UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - SB
AMENDMENT NUMBER ONE
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
(952) 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 Candy 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
SUBSTANTIAL DOUBT ABOUT OUR VIABILITY AS A GOING CONCERN
The viability of Go-Rachels.com Corp. (the "Company") as a going concern is in
question. 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.
The Company also has a material uncertainty regarding a stockholder dispute and
is subject to several outstanding judgments (see "Legal Proceedings").
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 (see "Financial Condition, Liquidity and
Capital Resources").
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 "Rachel'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. The acquisition price totaled
$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 "Legal Proceedings" below).
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
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Incorporation and Bylaws of RLD Enterprises, Inc. On January 29, 1999, RLD
Enterprises changed its name to GO-RACHELS.COM CORP.
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 the Fall of 1999, the Board of Directors and the Chairman of the Board
resigned by mutual agreement of all parties after the hiring of Lawrence
Castriotta, the Chairman of the Board of Directors, Chief Executive Officer and
President of the Company (see "Directors and Executive Officers" below). The
core business plan of the Company did not change as a result of the change in
the management structure that occurred at that time; rather, new management has
sought to improve efficiency of the Company's operations and to focus on
improvement of the Company's financial situation.
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" 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 mid and/or 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
five flavors: Traditional, Mesquite Barbeque, Parmesan & Garlic, Salt & Vinegar,
and Jalapeno. 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, 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.
Triple-C-Inc. is a manufacturer and distributor of sour candy, Advent Calendars
and "Gummies" candy in Canada. Approximately 50% of Triple-C-Inc.'s
confectionery sales are private brand sales, whereby other manufacturers sell
products with 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.
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 (where the Company sells products
manufactured by others under the "Rachel's" name or other proprietary mark of
the Company), 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 the Company intends to finance
from cashflow of existing operations. There can be no assurance, however, that
cashflow of existing operations will be sufficient for this purpose, and the
Company's recent financial history indicates that it may be impossible to
finance these private label arrangements through cashflow of existing
operations. The possibility exists that the Company will probably be required to
raise additional capital to finance these private label arrangements, the
prospects of which are uncertain (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" below). In addition, costs for
expansion of private label arrangements through other means are currently
unknown, but could be substantially greater than $120,000. If the Company is
required 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 in
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excess of $120,000, the prospects of which are uncertain (see "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
below).
Using Triple-C-Inc.'s marketing and branding capabilities, the Company has
developed a line of Rachel's Gourmet Candy, including Rachel's Gourmet
Chocolates. These products were introduced into the U.S. in the second half
of the year 2000.
In January, 2000, Triple-C-Inc. was appointed the Canadian distributor for
Pokemon and WWF licensed candy, and in April, 2000, Triple-C-Inc. was named by
PEZ Candy, Inc. as its exclusive distributor for "Pez" candy in Canada. The
Company is unable to ascertain or forecast the potential long-term financial
effect of these appointments.
In December, 2000, Nestle USA ("Nestle") announced to its customers that
Triple-C-Inc. had been named the exclusive representative for the sale and
distribution of Nestle's "Willy Wonka" brand of confectionery products in
Canada. Gross sales for the "Willy Wonka" brand of confectionery products in
Canada in calendar year 2000 are in excess of $8 million. Triple-C-Inc.
anticipates the "Willy Wonka" sales in calendar year 2001 to be commensurate
with or slightly increased from the sales in calendar year 2000.
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.
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 Company estimates that it has spent
approximately $5,000 in each of calendar years 1998 and 1999 for marketing
expense, and estimates that it has spent approximately $15,000 for marketing
expense through the date of this Form 10-SB.
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 70%). 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.
The Company has positioned itself to offer high quality gourmet-style 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 products at a fair everyday price. The
Company, through its distribution network, will manage and execute target market
everyday pricing.
In May 1998, the Company sponsored two Team Cheever Indy cars in the Indy Racing
League. The first race sponsored by the Company was the Indianapolis 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. As an indirect result of the victory, the Company received
a substantial number of inquiries regarding its potato chip products. However,
the Company's network of direct store distributors was limited to three markets
(Minneapolis/St. Paul, Indianapolis, and Florida), and the Company was unable to
establish relationships with direct store distributors throughout the country
that would be required to capitalize on the interest shown in the Company's
potato chip products. Because the Company was unable to take advantage of the
sales opportunities provided by the Cheever victory, the Company terminated the
sponsorship agreement on May 1, 1999.
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The Company had been a sponsor of the Minnesota Timberwolves basketball team
beginning in approximately October, 1996 and the St. Paul Saints baseball team
beginning in approximately April, 1997. 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. As with the Company's sponsorship of the
Team Cheever Indy cars, the Company's limited distribution network prevented the
Company from taking advantage of the sales opportunities provided by the
relationships with the Timberwolves and St. Paul Saints and, on May 1, 1999, the
Company discontinued these active sponsorship relationships, although the
Company continues to work with both teams on community activities.
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.
DISTRIBUTION METHODS OF PRODUCTS OR SERVICE
The Company currently distributes its products through wholesale distributors in
Minnesota, Indiana and Wisconsin. Since, September, 1996, the company has also
distributed its products to food service customers through Sysco Food Service in
Minnesota, Wisconsin, Colorado and Florida and also distributes its products
through Alliant Food Service and JP Hering Food Service in Minnesota. The
Company's sells its products directly to customers via its internet web site. In
addition, Triple-C-Inc. currently distributes its products throughout Canada
through a network of small distributors and sells its products directly to
retailers in Canada.
The Company intends to establish a distribution network throughout North America
with food brokers and distributors. Also, the Company's has a distribution
relationship with Sysco Food of Minnesota, Inc., Sysco Food of Colorado, Inc.,
and Sysco Food of Florida, Inc. These relationships may lead to further
distribution opportunities with Sysco Corp. (the parent of Sysco Food of
Minnesota, Inc., Sysco Food of Colorado, Inc., and Sysco Food of Florida, Inc.),
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
intends to distribute Triple-C-Inc.'s product line in the United States to
current distributors and retailers of the Company's products in the United
States.
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.
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 , the Canadian Department of Agriculture and Agri-Food, and
the Canadian Food Inspection Agency. Under various U.S. and Canadian 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 international,
state and local laws regulating food handling and storage.
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Under the U.S. Nutritional Labeling and Education Act of 1990, as amended
("NLEA"), the Canadian Food and Drugs Act, and the Canadian Consumer Packaging
and Labelling Act, food manufacturers are required to disclose nutritional
information on their labels in a uniform manner. The Company does not believe
that compliance with these regulations has materially increased its
manufacturing costs or had a material effect on operations to date, but is
unable to predict effect of regulations promulgated under authority granted by
such acts on future products or the costs of compliance in the event such
regulations are amended in the future.
In addition to laws relating to food products, the Company is subject to various
international, federal, state, and local environmental laws and regulations,
including Canadian 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, quality and variety. There are numerous competitors providing the same or
similar products as the Company. The Company does not consider that any one
producer dominates the sugar confectionery market. Frito-Lay is the dominant
producer in the salted snacks market with more than 50% market share (as
reported in the Snack Food Association's "State of the Industry Report" of June
2000). Many of these competitors have significantly greater sales and capital
resources than those of the Company. Management believes that its technical
competence, pricing structure, packaging and niche market approach 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 in the aggregate from Trolli, a division of Nabisco, Inc., and Red
Band Venco, a division of CSM nv, a Netherlands Company.
The dispute between the Company and Red Band Venco referenced in the Company's
filing on Form 10-SB on October 20, 2000 was resolved in December, 2000, to the
satisfaction of both the Company and Red Band Venco. Under the terms agreed upon
by the Company and Red Band Venco, the total outstanding accounts payable due to
Red Band Venco from the Company have been reduced by $132,000 (from $600,000 to
approximately $468,000), and Red Band Venco has agreed to ship two standard
containers of raw materials to the Company without charge, assuming payment by
the Company of the outstanding accounts payable upon an agreed amortization
schedule. The financial effects of the resolution of the dispute with Red Band
Venco will be accounted for on the Company's financial statements for the fourth
quarter of 2000.
Triple-C-Inc. is currently in a dispute with Trolli, a division of Nabisco, Inc.
Triple-C-Inc. believes that Trolli failed, despite numerous assurances
throughout 2000, to fulfill their agreement to deliver adequate amounts of
finished product to Triple-C-Inc. in 2000, resulting in lost sales and other
unascertained losses by Triple-C-Inc. Because of this dispute, Triple-C-Inc. has
withheld payment to Trolli for product delivered in 2000 (although Triple-C-Inc.
has properly accrued in its accounts payable all amounts billed by Trolli), and
plans to continue to withhold all such amounts due until resolution of the
dispute. The amount that Trolli asserts that Triple-C-Inc. owes is approximately
$965,000 plus accrued interest. Although Triple-C-Inc. believes it can amicably
resolve this dispute with Trolli without resort to litigation, Trolli is not
currently supplying any product to Triple-C-Inc., forcing Triple-C-Inc. to find
alternative suppliers of product, which supplies may be more or less expensive
than those provided by Trolli. In addition, it is possible that the dispute will
not be amicably resolved and either of the parties may resort to litigation to
resolve this matter. In the event that resolution of this dispute includes
litigation, it is possible that one or both parties may prevail on some or all
of their claims, and it is possible that Triple-C-Inc. will not prevail on any
claim for damages resulting from Trolli's failure to deliver contract amounts of
finished product to Triple-C-Inc. Any judgment against Triple-C-Inc. requiring
the payment of the outstanding balance due Trolli without equivalent setoff for
losses incurred by Triple-C-Inc. due to Trolli's failure to deliver contract
amounts of finished product to Triple-C-Inc. would have a material adverse
effect on the business of Triple-C-Inc., and may result in Triple-C-Inc. and/or
the Company being required to seek protection under Canadian or U.S. bankruptcy
laws or being involuntarily forced to declare bankruptcy under Canadian or U.S.
bankruptcy laws.
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 has applied for registration of the following trademarks with the
United States Patent and Trademark Office: "Kidz Korner," "Rachel's Goldies,"
"Golden Revelations," "Rachel's Revelations," "Rachel's Batonnets," "Rachels
Made From the Heart," and "Gummy Guy."
