213, $36,769 and $26,793 (unaudited)
at December 31, 1998 and 1999, and March 31, 2000, respectively. The
Company had realized gains of $48,015, $63,336, $5,961 (unaudited) and
$97,558 (unaudited) on these securities in 1998 and 1999 and the three
months ended March 31, 1999 and 2000, respectively, based on cost
determined on an average basis.
Inventories
Inventories, consisting primarily of food products available for resale,
are valued at the lower of cost or market, with cost determined on a
moving average basis and market determined at net realizable value.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using both the straight-line and declining
balance methods over the estimated useful lives of the assets, primarily
three to ten years. Leasehold improvements are amortized over the lease
term.
(continued)
<PAGE>
F-9
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Three Months Ended March 31, 1999 and 2000 (unaudited)
1. Nature of Business and Significant Accounting Policies - (continued)
Goodwill
Goodwill represents the excess of the purchase price and related costs
over the fair value of the net assets of businesses acquired and is
amortized on a straight-line basis over 20 years. The Company evaluates
goodwill annually for impairment by comparing the net carrying values to
the undiscounted future cash flows of the assets acquired. Accumulated
amortization was $389,611, $569,045 and $613,903 (unaudited) at December
31, 1998 and 1999, and March 31, 2000, respectively.
Common Stock Issued
The Company issued common stock for consulting, manufacturing, and
acquisition services and financing. The value of these services and
financing was based on the fair value of the common stock as determined
by sales during the same time periods. The costs of the services and
financing were charged to operations and stockholders' equity was
increased.
Stock Based Compensation
The Company accounts for employee stock options under Accounting
Principles Board No. 25, "Accounting for Stock Issued to Employees," and
provides the disclosures required by Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
Options and warrants to nonemployees are accounted as required by SFAS
No. 123.
Advertising Costs
Advertising costs are expensed as incurred and totaled $1,297,000,
$805,000, $434,000 (unaudited) and $57,000 (unaudited) in calendar 1998
and 1999 and the three months ended March 31, 1999 and 2000,
respectively.
Credit Risk
Significant concentrations of credit risk exist in marketable securities
which are invested in one entity and accounts receivable which are due
from customers dispersed across different geographic and economic regions
in the Upper Midwest and Canada.
Net Loss Per Share
Net loss per share - basic is determined by dividing the net loss by the
weighted average common shares outstanding. Net loss per share - diluted
normally includes common stock equivalents (options, warrants and
convertible debentures), but were excluded since their effect was
antidilutive.
(continued)
<PAGE>
F-10
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Three Months Ended March 31, 1999 and 2000 (unaudited)
1. Nature of Business and Significant Accounting Policies - (continued)
Reclassification
Certain reclassifications were made to the 1998 financial statements to
make them comparable with 1999. The reclassification did not affect
previously reported stockholders' equity, net loss, or net cash flows.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities,"
which was effective for years beginning after June 15, 2000, as amended.
The statement establishes accounting and reporting standards for
derivative instruments and hedging activities. Management believes this
pronouncement will not significantly effect its financial statements.
2. Going Concern -
The consolidated financial statements were prepared in contemplation of
the Company as a going concern. The Company incurred net losses of
$3,423,352 and $1,893,215 in 1998 and 1999, respectively, and as of
December 31, 1999, has an accumulated deficit of $11,282,038.
On June 7, 2000, the Company was notified it is in default on its line of
credit facility, and the line of credit could be called (Note 5). The
Company also has a material uncertainty regarding a shareholder dispute
(Note 15).
These conditions, among others, raise substantial doubt about the
Company's ability to continue as a going concern.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient operating cash flows and obtain additional
financing or refinancing to meet its obligations. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets and liabilities
should the Company be unable to continue as a going concern.
3. Merger -
In February 1998, the Company acquired PB Midwest, Inc. (PB Midwest) by
issuing 109,200 shares of common stock in exchange for all of PB
Midwest's outstanding common stock. Prior to the acquisition, most of the
stockholders in PB Midwest were also stockholders in the Company. At the
date of acquisition, PB Midwest's only assets were warrants to purchase
136,500 shares of GO-RACHELS.COM CORP. at $1.00 a share. The warrants
were deemed to have no value and were cancelled.