The Company has applied for registration of the following trademarks with the
Canadian Intellectual Property Office: "Rachel's Batonnets," "Rachel's
Revelations," "Grains," "Choco-Cafe," and "Golden Revelations."
In addition, the Company uses the following unregistered trademarks: "Rachel's"
and "Gourmet America's Finest."
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Triple-C-Inc. has applied for registration of the following trademarks with the
United States Patent and Trademark Office: "Goldie Dollar," "Amero," "The
Amero," "Casino Chips," "Droppies," "Sourbolts," "Peaches & Cream," "Rachel's
Coffee Revelations," "Just Peachy," "Millennium Coins," and "Windsor".
Triple-C-Inc. has registered the following trademarks with the Canadian
Intellectual Property Office: "Rachel's," "Rachel's Crunchy Goodness & Design,"
"Sour Simon," "Child-Boy's Face Fanciful; Design," "Cola Bottles," "Sour Face
Pullers," "Sour Soothers," "Sour Tongues," "Summer Berries," "Belly Buttons,"
"Polar Squares," "Polar Caps," "TC Design," "Watches," "Fruits De Mer," "Sea
Fruit," "Talking Hearts," "Fun Hearts," "Fizzy Rolls," "Toopops," "Screaming
Sirens," "Tiger Tails," "Surfin Snakes," "Sour Subs," "The Original Sour Face
Puller," "Flossed Teeth,"
"Fins And Scales," "Dog Bones," "Gummy Guy," "Child Boy's Head Design," "Sour
Puss," "Yukkies," "Pucker Power," "Loonies," "Initial," "Peanut Smaks," "Beer
Bottles," "Santa's Own," "Quenchers," "Kool Kiss," "Blockheads," "Candy On The
Move & Design," "Chocolate On The Move & Design," "Sour Punch," "Santa's Own &
Design," "Wow That's Sour," "Super Frogs," "Frogs," "World Class Candy," "It's A
Boy," "Windsor," "It's A Girl," "Les Grimaciers Sur Originaux," "Sujets Surs,"
"Tetines Surs," "Grenouilles," "Simon Sur Bouteilles Cola," "Grimace Assuree,"
"Toonies," "Twonies," "Barclay," "Eurocoins," "Eurodollars," "Juicey Twine," "
Toonies," "Loonies," "Millennium Coins," and "Droppies."
Triple-C-Inc. has applied for registration of the following trademarks with the
Canadian Intellectual Property Office: "Just Peachy," "Peaches & Cream,"
"Amero," "The Amero," "Sour Bolts Design," "Le Grimacier Sur Original,"
"Kidstuff," "Rachel's Coffee Revelations," "Casino Chips," "Rachel's Crunchy
Goodness & Design," "Choco-Beans," and various design marks.
Triple-C-Inc. currently uses, but has not registered, the following trademarks:
"Sour Simon," "Sour Soother," "Frogs," "Gummy Frogs," "Cola Bottles," "Belly,"
"Loonies Chocolate Coins," "Barclay."
The Company has pursued and will continue to selectively pursue registration of
its trademarks with relevant state and national registration authorities as
appropriate.
In October, 2000, the Company entered into a license agreement with Gardner
Resources, a New Jersey Company ("Gardner") , whereby the Company will obtain
the exclusive potato chip marketing and manufacturing rights to the "Death Rain"
brand of potato chips for North America. In exchange for the license granted to
the Company, the Company has issued 100,000 shares of common stock in the
Company and a warrant to purchase 100,000 shares of common stock of the Company
to Gardner. The license agreement with Gardner has an initial term of five years
but may be renewed by the Company for an additional five-year term in exchange
for a warrant to purchase 50,000 shares of common stock of the Company. In
addition, the Company has entered into a private label agreement with Gardner,
whereby the Company has agreed to manufacture, for export, potato chip products
on a fee basis under the "Blair's Death Rain Chips" label. Copies of both the
license agreement and the private label agreement with Gardner are attached
hereto as exhibits.
The Company does not hold any patents. The Company is not a party to any other
material franchise, license, concession, royalty, 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
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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:
<TABLE>
<CAPTION>
Warehouse/
Executive Administrative Manufacturing Distribution Sales Merchandisers
--------- -------------- ------------- ------------ ----- -------------
<S> <C> <C> <C> <C> <C> <C>
8 19 11 19 19 8
</TABLE>
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 stockholders. 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 20549. 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 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 (see "Substantial Doubt About Our Viability as a Going Concern"
above).
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 stockholder dispute and several outstanding judgments
(see "Legal Proceedings" below) and a potential default on its line of credit
facility (see "Financial Condition, Liquidity and Capital Resources").
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 (see "Financial Condition, Liquidity and
Capital Resources").
8
<PAGE>
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 foreign currencies and the U.S.
dollar. Under current policies, Triple-C-Inc. uses currency hedges (forward
contracts, options, etc) on an as-need basis to manage exposure to currency
risk. All currency hedges are implemented by Triple-C-Inc.'s Chief Financial
Officer upon direction by Triple-C-Inc.'s budget committee. As of the date of
this amendment, Triple-C-Inc. does not hold any hedging instruments. There can
be no assurance that any hedging in which Triple-C-Inc. or the Company may
engage will be successful.
Triple-C-Inc. had foreign transaction losses of $248,456 in 1998 and gains of
$341,392, $159,120 and $181,577 in 1999 and the nine months ended September 30,
1999 and 2000, respectively.
DISCUSSION REGARDING FINANCIAL CONDITION
The Company's results of operations are for the years ended December 31, 1999
and 1998 (audited) and the nine month periods ended September 30, 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 nine month
period ended September 30, 2000 are compared to the nine month period ended
September 30, 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. The decrease in net loss was the result
of a gross margin improvement of $307,902, reduced operating expenses, primarily
marketing and distribution expenses, of $907,901, and an improvement in foreign
currency gains (losses) of $589,848, offset by increased interest and other
nonoperating expenses of $146,414 and increased income tax expense of $129,100.
Sales for the nine months ended September 30, 2000 decreased 8% to $13,744,581
compared to $14,977,246 for the nine months ended September 30, 1999. Sales of
Rachel's potato chips fell 38% through September 30, 2000, versus the same
period the prior year. The 38% 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 nine months ended September 30, 2000 decreased by 5%
compared to sales for the nine months ended September 30, 1999. Sales of
Triple-C-Inc. for the nine months ended September 30, 2000 were $12,942,167,
compared to $13,680,943 for the nine months ended September 30, 1999.
In 1999, Triple-C-Inc. introduced a new line of "Y2K" Chocolate Coins in
anticipation of the new millennium. Net sales of the Y2K Chocolate Coins for the
year ended December 31, 1999 were $4,600,000, compared to normal year sales of
chocolate coins by Triple-C-Inc. of approximately $1,400,000. Due to slower than
expected sales and the inability of Triple-C-Inc. to cancel orders with its
suppliers, Triple-C-Inc. ended the year with an inventory of Y2K Chocolate Coins
valued at $929,130. In addition, during the three months ended March 31, 2000,
Triple-C-Inc. customers returned Y2K Candy to Triple-C-Inc. valued at
approximately $180,000. Triple-C-Inc. is currently attempting to liquidate its
inventory of Y2K Chocolate Coins at near normal margins. Sales of the Y2K
Chocolate Coins are non-recurrent and will not be pursued in the future.
Cost of goods sold decreased by $252,813 to $15,140,726 in 1999 from $15,393,539
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 nine months ended September 30, 2000, cost of goods was
74.0% or $10,167,039 as compared to 74.6% or $11,172,325 for the same period in
1999, primarily due to continued margin improvement at Triple-C-Inc.
9
<PAGE>
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 nine months ended September 30, 2000 were $4,954,436,
compared to $4,951,804 in the same period the prior year. Increased sales,
marketing and general and administrative expenses in the Triple-C-Inc.
operations were offset by reduced expenses relating to the termination of the
Team Cheever marketing program.
Net nonoperating expenses for the year ended December 31, 1999 were $393,793
compared to $837,227 for the year ended December 31, 1998. 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 (including the U.S. Dollar, the Belgian Franc, and the Dutch
Guilder). 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. Net
nonoperating expenses for the nine months ended September 30, 2000 were $265,914
compared to $284,949 for the nine months ended September 30, 1999. For the nine
months ended September 30, 2000, foreign currency gains were $181,577 compared
to a gain of $159,120 in the same period in 1999. Interest expense for the nine
months ended September 30, 2000 was $545,094 compared to $515,469 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. Income taxes was a
benefit of $19,500 in the nine months ended September 30, 2000, compared to an
expense of $33,800 in the same period of 1999. The taxes relate to
Triple-C-Inc., which reported an operating loss in 2000 compared to an operating
profit in 1999.
Net loss for the nine months ended September 30, 2000 increased 11% to
$1,623,308 or $.19 per share from $1,465,632 or $.19 per share in the comparable
period in 1999. The decrease is due mainly to a decrease in sales.
The Company is currently a defendant to various claims in litigation, a total of
six judgments in excess of $140,000 in the aggregate have been awarded to the
plaintiffs in those actions, and two of these judgment creditors have commenced
collection actions (see "Legal Proceedings" below). The Company is currently
engaged in negotiations with several of these plaintiffs, and has negotiated a
payment plan in settlement in claims with two of these plaintiffs, which have
currently suspended collection efforts. However, the potential for collection of
several of these judgments by judicial means exists, and 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 $5,200,000 revolving line of credit facility with Congress
Financial Corporation (Canada), expiring in 2003, subject to a four year
extension. The line of credit facility was put in place commencing on October
18, 1999. 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. As of September 30, 2000, the loan balance
of the line of credit facility was $1,988,099.
On June 7, 2000, Congress Financial Corporation (Canada) notified Triple-C-Inc.
that certain covenant defaults relative to the revolving line of credit facility
existed under the loan agreement. In discussions between the parties during the
summer of 2000, Congress Financial Corporation (Canada) indicated that
Triple-C-Inc. had failed to meet the minimum Adjusted Tangible Net Worth as
required under the loan agreement, and that Triple-C-Inc. had granted
10
<PAGE>
a security interest to a third party in violation of the loan agreement.