<PAGE>
F-11
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Three Months Ended March 31, 1999 and 2000 (unaudited)
4. Property and Equipment -
Property and equipment consist of the following:
December 31,
------------------------ March 31,
1998 1999 2000
---------- ---------- ----------
(unaudited)
Machinery and equipment $ 684,783 $ 635,161 $ 633,270
Furniture and fixtures 327,223 392,562 422,624
Vehicles 146,555 56,894 56,890
Leasehold improvements 133,750 165,924 165,603
---------- ---------- ----------
1,292,311 1,250,541 1,278,387
Less accumulated depreciation 405,166 578,733 626,749
---------- ---------- ----------
$ 887,145 $ 671,808 $ 651,638
========== ========== ==========
5. Bank Lines of Credit -
At December 31, 1999, Triple-C-Inc. has a $5,200,000 ($7,500,000 CAN)
revolving line of credit facility, expiring October 2003, subject to a
four year extension. Borrowings are due on demand, bear interest at the
prime rate (8.0% and 8.25% (unaudited) at December 31, 1999 and March 31,
2000, respectively) plus 1.5% to 2% (as defined), and are collateralized
by substantially all Triple-C-Inc. assets. Advances are subject to
defined limitations on the collateralized assets. The line has
requirements relating to tangible net worth, additional debt, and
dividends, among others. A previous line of credit facility with another
financial institution at prime (6.75% at December 31, 1998) plus 1.5% was
terminated in 1999.
On June 7, 2000, Triple-C-Inc. was notified that it is in violation of
its tangible net worth and collateral requirements and in default on its
revolving line of credit facility. Consequently, the bank could call the
line of credit.
6. Convertible Subordinated Debt -
GO-RACHELS.COM CORP issued $734,296, $1,285,997 and $145,000 (unaudited)
of one year 12% unsecured convertible subordinated debentures in 1998 and
1999, and the three months ended March 31, 2000, respectively. The
debentures issued in 1998, 1999 and 2000 were convertible into Company
common stock at $4.80, $2.50 and $2.50 per share, respectively, and were
subordinated to other borrowings. Debentures for $925,976 (including
$191,680 of the 1999 debentures) were repaid in 1999 and all of the
debentures outstanding at December 31, 1997, were repaid in 1998.
In 1999, Triple-C-Inc. issued $419,429 of one year 12% unsecured
convertible subordinated debentures. The debentures are subordinated to
borrowings under the bank line of credit and are convertible into common
stock of Triple-C-Inc. at 80% of the Initial Public Offering (IPO) price
only upon completion of a Triple-C-Inc. IPO.
<PAGE>
F-12
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Three Months Ended March 31, 1999 and 2000 (unaudited)
7. Notes Payable to Stockholders -
The notes payable to stockholders consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------ March 31,
1998 1999 2000
---------- ---------- ----------
(unaudited)
<S> <C> <C> <C>
15.0%, collateralized by all Company assets $ 230,000 $ 157,164 $ 156,969
8.1%, collateralized by marketable securities 143,700 101,340 --
6.0% to 17.8%, unsecured 95,000 310,468 348,289
5.0% over prime (8.0% for all periods),
unsecured 100,000 100,000 100,000
---------- ---------- ----------
$ 568,700 $ 668,972 $ 605,258
========== ========== ==========
</TABLE>
8. Long-Term Debt -
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------ March 31,
1998 1999 2000
---------- ---------- ----------
(unaudited)
<S> <C> <C> <C>
Capital lease obligations, interest imputed
at 13.0% (Note 11) $ 135,253 $ 63,279 $ 56,129
Notes payable in monthly installments of
$1,026, including interest at 5.9% to
9.9%, due December 2002, collateralized
by vehicles 42,300 32,818 30,683
---------- ---------- ----------
177,553 96,097 86,812
Less current maturities 52,832 39,576 39,538
---------- ---------- ----------
$ 124,721 $ 56,521 $ 47,274
========== ========== ==========
</TABLE>
(continued)
<PAGE>
F-13
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Three Months Ended March 31, 1999 and 2000 (unaudited)
8. Long-Term Debt - (continued)
Future maturities of long-term debt at December 31, 1999, are as follows:
Year Amount
---- ---------
2000 $ 39,576
2001 43,887
2002 12,634
---------
$ 96,097
=========
9. Stock Options and Warrants -
Stock Options
-------------
The Company has a nonqualified stock option plan which authorizes the
granting of stock options to employees, directors, and others to purchase
up to 2,500,000 shares of common stock. Vesting and award terms are at
the discretion of the Board of Directors, but cannot exceed ten years.