Triple-C-Inc. also asserted that the calculation of the Adjusted Tangible Net
Worth of the Company by Congress Financial Corporation (Canada) was incorrect,
as Congress Financial Corporation (Canada) treated certain chocolate coin
inventory as having no value, while Triple-C-Inc. felt that this chocolate coin
inventory should be valued at its historical book value. Triple-C-Inc.
acknowledged default of the minimum Adjusted Tangible Net Worth covenant. As of
July 31, 2000, the Adjusted Tangible Net Worth deficiency was approximately
$441,966. Triple-C-Inc. also acknowledged that it has granted a security
interest to a third party in violation of the loan agreement, and has
subsequently terminated this security interest with the consent of the third
party in question.
By letter dated August 22, 2000, Congress Financial Corporation (Canada) waived
the alleged covenant defaults relative to the minimum Adjusted Tangible Net
Worth covenant in writing, and the Company considers the line of credit with
Congress Financial Corporation (Canada) in good standing. In addition, Congress
Financial Corporation (Canada) and the Company have agreed that, for purposes of
determining the Company's Adjusted Tangible Net Worth relative to the line of
credit only, the chocolate coin inventory will have no value, although the
Company still considers this inventory to be valuable and carries this inventory
as an asset on its financial statements. Notwithstanding the August 22, 2000
waiver, it is possible that Congress Financial Corporation (Canada) will
terminate the line of credit facility if there are future covenant violations by
the Company, which termination would have a material adverse effect on
Triple-C-Inc and the Company. In the event that the Congress Financial
Corporation (Canada) terminates the line of credit, Triple-C-Inc. and the
Company would seek alternative sources of Bank financing, private debt
financing, or equity financing, the availability of which there can be no
assurance. In the event that Triple-C-Inc. does not have adequate capital
financing in place to finance Canadian operations, the Company may have to
consider a sale of Triple-C-Inc., although no such sale is currently under
consideration by the Company.
The Company is currently in a dispute with former stockholders of Triple-C-Inc.
stock, one of whom, Mr. Harm Scholtens, is currently employed by Triple-C-Inc.,
a wholly-owned subsidiary of the Company (see "Legal Proceedings" below). The
dispute relates to the obligation of the Company to repurchase shares of common
stock issued to the former stockholders of Triple-C-Inc. for a total of
$1,958,368 by delivery of a five-year 6% promissory note. Although neither party
has resorted to litigation at this point, it is a possibility that either party
may resort to judicial resolution of this matter, and it is a possibility that
any litigation with the former Triple-C-Inc. stockholders will result in an
adverse judgment against the Company, which adverse judgment may have a material
adverse effect on the Company and its operations, its future liquidity, and any
adverse judgment may jeopardize the Company's ability to continue as a going
concern.
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. In the event that the Company has
insufficient cashflow to provide operating capital to the Company over the next
12 months, and is unable to obtain additional capital financing, the Company may
consider pursuing additional debt or equity financing, and may be forced to
explore other alternatives, including reorganization under the U.S. Bankruptcy
Code, although no such reorganization is currently until consideration by the
Company.
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 and $1,285,997 of one year 12% unsecured convertible
subordinated debentures in calendar years 1998 and 1999, respectively. In 2000,
the Company issued $1,724,225 of short-term 12% unsecured convertible
debentures. 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 retired in 1998. All of the debentures outstanding at
December 31, 1999 and $145,000 of the debentures issued in 2000 were retired in
2000.
11
<PAGE>
In 1999, Triple-C-Inc. issued $419,429 of one year 12% unsecured convertible
subordinated debentures. The debentures are subordinated to borrowings from any
Senior Lender (defined as any term loan, operating line or other type of credit
facility granted by any third party lending institution) and are convertible,
upon completion of a Triple-C-Inc. IPO and at the option of the debenture
holder, into shares of common stock of Triple-C-Inc. at a per-share price of 80%
of the price of shares of common stock of Triple-C-Inc. offered in the IPO.
However, there are no current plans to conduct an IPO of shares of stock of
Triple-C-Inc., and it is extremely unlikely that such IPO will take place before
the retirement of the debentures (see "Recent Sales of Unregistered Securities"
below).
The Company issued $557,642, $340,242 and $106,846 of short term promissory
notes to stockholders of the Company at interest rates ranging from 8% to 17.8%
in calendar years 1998 and 1999 and the nine months ended September 30, 2000,
respectively. Notes in the amount of $900,446, $239, 970 and $136,164 were
repaid in calendar years 1998 and 1999, and the nine months ended September 30,
2000, respectively.
Net cash used in operating activities totaled $2,813,668 and $1,108,600 in 1998
and 1999, respectively, and $1,118,397 and $926,971 in the nine months ended
September 30, 1999 and 2000, respectively. Negative 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 $53,242 and $(24,213) in the nine
months ended September 30, 1999 and 2000, respectively. Investing cash flows
resulted primarily from proceeds on the sale of marketable securities and
property and equipment transactions. In March 1998, the Company redeemed its
$4,060,000 investment in Greek treasury bonds. Proceeds of the redemption were
used to retire certain convertible subordinated debt and certain other payables.
Net cash provided by (used in) financing activities totaled $(1,518,327) and
$1,116,528 in 1998 and 1999, respectively, and $1,091,202 and $957,071 in the
nine months ended September 30, 1999 and 2000, respectively. Financing cash
flows resulted primarily from fluctuations in proceeds and payments on Company
debt and proceeds from the sale of common stock.
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, Nine Months Ended September 30,
1998 1999 1999 2000
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales $ 20,227,704 $ 20,282,793 $ 14,977,246 $ 13,744,581
Net Loss $ (3,423,352) $ (1,893,215) $ (1,465,632) $ (1,623,308)
Total Assets $ 10,450,667 $ 10,032,119 $ 10,742,478 $ 10,124,291
Long-Term Debt $ 124,721 $ 56,521 $ 68,836 $ 25,855
Stockholders' Equity $ 2,595,242 $ 1,906,250 $ 2,250,880 $ 221,578
Per Share Data:
Dividends Per Share $ 0 $ 0 $ 0 $ 0
Net Loss $ (0.54) $ (0.23) $ (0.19) $ (0.19)
Weighted Average Number
of Shares Outstanding 6,382,208 8,079,345 7,898,185 8,626,713
</TABLE>
ITEM 3. DESCRIPTION OF PROPERTY
The Company leases the following real property with rental rates as follows:
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o An 800 square feet of corporate offices in Bloomington, Minnesota for
$1,070 per month on a month-to-month lease;
o 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;
o a 55,000 square foot Canadian Headquarters and warehouse in Hamilton,
Ontario for $18,530 per month for a period ending January 1, 2002;
o a 7,740 square foot office and warehouse in Calgary, Alberta for $5,590 per
month for a period ending June 30, 2002;
o an 800 square foot office in Langley, British Columbia for $750 per month
for a period ending May 31, 2001; and
o a 600 square foot office in Montreal, Quebec for $590 per month for a
period ending March 31, 2002.
13
<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 September 30, 2000 by each of the Company's
directors and executive officers.
<TABLE>
<CAPTION>
Name & Address Shares Owned Beneficially Percentage of Total
& Of Record Stock Outstanding
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lawrence J. Castriotta 300,000(1) 3.2%
President, CEO & Chairman of the Board of Directors,
GO-RACHELS.COM CORP.
Leo Short 210,000(2) 2.2%
Executive V.P., Sales & Marketing, GO-RACHELS.COM CORP.
Kent W. Hammond 100,000(3) 1.1%
V.P. Specialty Marketing, GO-RACHELS.COM CORP.
Harm Scholtens 277,536(4) 3.0%
Director, GO-RACHELS.COM CORP.
V.P. Sales & Marketing, Triple-C-Inc.
Curtis Russell 200,000(5) 2.1%
C.O.O., Triple-C-Inc.
Danny Bob Berenberg 60,000(6) *
Director, GO-RACHELS.COM CORP.
ALL OFFICERS AND DIRECTORS 1,147,536 12.2%
</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 200,000 shares of common stock
within the next 60 days at $1.00 per share.
(3) Includes Mr. Hammond's option to purchase 100,000 shares of common stock
within the next 60 days at $.36 per share.
(4) Includes Mr. Scholtens' option to purchase 100,000 shares of common stock
within the next 60 days at $5.50 per share.
(5) Includes Mr. Russell's option to purchase 100,000 shares of common stock
within the next 60 days at $1.00 per share.
(6) Includes Mr. Berenberg's option to purchase 50,000 shares of common stock
within the next 60 days at $.15 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 1997 until he joined the Company in August, 1999, Mr.
Castriotta was semi-retired and lived in Europe. From 1990 to 1997, he served
14
<PAGE>
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.
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 as an assistant plant manager
and office administrator 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 Triple-C-Inc. as a salesperson, Sales Manager, Vice
President of Sales, and past President, 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.
15
<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
stockholders.
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 stockholders.
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 the event that Mr. Castriotta and
the Company cannot come to agreement upon the annual salary adjustment, Mr.
Castriotta's annual salary will increase to $125,000 per year. 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 10, 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. In the event that the agreement is terminated by either party prior to
July 31, 2001, the Company will be obligated to pay Mr. Castriotta the greater
of (i) all salary amounts which would otherwise be due Mr. Castriotta through
July 31, 2001 if the agreement were not terminated, or (ii) one year's salary.
Mr. Castriotta's employment agreement also provides for other customary fringe
benefits. The agreement does not contain any payment of any amounts that would
be considered "parachute payments" under Section 280G(b)(2) of the Internal
16
<PAGE>
Revenue Code. 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.
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 $100,000 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 $6,172 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 payment of any
amounts that would be considered "parachute payments" under Section 280G(b)(2)
of the Internal Revenue Code. 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.
17
<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):
SUMMARY COMPENSATION TABLE
Annual Compensation
--------------------------
Name and Principal Position Year Salary Bonus
--------------------------------------------------------------------------------
James Garlie, Chairman of the Board, President, CEO(1) 1999 $ 4,947 $0
Lawrence J. Castriotta, Chairman of the Board,
President, CEO(2) 1999 $ 45,000 0
Leo Short, Executive VP Sales & Marketing 1999 $ 81,600 0
Curtis Russell, COO, Triple-C-Inc.(3) 1999 $ 37,500 0
Harm Scholtens, V.P. Sales & Marketing, Triple-C-Inc. 1999 $100,000 $6,172
Kent W. Hammond, VP Specialty Marketing(4) 1999 $ 12,500 0
[WIDE TABLE CONTINUED]
<TABLE>
<CAPTION>
Long term compensation
--------------------------------------------------------------------------
Awards Payouts
--------------------------------------------------------
Other Annual Restricted Securities All other
Compensation Stock underlying LTIP payouts compensation
Name and Principal Position Award(s) options/SARs
------------------------------------------------------ --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
James Garlie, Chairman of the Board, President, CEO(1) $0 0 0 $0 $0
Lawrence J. Castriotta, Chairman of the Board,
President, CEO(2) (5) $30,000(6) 200,000 0 0
Leo Short, Executive VP Sales & Marketing 0 0 0 0 0
Curtis Russell, COO, Triple-C-Inc.(3) 0 0 100,000 0 0
Harm Scholtens, V.P. Sales & Marketing, Triple-C-Inc. (5) 0 0 0 2,000(7)
Kent W. Hammond, VP Specialty Marketing(4) 0 0 100,000 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. Castriotta was granted 100,000 shares of common stock pursuant to the
terms of his employment agreement. The estimated value of such stock was
$30,000.
(7) The Company maintains and pays the premiums for a $500,000 term life
insurance policy for the benefit of Mr. Scholtens.
The Company follows the disclosure provisions of SFAS No. 123
"Accounting for Stock-Based Compensation," and applies APB Opinion No.25,
"Accounting for Stock Issued to Employees" for measurement and recognition of
stock-based transactions with its employees.
18
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR (INDIVIDUAL GRANTS)
The following Option/SAR Table sets forth the options or SAR granted during the
year ended December 31, 1999 to the executive officers of the Company (all
compensation expressed in U.S. Dollars):
<TABLE>
<CAPTION>
Percent of total options/SARs
Number of Securities underlying granted to employees in fiscal
Name and Principal Position options/SARs granted (#) year
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lawrence J. Castriotta, Chairman 200,000 44.4%
of the Board, President, CEO
Curtis Russell, COO, Triple-C-Inc. 100,000 22.2%
Kent W. Hammond, VP Specialty
Marketing 100,000 22.2%
[WIDE TABLE CONTINUED]
Name and Principal Position Exercise of base price ($/Sh) Expiration Date
---------------------------------- -----------------------------------------------------
Lawrence J. Castriotta, Chairman $1.00 September 10, 2009
of the Board, President, CEO
Curtis Russell, COO, Triple-C-Inc. $1.00 June 4, 2004
Kent W. Hammond, VP Specialty
Marketing $ .36 November 1, 2004
</TABLE>
19
<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
stockholders. 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 stockholder 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, 8,622,824 shares of common stock of the
Company were outstanding. As of September 30, 2000, 8,632,824 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.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires special
disclosure relating to the market for penny stocks in connection with trades in
any stock defined as a "penny stock". Commission regulations generally define a
penny stock to be an equity security that has a market price of less than $5.00
per share and is not listed on The NASDAQ SmallCap Stock Market or a major stock
exchange. These regulations subject all broker-dealer transactions involving
such securities to the special "Penny Stock Rules" set forth in Rule 15g-9 of
the Securities Exchange Act of 1934 (the "34 Act").
It is anticipated that if a market should develop for the Company's common stock
that the market price of the Company's common stock will be substantially less
than $5.00 per share and such stock can be expected to trade in the
over-the-counter market at a per share market price of substantially less than
$5.00. Accordingly, any broker-dealer sales of the Company's shares will be
subject to the Penny Stock Rules. These Rules affect the ability of
broker-dealers to sell the Company's securities and also may affect the ability
of purchasers of the Company's common stock to sell their shares in the
secondary market, if such a market should ever develop. The Penny Stock Rules
also impose special sales practice requirements on broker-dealers who sell such
securities to persons other than their established customers or "Accredited
Investors." Among other things, the Penny Stock Rules require that a
broker-dealer make a special suitability determination respecting the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. In addition, the Penny Stock Rules require that a broker-dealer deliver,
prior to any transaction, a disclosure schedule prepared in accordance with the
requirements of the Commission relating to the penny in accordance with the
requirements of the Commission relating to the penny stock market. Disclosure
also has to be made about commissions payable to both the broker-dealer and the
registered representative and the current quotations for the securities.
Finally, monthly statements have to be sent to any holder of such penny stocks
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Accordingly, for so long as
the Penny Stock Rules are applicable to the Company's common stock, it may be
difficult to trade such stock because compliance with such Rules can delay
and/or preclude certain trading transactions. This could have an adverse effect
on the liquidity and/or price of the Company's common stock in the future.
20
<PAGE>
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.
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 31, 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, including the Securities Act of 1933 and
regulations thereto, the Securities Exchange Act of 1934 and regulations
thereto, and rules promulgated by NASDAQ, which may affect the liquidity of the
shares.
HOLDERS
There were approximately 400 holders of record of the Company's common stock as
of September 30, 2000.
ITEM 2. LEGAL PROCEEDINGS
In conjunction with the acquisition of the stock of Triple-C-Inc., the Company
issued 608,000 shares of its common stock to former stockholders of
Triple-C-Inc. stock, one of whom, Mr. Harm Scholtens, is currently
21
<PAGE>
employed by Triple-C-Inc., a wholly-owned subsidiary of the Company (see
"General Business Development" above). According to the acquisition agreement
between the Company and the stockholders, these stockholders retained the right
to require the Company to purchase all or part of 608,000 of their shares at
predetermined prices on stipulated dates. The terms of this repurchase
obligation of the Company included the delivery of promissory notes bearing
interest at 6% with a five-year term. Prior to October 1, 1999, these
stockholders indicated their general intent to exercise their right to require
the Company to purchase their shares, and the Company and these stockholders
conducted negotiations regarding method of payment and extension of the date of
exercise of the stockholders' right to require the Company to purchase their
shares. During these discussions, counsel for the stockholders delivered a draft
promissory note to be used by the parties to evidence the payment obligation
from the Company to the stockholders. On October 1, 1999, the option of these
stockholders 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
stockholders. Nevertheless, the stockholders (including Mr. Scholtens, an
employee of Triple-C-Inc.) 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 stockholders' counsel to the Company constituted
"constructive" notice of exercise of the stockholders' option. It is the
Company's position that the delivery of the draft promissory note from
stockholders' counsel to the Company did not constitute notice of exercise of
the stockholders 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 stockholders 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 stockholders' 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. stockholders 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.
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. The Company
is currently engaged in negotiations with several of these plaintiffs, and has
reached a negotiated settlement in principle with two of these plaintiffs and is
currently satisfying these two judgments according to a negotiated payment plan.
However, the potential for collection of several of these judgments by judicial
means exists, and satisfaction of these judgments may have a material adverse
affect upon the financial condition of the Company.
22
<PAGE>
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, although the
Company did engage various brokers to assist the Company in selling its
securities, which brokers were compensated based upon sales of the Company's
securities. 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
During the past four years, and up to and including the date of this amendment,
the Company sold a total of 4,625,725 shares of common stock for a total
consideration of $9,833,662 (including cash, consulting, manufacturing, and
acquisition services and financing). Total offering expenses during this period
were $1,072,504. The issuance of common stock during this period was
unregistered in reliance upon Rule 506 of Regulation D, Regulation S, and