Stock option activity for calendar years 1998 and 1999 was as follows:
<TABLE>
<CAPTION>
1998 1999
------------------------- ------------------------
Options Weighted- Options Weighted-
Average Average
Exercise Exercise
Price Price
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
OUTSTANDING, beginning of year 2,297,496 $ 1.83 2,292,496 $ 1.87
Granted 90,000 2.17 450,000 .86
Exercised (64,000) (1.23) -- --
Expired (31,000) (1.00) (444,998) (1.00)
---------- ----------
OUTSTANDING, end of year 2,292,496 1.87 2,297,498 1.84
========== ==========
</TABLE>
The weighted average grant-date fair value for options granted is as
follows:
<TABLE>
<CAPTION>
1998 1999
------------------------ ------------------------
Options Fair Value Options Fair Value
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Option price equals stock price 10,000 $ 1.33 230,000 $ .17
Option price greater than stock price 80,000 .00 220,000 .00
--------- --------
90,000 .15 450,000 .09
========= ========
</TABLE>
(continued)
<PAGE>
F-14
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Three Months Ended March 31, 1999 and 2000 (unaudited)
9. Stock Options and Warrants - (continued)
Stock Options (continued)
-------------
Stock options outstanding and exercisable at December 31, 1999, are as
follows:
<TABLE>
<CAPTION>
Weighted-
Average
Remaining
Options Contractual Exercisable
Exercise Price Outstanding Life-Years Options
-------------------- ------------- ------------ -------------
<S> <C> <C> <C>
$ .36 100,000 9.8 --
1.00 1,564,998 5.5 1,244,998
1.75 80,000 8.9 80,000
2.83 150,000 7.7 60,000
3.00 60,000 6.7 27,000
5.50 342,500 3.2 215,000
----------- ------------
$.36 to $5.50 2,297,498 5.6 1,626,998
=========== ============
</TABLE>
The weighted-average exercise price for the exercisable options was
$1.73.
No stock options were issued by the Company for the quarter ended March
31, 2000.
If the Company recognized compensation expense for options based on the
fair value at the grant dates consistent with the method prescribed by
SFAS No. 123, net loss and per share disclosures would change to the pro
forma amounts below:
<TABLE>
<CAPTION>
December 31, March 31,
--------------------------- ---------------------------
1998 1999 1999 2000
----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net loss:
As reported $(3,423,352) $(1,893,215) $ (713,271) $ (569,132)
Pro forma (3,537,476) (2,011,216) (741,857) (594,108)
Net loss per share - basic and diluted:
As reported $ (.54) $ (.23) $ (.10) $ (.07)
Pro forma (.55) (.25) (.10) (.07)
</TABLE>
(continued)
<PAGE>
F-15
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Three Months Ended March 31, 1999 and 2000 (unaudited)
9. Stock Options and Warrants - (continued)
Stock Warrants
--------------
The Company issued various compensatory warrants related to short-term
debt financing, services and issuance of common stock.
Warrant activity for 1998 and 1999 was as follows:
<TABLE>
<CAPTION>
1998 1999
------------------------- -------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Warrants Price Warrants Price
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
OUTSTANDING, beginning of year 1,816,379 $ 4.91 2,864,247 $ 1.61
Issued 717,455 2.03 217,280 1.07
Expired/cancelled (136,500) (1.00) (355,000) (1.18)
Modification:
Exchanged in (1,284,412) (6.25) -- --
Exchanged out 1,751,325 1.37 -- --
---------- ----------
OUTSTANDING, end of year 2,864,247 1.61 2,726,527 1.62
========== ==========
</TABLE>
In 1998, the Company modified certain warrant terms by exchanging
1,284,412 warrants previously issued primarily for stock issuance costs
into 1,751,325 warrants of lesser fair value resulting in an
insignificant impact on stockholders' equity and net loss.
The weighted average grant-date fair value for warrants issued is as
follows:
<TABLE>
<CAPTION>
1998 1999
-------------------------- --------------------------
Warrants Fair Value Warrants Fair Value
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Warrant price less than stock price 55,000 $ 1.13 101,500 $ .71
Warrant price equals stock price -- -- 32,666 .19
Warrant price greater than stock price 662,455 .04 83,114 .00
---------- ---------
717,455 .12 217,280 .36
========== =========
</TABLE>
All warrants outstanding at December 31, 1999, were exercisable.