Section 4(2) of the Securities Act of 1933. A table of the private placements of
common stock is as follows:
<TABLE>
<CAPTION>
Consideration
Number of -------------
Date Shares Cash Non-Cash Nature of Transaction Expenses
---- ------ ---- -------- --------------------- --------
<S> <C> <C> <C> <C> <C>
January 13, 1997 1,000 $ 3,000 $ (A) $
May 30, 1997 10,000 10,000 (A)
June 6, 1997 6,000 16,980 Debt Conversion
June 19, 1997 11,500 34,500 (C)
June 30, 1997 640,000 1,811,200 Acquisition
July 1, 1997 6,000 16,980 (A)
July 1, 1997 700 1,981 (A)
August 27, 1997 10,000 37,500 (A) 12,392
September 4, 1997 20,000 75,000 (A) 24,783
September 4, 1997 15,000 56,250 (A) 18,588
September 5, 1997 1,000 3,750 (A) 1,239
September 15, 1997 10,000 37,500 (A) 12,392
September 17, 1997 10,000 37,500 (A) 12,392
September 18, 1997 4,000 15,000 (A) 4,957
September 24, 1997 7,000 26,250 (A) 7,834
September 27, 1997 2,000 7,500 (A) 2,478
September 27, 1997 5,000 18,750 (A) 6,196
September 29, 1997 26,667 100,001 (A) 29,846
23
<PAGE>
Consideration
Number of -------------
Date Shares Cash Non-Cash Nature of Transaction Expenses
---- ------ ---- -------- --------------------- --------
<S> <C> <C> <C> <C> <C>
September 29, 1997 2,500 9,375 (A) 3,098
September 30, 1997 30,000 45,000 (A) 17,594
September 30, 1997 50,000 141,400 Terminated Acquisition
October 2, 1997 10,000 10,000 (A)
October 10, 1997 10,000 10,000 (A) 5,865
October 10, 1997 5,000 5,000 (A) 2,932
October 10, 1997 20,000 20,000 (A)
October 17, 1997 10,000 37,500 (A) 14,267
October 17, 1997 3,000 11,250 (A) 4,280
October 20, 1997 5,000 18,750 (A) 7,134
October 20, 1997 10,000 37,500 (A) 14,267
October 21, 1997 10,000 37,500 (A) 14,267
October 21, 1997 5,000 18,750 (A) 7,134
October 21, 1997 10,000 37,500 (A) 14,267
October 24, 1997 10,000 37,500 (A) 14,267
October 28, 1997 8,000 30,000 (A) 11.414
October 31, 1997 5,000 5,000 (A) 2,932
October 31, 1997 25,000 137,500 (C)
October 31, 1997 145,000 Recapitalization
November 30, 1997 25,945 142,697 (A) 19,928
November 30, 1997 15,230 83,765 (A) 11,700
December 1, 1997 802,615 4,414,384 (A) 616,326
January 7, 1998 3,700 20,350 (A) 2,650
January 15, 1998 10,000 10,000 (A)
February 1, 1998 10,000 20,000 (A)
February 23, 1998 9,455 52,003 (A) 6,758
February 28, 1998 109,200 Merger
March 1, 1998 4,000 20,000 (A) 42,820
April 1, 1998 13,500 13,500 (A)
May 19, 1998 6,400 6,400 (B)
May 19, 1998 1,600 1,600 (B)
May 20, 1998 5,825 5,825 (B)
June 1, 1998 50,000 50,000 (C)
June 1, 1998 1,000 1,000 (C)
June 3, 1998 6,370 6,370 (B)
June 8, 1998 5,000 5,000 (C)
June 11, 1998 20,000 20,000 (B)
June 23, 1998 8,495 8,495 (B)
June 24, 1998 8,253 8,253 (B)
June 24, 1998 4,998 4,998 (B)
June 30, 1998 10,000 10,000 (A)
June 30, 1998 5,000 10,000 (A)
July 1, 1998 10,000 10,000 (C)
July 1, 1998 10,000 10,000 (C)
July 1, 1998 5,000 5,000 (C)
July 2, 1998 10,500 10,500 (A)
24
<PAGE>
Consideration
Number of -------------
Date Shares Cash Non-Cash Nature of Transaction Expenses
---- ------ ---- -------- --------------------- --------
<S> <C> <C> <C> <C> <C>
July 12, 1998 5,000 5,000 (A)
July 16, 1998 4,592 4,592 (B)
July 16, 1998 3,496 3,496 (B)
July 27, 1998 10,000 10,000 (A)
July 31, 1998 2,000 2,000 (C)
August 13, 1998 25,000 25,000 (A)
August 17, 1998 50,000 50,000 (A)
September 2, 1998 5,000 5,000 (A) 650
September 7, 1998 5,000 5,000 (A) 650
September 9, 1998 3,400 3,400 (B)
September 15, 1998 10,000 10,000 (A)
September 21, 1998 40,000 40,000 (A) 5,200
September 29, 1998 500 500 (A) 65
September 30, 1998 7,873 7,873 (B)
October 1, 1998 5,000 5,000 (A)
October 1, 1998 1,000 1,000 (C)
October 13, 1998 5,000 5,000 (A) 650
October 20, 1998 5,000 5,000 (A) 650
October 30, 1998 1,300 1,300 (A)
November 5, 1998 10,000 10,000 (C)
November 9, 1998 1,500 1,500 (A)
November 10, 1998 20,000 20,000 (B)
November 10, 1998 53,000 53,000 (B)
December 4, 1998 4,081 4,081 (A) 531
December 8, 1998 8,526 8,526 (A) 1,108
December 10, 1998 22,313 22,313 (A) 2,901
December 11, 1998 2,700 2,700 (A) 351
December 11, 1998 2,700 2,700 (A) 351
December 14, 1998 111,761 111,761 (A) 14,529
December 15, 1998 122,014 122,014 (A) 15,862
December 16, 1998 2,500 2,500 (A) 325
December 16, 1998 16,500 16,500 (A) 2,145
December 17, 1998 4,480 4,480 (A) 582
December 17, 1998 3,645 3,645 (A) 474
December 18, 1998 1,995 1,995 (A) 259
December 18, 1998 3,860 3,860 (A) 502
December 21, 1998 6,975 6,975 (A) 907
December 22, 1998 6,980 6,980 (A) 907
December 23, 1998 42,959 42,959 (A) 5,585
December 24, 1998 19,450 19,450 (A) 2,529
December 27, 1998 103,522 14,220 89,302 (A), (C) 419
December 29, 1998 6,515 6,515 (A) 840
January 5, 1999 3,260 3,260 (A) 424
January 7, 1999 1,960 1,960 (A) 255
January 11, 1999 990 990 (A) 129
January 11, 1999 12,760 12,760 (A) 1,659
January 11, 1999 19,975 19,975 (A) 2,597
January 13, 1999 3,240 3,240 (A) 421
25
<PAGE>
Consideration
Number of -------------
Date Shares Cash Non-Cash Nature of Transaction Expenses
---- ------ ---- -------- --------------------- --------
<S> <C> <C> <C> <C> <C>
January 14, 1999 3,696 3,696 (A) 480
January 14, 1999 3,604 3,604 (A) 469
January 14, 1999 3,500 3,500 (A) 455
January 15, 1999 100,024 100,024 (A) 13,003
January 19, 1999 38,863 38,863 (A) 5,051
January 20, 1999 8,375 8,375 (A) 1,089
January 20, 1999 3,288 3,288 (A) 427
January 21, 1999 7,420 7,420 (A) 965
January 21, 1999 3,050 3,050 (A) 397
January 22, 1999 10,000 10,000 (A) 1,300
January 22, 1999 2,440 2,440 (A) 317
January 22, 1999 730 730 (A) 95
January 25, 1999 1,980 1,980 (A) 257
January 25, 1999 3,710 3,710 (A) 482
January 25, 1999 2,930 2,930 (A) 381
January 25, 1999 1,832 1,832 (A) 239
January 26, 1999 2,470 2,470 (A) 321
January 28, 1999 3,730 3,730 (A) 485
January 28, 1999 3,940 3,940 (A) 512
February 12, 1999 5,000 5,000 (A) 650
February 15, 1999 103,242 103,242 (A) 13,419
February 16, 1999 1,970 1,970 (A) 256
April 1, 1999 25,000 25,000 (C)
April 1, 1999 6,000 6,000 (C)
April 1, 1999 20,000 20,000 (B)
April 7, 1999 4,000 8,000 (A)
May 5, 1999 40,000 20,000 (B)
May 7, 1999 400,000 400,000 (C)
May 7, 1999 20,000 11,186 (B)
June 30, 1999 10,000 9,200 (B)
June 30, 1999 10,000 9,200 (B)
July 8, 1999 20,000 10,000 (B)
August 11, 1999 31,364 17,033 (B), (C)
September 10, 1999 472,792 244,120 (B), (C)
June 19, 2000 10,000 1,500 (C)
October 24, 2000 100,000 18,000 (C)
------------------------------------- -----------
4,625,725 $6,563,239 $3,270,423 $ 1,072,504
===================================== ===========
</TABLE>
(A) - Cash
(B) - Financing
(C) - Services
The private placements of stock were issued to the following classes of persons:
(i) individual investors known to the Company; (ii) creditors of the Company
which agreed to receive common stock of the Company in lieu of repayment of
debt; (iii) providers of services to the Company who agreed to accept common
stock of the Company in lieu of cash compensation; (iv) persons who received
stock as a result of acquisitions by the Company.
26
<PAGE>
On February 28, 1998, the Company acquired PB Midwest, Inc. ("PB Midwest") by
issuing 109,200 shares of the Company's 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.
CONVERTIBLE DEBENTURE OFFERINGS
During the past four years, and up to and including the date of this amendment,
the Company sold convertible debentures in the aggregate initial principal
amount of $6,464,818. The convertible debentures issued in 1997 and 1998 were
convertible into Company common stock at $4.80 per share, the convertible
debentures issued in 1999 and 2000 were convertible into Company common stock at
$2.50 per share, and all convertible debentures are subordinated to other
borrowings. The issuance of the convertible 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 convertible debentures has been converted into common stock
of the Company. A table of the private placements of convertible debentures is
as follows:
Date Initial Principal Amount Conversion Price (per share
---- ------------------------ ----------------------------
of common stock)
----------------
April 18, 1997 500,000 $4.80
May 1, 1997 379,000 $4.80
May 1, 1997 200,000 $4.80
May 23, 1997 110,000 $4.80
May 29, 1997 500,000 $4.80
June 5, 1997 359,000 $4.80
June 5, 1997 130,000 $4.80
June 6, 1997 200,000 $4.80
June 6, 1997 200,000 $4.80
July 18, 1997 142,300 $4.80
May 20, 1998 64,000 $4.80
May 20, 1998 58,252 $4.80
May 20, 1998 16,000 $4.80
June 3, 1998 63,700 $4.80
June 11, 1998 200,000 $4.80
June 23, 1998 84,955 $4.80
June 24, 1998 82,530 $4.80
June 24, 1998 49,980 $4.80
July 16, 1998 34,960 $4.80
July 16, 1998 45,919 $4.80
September 9, 1998 34,000 $4.80
January 4, 1999 70,000 $2.50
January 4, 1999 88,784 $2.50
May 20, 1999 99,000 $2.50
May 20, 1999 65,545 $2.50
June 3, 1999 10,000 $2.50
June 3, 1999 61,344 $2.50
June 15, 1999 93,500 $2.50
June 18, 1999 60,000 $2.50
June 20, 1999 17,920 $2.50
June 23, 1999 95,149 $2.50
June 26, 1999 71,680 $2.50
27
<PAGE>
Date Initial Principal Amount Conversion Price (per share
---- ------------------------ ----------------------------
of common stock)
----------------
July 7, 1999 40,000 $2.50
July 29, 1999 93,258 $2.50
August 4, 1999 35,000 $2.50
August 6, 1999 226,000 $2.50
August 13, 1999 56,400 $2.50
August 16, 1999 51,429 $2.50
August 20, 1999 39,088 $2.50
August 30, 1999 11,900 $2.50
January 19, 2000 20,000 $2.50
February 4, 2000 25,000 $2.50
February 23, 2000 100,000 $2.50
April 4, 2000 20,000 $2.50
April 20, 2000 497,051 $2.50
April 20, 2000 46,287 $2.50
May 11, 2000 10,000 $2.50
May 15, 2000 40,000 $2.50
May 20, 2000 73,071 $2.50
June 3, 2000 61,344 $2.50
June 8, 2000 88,861 $2.50
June 8, 2000 499,073 $2.50
June 23, 2000 24,972 $2.50
June 23, 2000 106,566 $2.50
August 7, 2000 12,000 $2.50
November 11, 2000 50,000 $2.50
November 26, 2000 50,000 $2.50
----------
$6,464,818
==========
A specimen convertible debenture is attached to this Form 10-SB as Exhibit 10.6.