(continued)
<PAGE>
F-16
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Three Months Ended March 31, 1999 and 2000 (unaudited)
9. Stock Options and Warrants - (continued)
Assumptions
-----------
The fair value of options and warrants is estimated at grant date using
the Black-Sholes option-pricing model with the following weighted average
assumptions:
1998 1999
---------- ----------
Risk-free interest rate:
Options 4.40% 5.72%
Warrants 4.46% 5.15%
Expected life - years 5 5
Expected volatility* 0% 0%
Expected dividend rate 0% 0%
* Since less than 5% of the Company's stock was traded throughout most of
1998 and 1999, the Company is essentially a nonpublic entity.
Therefore, volatility was set at 0% as permitted by SFAS 123.
10. Income Taxes -
Income tax expense (benefit) for 1998 and 1999 and the three month ended
March 31, 1999 and 2000, consists of the following:
December 31, March 31,
-------------------------- --------------------------
1998 1999 1999 2000
----------- ----------- ----------- -----------
(unaudited) (unaudited)
Foreign:
Current $ (110,300) $ 88,800 $ -- $ (19,500)
Deferred -- (70,000) -- --
----------- ----------- ----------- -----------
$ (110,300) $ 18,800 $ -- $ (19,500)
=========== =========== =========== ===========
(continued)
<PAGE>
F-17
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Three Months Ended March 31, 1999 and 2000 (unaudited)
10. Income Taxes - (continued)
Income tax computed at the U.S. federal statutory rate reconciled to the
effective tax rate for calendar years 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
1998 1999
------------------ ----------------
<S> <C> <C>
Benefit at statutory tax rate (34.0%) (34.0%)
Net operating loss not recognized 27.6 39.4
Change in valuation allowance 9.2 .1
Foreign taxes (3.1) 1.0
Other (2.8) (5.5)
------------------ ----------------
Effective tax rate (3.1%) 1.0%
================== ================
</TABLE>
Significant components of net deferred tax assets at December 31, 1998
and 1999 and March 31, 2000, are as follows:
<TABLE>
<CAPTION>
December 31, March 31,
------------------------------------------------------- --------------------------
1998 1999 2000
-------------------------- -------------------------- --------------------------
Current Long-Term Current Long-Term Current Long-Term
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Loss carryforwards $ 3,500,000 $ -- $ 4,240,000 $ -- $ 4,440,000 $ --
Other -- -- -- 70,000 -- 70,000
----------- ----------- ----------- ----------- ----------- -----------
3,500,000 -- 4,240,000 70,000 4,440,000 70,000
Valuation allowance (3,500,000) -- (4,240,000) -- (4,440,000) --
----------- ----------- ----------- ----------- ----------- -----------
Net deferred tax
assets $ -- $ -- $ -- $ 70,000 $ -- $ 70,000
=========== =========== =========== =========== =========== ===========
</TABLE>
Long-term deferred tax assets are included with other noncurrent assets
on the balance sheet.
The valuation allowance was provided as it is probable the deferred tax
asset will not be realized. The valuation allowance increased by
approximately $1,300,000, $740,000 and $200,000 (unaudited) in 1998 and
1999, and the three months ended March 31, 2000, respectively, primarily
because of the Company's inability to utilize net operating losses.
State tax effects are insignificant and not separately disclosed.
(continued)
<PAGE>
F-18
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Three Months Ended March 31, 1999 and 2000 (unaudited)
10. Income Taxes - (continued)
At December 31, 1999, the Company had the following approximate net
operating loss carryforwards for federal income tax purposes:
Year of Net Operating
Expiration Loss
------------ -------------
2008 $ 23,000
2009 118,000
2010 1,234,000
2011 1,396,000
2012 2,791,000
2018 2,869,000
2019 2,174,000
-----------
$10,605,000
===========
11. Commitments -
Capital Leases
--------------
The Company leases equipment under capital leases expiring through 2002.
Minimum future capital lease obligations at December 31, 1999, are as
follows:
Year Amount
---- ---------
2000 $ 34,208
2001 34,208
2002 1,588
---------
Total payments 70,004
Less amount representing interest 6,725
---------
Present value of future payments $ 63,279
=========
At December 31, 1998 and 1999, and March 31, 2000, the net book value of
equipment under capital leases was $139,553, $59,344 and $52,152
(unaudited), respectively. Capital lease amortization of $42,735,
$27,841, $6,960 (unaudited) and $7,134 (unaudited) in 1998 and 1999 and
the three months ended March 31, 1999 and 2000, respectively, is included
in depreciation expense.