On December 1, 1999, Triple-C-Inc. issued $419,429 of twelve (12) month 12%
unsecured convertible subordinated debentures in a series of private sales to
certain parties known to Triple-C-Inc. The convertible 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 convertible 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 convertible
debentures has been converted into common stock of Triple-C-Inc. Also, there are
no current plans to conduct an IPO of shares of stock of Triple-C-Inc., and it
is extremely unlikely that any IPO will take place before the retirement of the
convertible debentures.
WARRANT ISSUANCES
During the past four years, and up to and including the date of this amendment,
the Company issued warrants to purchase a total of 2,793,900 shares of common
stock at exercise prices ranging from $1.00 to $7.50 per share. The issuance of
warrants during this period was unregistered in reliance upon Rule 506 of
Regulation D, Regulation S, and Section 4(2) of the Securities Act of 1933. A
table of the issued warrants is as follows:
Date Number of Warrants Exercise Price Nature of Transaction
---- ------------------ -------------- ---------------------
May 30, 1997 1,500 3.75 (B)
28
<PAGE>
Date Number of Warrants Exercise Price Nature of Transaction
---- ------------------ -------------- ---------------------
May 30, 1997 10,000 3.75 (A)
June 30, 1997 100,000 3.00 Acquisition
August 27, 1997 10,000 3.75 (A)
September 4, 1997 20,000 3.75 (A)
September 4, 1997 15,000 3.75 (A)
September 5, 1997 1,000 3.75 (A)
September 15, 1997 10,000 3.75 (A)
September 17, 1997 10,000 3.75 (A)
September 18, 1997 4,000 3.75 (A)
September 24, 1997 7,000 3.75 (A)
September 26, 1997 7,300 6.60 (A)
September 27, 1997 2,000 3.75 (A)
September 27, 1997 5,000 3.75 (A)
September 29, 1997 26,667 3.75 (A)
September 29, 1997 2,500 3.75 (A)
September 29, 1997 4,016 6.60 (A)
October 2, 1997 10,000 3.75 (A)
October 10, 1997 30,000 3.75 (A)
October 10, 1997 5,000 3.75 (A)
October 17, 1997 10,000 3.75 (A)
October 17, 1997 3,000 3.75 (A)
October 20, 1997 5,000 3.75 (A)
October 20, 1997 10,000 3.75 (A)
October 21, 1997 10,000 3.75 (A)
October 21, 1997 5,000 3.75 (A)
October 21, 1997 10,000 3.75 (A)
29
<PAGE>
Date Number of Warrants Exercise Price Nature of Transaction
---- ------------------ -------------- ---------------------
October 24, 1997 10,000 3.75 (A)
October 28, 1997 8,000 3.75 (A)
October 31, 1997 7,100 4.50 (A)
October 31, 1997 5,000 3.75 (A)
October 31, 1997 84,379 6.60 (A)
December 1, 1997 843,790 7.50 (A)
January 7, 1998 3,700 7.50 (A)
February 23, 1998 9,455 7.50 (A)
March 1, 1998 20,000 3.75 (A)
March 24, 1998 15,000 5.50 (B)
August 11, 1998 5,000 1.30 (B)
August 13, 1998 25,000 3.75 (A)
August 13, 1998 5,000 1.30 (B)
August 17, 1998 50,000 3.75 (A)
September 2, 1998 5,000 3.75 (A)
September 7, 1998 5,000 3.75 (A)
September 15, 1998 10,000 3.75 (A)
September 15, 1998 10,000 3.75 (A)
September 21, 1998 40,000 3.75 (A)
September 29, 1998 500 3.75 (A)
October 1, 1998 5,000 3.75 (A)
October 13, 1998 5,000 3.75 (A)
October 15, 1998 50,000 1.20 (B) *
October 15, 1998 200,000 1.20 (B) *
October 15, 1998 75,000 1.20 (B)
October 15, 1998 25,000 1.00 (B)
October 15, 1998 25,000 1.00 (B)
October 15, 1998 25,000 1.00 (B)
October 15, 1998 50,000 1.00 (B) *
October 20, 1998 5,000 3.75 (A)
October 30, 1998 1,300 3.75 (A)
November 1, 1998 466,913 1.00 Exchange
November 9, 1998 1,500 3.75 (A)
30
<PAGE>
December 27, 1998 5,000 2.50 (A)
December 27, 1998 1,000 2.50 (A)
December 27, 1998 5,000 2.50 (A)
December 31, 1998 35,000 1.00 (B) *
January 1, 1999 3,333 1.00 (C)
January 1, 1999 13,333 1.00 (C)
January 1, 1999 5,000 1.00 (C)
January 8, 1999 5,000 1.00 (B)
January 11, 1999 6,000 1.00 (B)
February 26, 1999 5,000 1.00 (B)
March 3, 1999 18,000 1.00 (B)
March 4, 1999 2,500 1.00 (B)
March 4, 1999 2,500 1.00 (B)
March 4, 1999 2,500 1.00 (B)
March 4, 1999 10,000 1.00 (B)
March 4, 1999 10,000 1.00 (B)
April 4, 1999 1,000 1.00 (B)
April 15, 1999 10,000 1.00 (B)
April 15, 1999 10,000 1.00 (B)
April 15, 1999 10,000 1.00 (B)
April 15, 1999 20,000 1.00 (B) *
September 10, 1999 37,557 1.20 (D)
September 10, 1999 37,557 1.20 (D)
December 30, 1999 8,000 1.00 (B)
October 24, 2000 100,000 .18 (C)
-----------
2,793,900
===========
(A) - Issued In Conjunction With Issuance Of Common Stock
(B) - Financing
(C) - Services
All of these warrants are outstanding (except those marked with a "*")
In 1998, the Company modified certain warrant terms by exchanging 1,284,412
warrants previously issued for stock issuance costs for 1,751,325 warrants with
commensurate adjustments to the warrant exercise price, resulting in no impact
on stockholders' equity and net loss.
The warrants were issued to the following classes of persons: (i) individual
investors known to the Company who purchased common stock contemporaneously with
the issuance of warrants; (ii) providers of services (including underwriting
services) to the Company who agreed to accept warrants in the Company in lieu of
cash compensation; and (iii) persons who received stock as a result of
acquisitions by the Company.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article XI of the Company's amended and restated Articles of Incorporation dated
September 17, 1997 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.
31
<PAGE>
11.2) No director shall have personal liability to the Corporation or its
stockholders 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.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this Amendment Number One to its registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: January 16, 2001
GO-RACHELS.COM CORP.
By: /s/
----------------------
Lawrence J. Castriotta
Its President
32
<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 Nine
Months Ended September 30, 1999 and 2000
Exhibit 3.1.1 Restated Articles of Incorporation*
Exhibit 3.1.2 Amendment to Articles of Incorporation*
Exhibit 3.1.3 Notice of Change of Registered Office/Registered Agent*
Exhibit 3.1.4 Bylaws*
Exhibit 10.1 Employment Agreement - Lawrence J. Castriotta*
Exhibit 10.2 Employment Agreement - Harm Scholtens*
Exhibit 10.3 Real Property Lease - Menomonie, Wisconsin*
Exhibit 10.4 Real Property Lease - Hamilton, Ontario*
Exhibit 10.5 Real Property Lease - Calgary, Alberta*
Exhibit 10.6 Specimen of Convertible Debenture*
Exhibit 10.7 Gardner Resources License Agreement**
Exhibit 10.8 Gardner Resources Private Label Agreement**
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
* Previously filed with the Company's Form 10-SB dated November 30, 2000.
** Filed herewith.
<PAGE>
GO-RACHELS.COM CORP.
CONSOLIDATED (AUDITED AND INTERIM) FINANCIAL STATEMENTS
FOR FISCAL YEARS ENDED
DECEMBER 31, 1999 AND 1998
AND FOR NINE MONTHS ENDED
SEPTEMBER 30, 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 - F25
<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,
------------------------- September 30,
1998 1999 2000
----------- ----------- -----------
(unaudited)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 11,720 $ 32,393 $ 38,280
Marketable securities 259,140 206,400 141,000
Accounts receivable, less allowance for bad debts,
discounts and returns of $85,000, $71,000 and $60,000 2,016,095 1,855,654 1,962,125
Inventories 3,814,681 3,785,988 4,294,913
Prepaid expenses and other 133,954 100,081 164,238
----------- ----------- -----------
TOTAL CURRENT ASSETS 6,235,590 5,980,516 6,600,556
PROPERTY AND EQUIPMENT 887,145 671,808 561,818
GOODWILL 3,199,061 3,019,627 2,885,052
OTHER ASSETS 128,871 360,168 76,865
----------- ----------- -----------
$10,450,667 $10,032,119 $10,124,291
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
(continued)
<PAGE>
F-3
GO-RACHELS.COM CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (cont.)
<TABLE>
<CAPTION>
December 31,
---------------------------- September 30,
1998 1999 2000
------------ ------------ ------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
CURRENT LIABILITIES
Bank lines of credit $ 1,474,878 $ 1,442,512 $ 1,988,099
Convertible subordinated debt 734,296 1,513,746 1,985,913
Notes payable to stockholders 568,700 668,972 639,654
Current maturities of long-term debt 52,832 39,576 38,877
Accounts payable 4,178,657 3,338,112 4,109,956
Accrued expenses 721,341 1,066,430 1,114,359
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 7,730,704 8,069,348 9,876,858
------------ ------------ ------------
LONG-TERM DEBT, less current maturities 124,721 56,521 25,855
------------ ------------ ------------
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 8,632,824,
respectively 72,057 86,228 86,328
Additional paid-in capital 11,846,886 13,002,078 13,003,478
Accumulated other comprehensive income 65,122 99,982 37,118
Accumulated deficit (9,388,823) (11,282,038) (12,905,346)
------------ ------------ ------------
2,595,242 1,906,250 221,578
------------ ------------ ------------
$ 10,450,667 $ 10,032,119 $ 10,124,291
============ ============ ============
</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, Nine Months Ended September 30,
---------------------------- ----------------------------
1998 1999 1999 2000
------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
SALES $ 20,227,704 $ 20,282,793 $ 14,977,246 $ 13,744,581
COST OF GOODS SOLD 15,393,539 15,140,726 11,172,325 10,167,039
------------ ------------ ------------ ------------
GROSS MARGIN 4,834,165 5,142,067 3,804,921 3,577,542
OPERATING EXPENSES 7,530,590 6,622,689 4,951,804 4,954,436
------------ ------------ ------------ ------------
OPERATING LOSS (2,696,425) (1,480,622) (1,146,883) (1,376,894)
------------ ------------ ------------ ------------
NONOPERATING EXPENSES (INCOME)
Interest 461,606 679,626 515,469 545,049
Loss (gain) on foreign exchange 248,456 (341,392) (159,120) (181,577)
Other 127,165 55,559 (71,400) (97,558)
------------ ------------ ------------ ------------
837,227 393,793 284,949 265,914
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (3,533,652) (1,874,415) (1,431,832) (1,642,808)
INCOME TAX PROVISION (BENEFIT) (110,300) 18,800 33,800 (19,500)
------------ ------------ ------------ ------------
NET LOSS $ (3,423,352) $ (1,893,215) $ (1,465,632) $ (1,623,308)
============ ============ ============ ============
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.54) $ (0.23) $ (0.19) $ (0.19)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING -
BASIC AND DILUTED 6,382,208 8,079,345 7,898,185 8,626,713
</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 Other
--------------------- Additional Paid- Comprehensive Accumulated
Shares Amount In 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) - - - - (1,623,308) (1,623,308)
Unrealized gains on securities (unaudited) - - - (55,424) - (55,424)
Foreign currency translation (unaudited) - - - (7,440) - (7,440)
-----------
Total comprehensive loss (unaudited) - - - - - (1,686,172)
-----------
Common stock issued for services (unaudited) 10,000 100 1,400 - - 1,500
--------- -------- ------------ --------- ------------ -----------
BALANCE AT September 30, 2000 (unaudited) 8,632,824 $ 86,328 $ 13,003,478 $ 37,118 $(12,905,346) $ 221,578
========= ======== ============ ========= ============ ===========
</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, Nine Months Ended September 30,
-------------------------- --------------------------
1998 1999 1999 2000
----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(3,423,352) $(1,893,215) $(1,465,632) $(1,623,308)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 227,473 213,253 155,367 144,179
Amortization 297,007 179,434 134,575 134,575
Deferred taxes - (70,000) - -
Loss on disposal of property and equipment - 50,783 - -
Common stock issued for services 183,302 491,500 491,500 1,500
Options and warrants issued for financing expense 44,006 78,180 78,180 -
Changes in operating assets and liabilities:
Accounts receivable 243,860 160,441 (561,272) (106,471)
Inventories (722,041) 28,693 (14,528) (508,925)
Prepaid expenses and other 45,414 94,854 114,881 211,706
Accounts payable 1,352,618 (787,612) (331,401) 771,844
Accrued expenses (1,061,955) 345,089 279,933 47,929
----------- ----------- ----------- -----------
Net cash used by operating activities (2,813,668) (1,108,600) (1,118,397) (926,971)
----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of marketable securities 4,335,730 61,444 61,444 9,976
Purchases of property and equipment (115,550) (101,199) (60,702) (34,189)
Proceeds from sale of property and equipment - 52,500 52,500 -
----------- ----------- ----------- -----------
Net cash provided (used) by investing activities 4,220,180 12,745 53,242 (24,213)
----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Net proceeds (payments) on bank lines of credit 151,483 (32,366) 86,089 545,587
Proceeds from debt 1,291,939 2,045,668 1,614,460 1,831,071
Payments on debt (3,612,196) (1,216,218) (928,791) (1,419,587)
Proceeds from sale of common stock 738,827 365,979 365,979 -
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) 1,116,528 1,091,202 957,071
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (111,815) 20,673 26,047 5,887
CASH
Beginning of period 123,535 11,720 11,720 32,393
----------- ----------- ----------- -----------
End of period $ 11,720 $ 32,393 $ 37,767 $ 38,280
=========== =========== =========== ===========
</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
Nine Months Ended September 30, 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. The Company operates in one segment - the manufacture and
distribution of snack foods.
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 September 30, 2000 and for
the nine month periods ended September 30, 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 and 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.
(continued)
<PAGE>
F-8
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Nine Months Ended September 30, 1999 and 2000 (unaudited)
1. Nature of Business and Significant Accounting Policies - (continued)
Revenue Recognition
The Company recognizes revenue at the time product is shipped to a
customer. Estimated allowances are recorded at the time of sale as a
reduction against accounts receivable with a net charge to the statement
of operations.
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, $159,000 (unaudited), and
$182,000 (unaudited) in 1999 and the nine months ended September 30, 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 payable 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 September 30, 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 nine
months ended September 30, 1999 and 2000, respectively, based on cost
determined on an average basis.
(continued)
<PAGE>
F-9
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Nine Months Ended September 30, 1999 and 2000 (unaudited)
1. Nature of Business and Significant Accounting Policies - (continued)
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.
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 periodically for impairment by comparing the net carrying values
to the undiscounted future cash flows of the assets acquired. This
evaluation is done whenever events or changes in circumstances indicate
that the carrying amount of goodwill may not be recoverable, but in no
event less than annually. Accumulated amortization was $389,611, $569,045
and $703,621 (unaudited) at December 31, 1998 and 1999, and September 30,
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 were
charged to operations and stockholders' equity was increased. Stock
issued for financing was to settle liabilities and to obtain additional
debt financing.
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.
(continued)
<PAGE>
F-10
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Nine Months Ended September 30, 1999 and 2000 (unaudited)
1. Nature of Business and Significant Accounting Policies - (continued)
Advertising Costs
Advertising costs are expensed as incurred and totaled $1,297,000,
$805,000, $777,000 (unaudited) and $228,000 (unaudited) in calendar 1998
and 1999 and the nine months ended September 30, 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.
Reclassifications
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).
(continued)
<PAGE>
F-11
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Nine Months Ended September 30, 1999 and 2000 (unaudited)
2. Going Concern (continued)
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.
The Company is aggressively pursuing plans to increase sales and profits
and decrease operating expenses. In addition, the Company is attempting
to raise additional debt and equity financing to rectify the default on
the line of credit facility.
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.
4. Property and Equipment -
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated
December 31, Useful
----------------------------------- September 30, Lives -
1998 1999 2000 Years
--------------- ---------------- -------------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Machinery and equipment $ 684,783 $ 635,161 $ 634,418 3 to 10
Furniture and fixtures 327,223 392,562 403,033 3 to 11
Vehicles 146,555 56,894 56,787 3
Leasehold improvements 133,750 165,924 158,224 15
-------------- --------------- -------------------
1,292,311 1,250,541 1,252,462
Less accumulated depreciation 405,166 578,733 690,644
-------------- --------------- -------------------
$ 887,145 $ 671,808 $ 561,818
============== =============== ===================
</TABLE>
<PAGE>
F-12
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Nine Months Ended September 30, 1999 and 2000 (unaudited)
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% at December 31, 1999 and September 30, 2000 (unaudited))
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 and $1,285,997 of one year 12%
unsecured convertible subordinated debentures in calendar years 1998 and
1999, respectively. In 2000, the Company issued $1,724,225 of short-term
12% unsecured convertible debentures (unaudited). 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. All of the debentures outstanding
at December 31, 1999 and $145,000 of the debentures issued in 2000 were
repaid in 2000 (unaudited).
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. Since the convertible
subordinated debentures have a beneficial conversion feature only if a
Triple-C-Inc. IPO is completed, no beneficial conversion interest has
been recorded at this time.
<PAGE>
F-13
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Nine Months Ended September 30, 1999 and 2000 (unaudited)
7. Notes Payable to Stockholders -
The notes payable to stockholders consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------------- September 30,
1998 1999 2000
----------------- ----------------- --------------------
(unaudited)
<S> <C> <C> <C>
15.0%, collateralized by all Company assets $ 230,000 $ 157,164 $ 156,969
8.1%, 8.1% and 10.75%, respectively,
collateralized by marketable securities 143,700 101,340 67,547
6.0% to 17.8%, unsecured 95,000 310,468 315,138
5.0% over prime(8.0% for all periods),
unsecured 100,000 100,000 100,000
---------------- ---------------- -------------------
$ 568,700 $ 668,972 $ 639,654
================ ================ ===================
</TABLE>
As of September 30, 2000, notes in the amount of $190,967 are due on demand,
$9,444 are due in December 2000, $120,000 are due in November 2000, $156,969
were due on September 30, 2000, and $162,274 are past due (unaudited).
8. Long-Term Debt -
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------------- September 30,
1998 1999 2000
----------------- ----------------- --------------------
(unaudited)
<S> <C> <C> <C>
Capital lease obligations, interest imputed
at 13.0% (Note 11) $ 135,253 $ 63,279 $ 40,002
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 24,730
---------------- ---------------- -------------------
177,553 96,097 64,732
Less current maturities 52,832 39,576 38,877
---------------- ---------------- -------------------
$ 124,721 $ 56,521 $ 25,855
================ ================ ===================
</TABLE>
(continued)
<PAGE>
F-14
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Nine Months Ended September 30, 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 Price Exercise 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
------------------------------- ----------------------------
Fair Options Fair Value
Options 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-15
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Nine Months Ended September 30, 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> <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.
Options to purchase 10,000 shares of common stock at $.15 per share were
granted in the nine months ended September 30, 2000 (unaudited).