(continued)
<PAGE>
F-19
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Three Months Ended March 31, 1999 and 2000 (unaudited)
11. Commitments - (continued)
Operating Leases
----------------
Facilities and equipment are utilized under operating leases expiring
through 2009. The facilities leases require monthly base rents plus
increases for operating expenses and/or property taxes as defined in the
leases. Some leases contain renewal options. Total rent expense was
$441,174, $396,064, $86,255 (unaudited) and $93,927 (unaudited) in 1998
and 1999 and the three months ended March 31, 1999 and 2000,
respectively.
Approximate future minimum lease payments at December 31, 1999, are as
follows:
Year Amount
---- ------
2000 $ 350,200
2001 345,800
2002 109,700
2003 60,800
2004 57,600
Thereafter 294,400
------------
$1,218,500
============
Employment Agreements
The Company has employment agreements with two of its officers expiring
through 2001. These agreements include defined renewal options and
incentives. Approximate future minimum payments at December 31, 1999, are
$193,600 and $72,000 for 2000 and 2001, respectively.
<PAGE>
F-20
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Three Months Ended March 31, 1999 and 2000 (unaudited)
12. Supplemental Disclosures of Cash Flow Information -
Supplemental disclosures of cash flow information for 1998 and 1999 and
the three months ended March 31, 1999 and 2000, is as follows:
<TABLE>
<CAPTION>
December 31, March 31,
--------------------------- ----------------------------
1998 1999 1999 2000
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash paid for:
Interest $ 675,308 $ 300,865 $ 63,019 $ 43,535
Income taxes 49,262 -- -- --
Noncash operating, financing and
investing activities:
Receipt of available-for-sale
securities for 3% subordinated
debentures $ -- $ 965,037 $ -- $ --
Retirement of 3% subordinated
convertible debentures with
available-for-sale securities -- 965,037 -- --
Retirement of prior line of credit 1,412,250 -- --
Unrealized gains (losses) on
securities (83,134) 8,704 (9,990) 39,531
Foreign currency translation (55,996) 26,156 4,597 (523)
Equipment acquired on capital lease 103,684 -- -- --
Options and warrants issued for
stock costs 42,820 -- -- --
</TABLE>
<PAGE>
F-21
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Three Months Ended March 31, 1999 and 2000 (unaudited)
13. Foreign Operations -
Foreign operations consist of Triple-C-Inc. sales to Canadian customers.
Financial information for 1998 and 1999 and the three months ended March
March 31, 1999 and 2000, is as follows:
<TABLE>
<CAPTION>
December 31, March 31,
-------------------------- --------------------------
1998 1999 1999 2000
----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales $17,373,356 $18,748,885 $ 4,381,153 $ 4,284,486
Operating income (loss) (532,599) 300,838 145,602 (274,074)
Identifiable assets at end of period 6,051,617 6,158,134 6,773,083 6,552,549
</TABLE>
The Company protects itself from adverse changes in exchange rates on
purchases and related accounts payable of Triple-C-Inc., denominated in
foreign currencies, by, at times, hedging with foreign exchange
contracts. Such items are translated at the foreign exchange contract
rate. The terms of the contracts are generally less than one year. Gains
and losses on the contracts are recorded when the related transaction
occurs. At December 31, 1999, the Company had no foreign exchange
contracts outstanding.
14. Major Vendors -
Approximately 32% and 28% of the Company's merchandise in 1998 and 1999,
respectively, was purchased from two suppliers in the United States and
Belgium.
15. Contingency and Uncertainties -
The Company has a dispute relating to options held by certain
shareholders/employees. The shareholders/employees believe the Company is
required to repurchase their shares for approximately $2,000,000 with
five year 6% promissory notes. Although the Company believes the
shareholders/employees did not exercise their options by the specified
date and the dispute is without merit, the outcome is uncertain.
At December 31, 1999, the Company has outstanding bank letters of credit
for approximately $137,000 which are collateralized by a $70,000
restricted term deposit included in other noncurrent assets. In the
Company's past experience, virtually no claims have been made against
letters of credit. Management does not expect any material loss will
result from these instruments and, therefore, is of the opinion that the
fair value of these instruments is zero.