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, September 30,
-------------------------------------- --------------------------------------
1998 1999 1999 2000
----------------- ----------------- ----------------- -----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net loss:
As reported $ (3,423,352) $ (1,893,215) $ (1,465,632) $ (1,623,308)
Pro forma (3,537,476) (2,011,216) (1,552,400) (1,698,250)
Net loss per share - basic and diluted:
As reported $ (.54) $ (.23) $ (.19) $ (.19)
Pro forma (.55) (.25) (.20) (.20)
</TABLE>
(continued)
<PAGE>
F-16
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Nine Months Ended September 30, 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
---------------------------------- --------------------------------
Warrants Weighted- Warrants Weighted-
Average Average
Exercise Exercise
Price 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 for stock issuance costs into
1,751,325 warrants resulting in no 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-17
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Nine Months Ended September 30, 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-Scholes 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 calendar years 1998 and 1999 and the
nine months ended September 30, 1999 and 2000, consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
--------------------------------------- ----------------------------------
1998 1999 1999 2000
------------------- ---------------- -------------- ----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Foreign:
Current ($ 110,300) $ 88,800 $ 33,800 ($ 19,500)
Deferred - ( 70,000) - -
------------------- ---------------- -------------- ----------------
($ 110,300) $ 18,800 $ 33,800 ($ 19,500)
=================== ================ ============== ================
</TABLE>
(continued)
<PAGE>
F-18
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Nine Months Ended September 30, 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:
1998 1999
--------------- --------------
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%
=============== ==============
Significant components of net deferred tax assets at December 31, 1998
and 1999 and September 30, 2000, are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
--------------------------------------------------------------- --------------------------------
1998 1999 2000
----------------------------- ----------------------------- --------------------------------
Current Long-Term Current Long-Term Current Long-Term
------------- ------------ ------------- ------------ -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Loss carryforwards $3,500,000 $ - $4,240,000 $ - $4,640,000 $ -
Other - - - 70,000 - 70,000
------------- ------------ ------------- ------------ -------------- --------------
3,500,000 - 4,240,000 70,000 $4,640,000 70,000
Valuation allowance (3,500,000) - (4,240,000) - (4,640,000) -
------------- ------------ ------------- ------------ -------------- --------------
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 $400,000 (unaudited) in calendar
1998 and 1999, and the nine months ended September 30, 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-19
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Nine Months Ended September 30, 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 September 30, 2000, the net book value
of equipment under capital leases was $139,553, $59,344 and $36,002
(unaudited), respectively. Capital lease amortization of $42,735,
$27,841, $20,785 (unaudited) and $23,342 (unaudited) in 1998 and 1999 and
the nine months ended September 30, 1999 and 2000, respectively, is
included in depreciation expense.
(continued)
<PAGE>
F-20
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Nine Months Ended September 30, 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, $252,262 (unaudited) and $275,454 (unaudited) in 1998
and 1999 and the nine months ended September 30, 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-21
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Nine Months Ended September 30, 1999 and 2000 (unaudited)
12. Supplemental Disclosures of Cash Flow Information -
Supplemental disclosures of cash flow information for 1998 and 1999 and
the nine months ended September 30, 1999 and 2000, is as follows:
<TABLE>
<CAPTION>
December 31, September 30,
-------------------------- -------------------------
1998 1999 1999 2000
---------- ----------- ----------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash paid for:
Interest $ 675,308 $ 300,865 $ 265,633 $ 370,014
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 (34,834) (55,424)
Foreign currency translation (55,996) 26,156 18,921 (7,440)
Equipment acquired on capital lease 103,684 - - -
Stock issued to settle liabilities 7,873 84,117 84,117 -
Stock issued for prepaid financing
costs 146,429 196,122 196,122 -
Options and warrants issued for
stock costs 42,820 - - -
</TABLE>
<PAGE>
F-22
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Nine Months Ended September 30, 1999 and 2000 (unaudited)
13. Segment Information and Foreign Operations -
The Company has two reportable segments: confectionery snacks and snack
foods. The two reportable segments are strategic business units that
offer different products. The confectionery snacks segment distributes
confectionery products. The snack foods segment manufactures and
distributes potato chips. In the year ended December 31, 1998, the
Company also operated a route operations segment that distributed
confectionery snacks and snack foods. The route operations were
discontinued at December 31, 1998. The accounting policies for the
segments are the same as those described in footnote 1 - Nature of
Business and Significant Accounting Policies. Intersegment sales are
reported as if the sales were to third parties, that is, at current
market prices. The Company evaluates performance based on profit or loss
from operations after income taxes. The operations of the confectionery
snack segment are in Canada and the remainder of the operations are in
the United States. 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 or losses on the contracts are recorded when the
related transaction occurs. At December 31, 1999, the Company had no
foreign exchange contracts outstanding.
<TABLE>
<CAPTION>
Year Ended December 31, 1998
--------------------------------------------------------------------------------------------------------
Confectionery Snack Route Segment Eliminations Corporate As Reported
Snacks Foods Operations Totals Headquarters
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from $ 17,373,356 $ 2,006,568 $ 1,035,943 $ 20,415,867 ($188,163) $ - $ 20,227,704
external customers
Intersegment revenues - 188,163 - 188,163 (188,163) - 0
Interest expense 183,262 25,601 7,691 216,554 - 245,052 461,606
Depreciation 81,566 48,233 36,600 166,399 - 61,074 227,473
Goodwill amortization 132,820 48,184 116,003 297,007 - - 297,007
Income taxes (benefit) (110,300) - - (110,300) - - (110,300)
Segment net income (665,419) (64,178) (384,537) (1,114,134) - (2,309,218) (3,423,352)
(loss), including
goodwill
amortization
Expenditures for 171,320 38,161 - 209,481 - 9,753 219,234
segment assets
Segment assets:
Tangible 6,179,636 511,678 - 6,691,314 - 560,292 7,251,606
Goodwill 2,428,111 770,950 - 3,199,061 - - 3,199,061
--------------------------------------------------------------------------------------------------------
8,607,747 1,282,628 - 9,890,375 - 560,292 10,450,667
</TABLE>
(continued)
<PAGE>
F-23
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Nine Months Ended September 30, 1999 and 2000 (unaudited)
13. Segment Information and Foreign Operations (continued) -
<TABLE>
<CAPTION>
Year Ended December 31, 1999
----------------------------------------------------------------------------------------
Confectionery Snack Segment Eliminations Corporate As Reported
Snacks Foods Totals Headquarters
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues from $18,748,885 $ 1,533,908 $ 20,282,793 $ - $ - $ 20,282,793
external customers
Intersegment revenues - - - - - -
Interest expense 195,033 24,750 219,783 - 459,843 679,626
Depreciation 96,578 51,051 147,629 - 65,624 213,253
Goodwill amortization 131,250 48,184 179,434 - - 179,434
Income taxes 18,800 - 18,800 - - 18,800
Segment net income 169,598 (280,156) (110,558) - (1,782,657) (1,893,215)
(loss), including
goodwill
amortization
Expenditures for 90,410 1,863 92,273 - 8,926 101,199
segment assets
Segment assets:
Tangible 6,158,520 388,374 6,546,894 - 465,598 7,012,492
Goodwill 2,296,861 722,766 3,019,627 - - 3,019,627
----------------------------------------------------------------------------------------
8,455,381 1,111,140 9,566,521 - 465,598 10,032,119
Nine Months Ended September 30, 1999(unaudited)
----------------------------------------------------------------------------------------
Confectionery Snack Segment Eliminations Corporate As Reported
Snacks Foods Totals Headquarters
----------------------------------------------------------------------------------------
Revenues from $13,680,943 $ 1,296,303 $14,977,246 $ - $ - $ 14,977,246
external customers
Intersegment revenues - - - - - -
Interest expense 164,138 27,566 191,704 - 323,765 515,469
Depreciation 66,527 38,289 104,816 - 50,551 155,367
Goodwill amortization 98,436 36,139 134,575 - - 134,575
Income taxes 33,800 - 33,800 - - 33,800
Segment net income 238,035 (198,298) 39,737 - (1,505,369) (1,465,632)
(loss), including
goodwill
amortization
Expenditures for 56,720 - 56,720 - 3,982 60,702
segment assets
Segment assets:
Tangible 6,667,935 481,450 7,149,385 - 528,608 7,677,993
Goodwill 2,329,675 734,811 3,064,486 - - 3,064,486
----------------------------------------------------------------------------------------
8,997,610 1,216,261 10,213,871 - 528,608 10,742,479
</TABLE>
(continued)
<PAGE>
F-24
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Nine Months Ended September 30, 1999 and 2000 (unaudited)
13. Segment Information and Foreign Operations (continued) -
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000(unaudited)
Confectionery Snack Segment Eliminations Corporate As Reported
Snacks Foods Totals Headquarters
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from $ 12,942,167 $ 802,414 $ 13,744,581 $ - $ - $ 13,744,581
external customers
Intersegment revenues - - - - - -
Interest expense 252,801 33,335 286,136 - 258,913 545,049
Depreciation 70,650 37,211 107,861 - 36,318 144,179
Goodwill amortization 98,436 36,139 134,575 - - 134,575
Income taxes (benefit) (19,500) - (19,500) - - (19,500)
Segment net income (779,460) (180,042) (959,502) - (663,806) (1,623,308)
(loss), including
goodwill
amortization
Expenditures for 33,041 1,148 34,189 - - 34,189
segment assets
Segment assets:
Tangible 6,558,436 369,948 6,928,384 - 310,855 7,239,239
Goodwill 2,198,425 686,627 2,885,052 - - 2,885,052
----------------------------------------------------------------------------------------
8,756,861 1,056,575 9,813,436 - 310,855 10,124,291
</TABLE>
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 608,000 shares for $3.221 per share
($1,958,368) with five year 6% promissory notes. The Company believes the
shareholders/employees did not exercise their options by the October 1,
1999 specified date in the manner required. The shareholders assert that
they did properly exercise their options and the Company's dispute is
without merit. It is possible that either party may resort to judicial
resolution of this matter. While the Company is confident 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 shareholders will result in an
adverse judgment against the Company, which may have a material adverse
effect on the Company and its operations, and may jeopardize the
Company's ability to continue as a going concern (Note 2). The terms of
the note require principal to be paid in full five years after the
exercise of the options with semi-annual interest payments. The outcome
at this time cannot be determined.
(continued)
<PAGE>
F-25
GO-RACHELS.COM CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1999
Nine Months Ended September 30, 1999 and 2000 (unaudited)
15. Contingency and Uncertainties (continued)
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 the
Company's 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.
At September 30, 2000, the Company is a defendant to various claims in
litigation. A total of six judgments in excess of $140,000 in the
aggregate have been awarded to the plaintiffs in those actions, and two
of these judgment creditors have commenced collection actions. The
Company is currently engaged in negotiations with several of these
plaintiffs, and has negotiated a payment plan in settlement of claims
with two of these plaintiffs, which have currently suspended collection
efforts. However, the potential for collection of several of these
judgments by judicial means exists, and satisfaction of these judgments
may have a material adverse affect upon the financial condition of the
Company. The liabilities relating to the judgments are included in
accounts payable at September 30, 2000 (unaudited).
