U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For The Fiscal Year Ended: July 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from To
----------------- ------------------
Commission file number 000-31349
------------------------
The Voyager Group, Inc.
------------------------
(Name of Small Business Issuer in its charter)
Delaware 33-0649562
------------------------------- --------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
6354 Corte Del Abeto, Suite F, Carlsbad, California 92009
----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (760)-603-0999
--------------
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 Par Value
------------------------------
(Title of class)
<PAGE>
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing required for the past 90 days. Yes X No
Total pages: 34
----
Exhibit Index Page: 32
----
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $ 670,234
As of September 16, 2000, there were 9,856,413 (1 vote per share) Common,
and 100 (220,000 votes per share) Convertible Preferred Series J, for a total
31,856,413 shares of the Registrant's voting stock, par value $0.001, issued and
outstanding. The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant was approximately $-0- computed at the average
bid and asked price as of September 16, 2000.
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS)
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practical date: September 16, 2000 9,856,413
----------------------------
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) Into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").
None
Transitional Small Business Disclosure Format (check one): Yes ; NO X
2
<PAGE>
TABLE OF CONTENTS
Item Number and Caption Page
PART I
Item 1. Business............................................................5
Item 2. Property...........................................................21
Item 3. Legal Proceedings..................................................21
Item 4. Submission of Matters to a Vote of Security Holders................21
PART II
Item 5. Market for Common Equity and Related Stockholder Matters...........22
Item 6. Management's Discussion and Analysis or Plan of Operations.........23
Item 7. Financial Statements...............................................27
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure...............................................27
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act..................28
Item 10. Executive Compensation.............................................29
Item 11. Security Ownership of Certain Beneficial Owners and Management.....30
Item 12. Certain Relationships and Related Transactions.....................31
Item 13. Exhibits and Reports on form 8-K...................................32
3
<PAGE>
As used in this report on Form 10-KSB, unless the context otherwise
requires, the terms "we," "us," or "the Company" "Vygp" and "Voyager" refer to
The Voyager Group, Inc., A Delaware corporation.
This Annual Report on Form 10-KSB contains forward-looking statements
within the meaning of the federal securities laws. These statements include
those concerning the following: the intention to continue pursuing direct
marketing opportunities for Voyager, the intention to support web enabling
technologies such as Wireless Applications Protocol, the plan to expand the
geographic coverage of the www. vygp.com wireless access service, plan to pursue
associate opportunities for Voyagers stratagems, the intention to continue to
expand the company's business, the intention to make strategic investments to
enhance the content and applications available to all of our associates, the
intention to introduce new products and designs, the plan to integrate Secure
Digital card expansion technology into our associate's opportunity kits
beginning in the Q three of calendar year 2001, our expectation that an
increasing portion of our revenues will come from associates opportunities
wireless Internet platform services and solutions, our expectation that revenues
will increase as a percentage of total revenues, our belief that we will
experience strong growth in associates opportunities technologically increase
product growth, our expectation of future gross margins, our expectation that we
will make significant strategic investments throughout fiscal year 2001, our
anticipation for future operating margins and interest income, and our belief
that our cash and cash equivalents will be sufficient to satisfy our anticipated
cash requirements for at least the next twelve months. These statements are
subject to risks and uncertainties that could cause actual results and events to
differ materially.
4
<PAGE>
PART I
Item 1. Description of Business.
General
In early January of 1999, Voyager Internet Group.Com determined that it
would be advisable and in the best interest of Voyager Internet Group.Com and
its stock holders and Voyager Group Inc for the business to be divided into two
independent businesses. Whereas Voyager Internet Group.Com has transfer and
assigned or cause to be transferred and assigned to Voyager Group Inc.
substantially all of the assets and Voyager Group Inc. has agreed to assume or
cause to be assumed certain liabilities and obligation arising out of or
relating to the Voyager Group Inc. Voyager Group Inc. is an independent publicly
held company, in the direct marketing business.
Voyager Group, Inc. ("VYGP" or the "Company") develops and manufactures
high-quality nutritional, personal care and weight management products. The
Company distributes its products through a network marketing system and refers
to its sales force as "Associates."
Voyager is committed to state of the art technological support for voyager
associates, continuous product innovation and sound scientific research with a
very strong e-commerce presence. The primary products consist of modular
designed nutritional systems, anti-ageing systems and weight management. Modular
designed nutritional products accounted for the majority of net sales in both
fiscal year 2000 and 1999. Weight management product systems center around low
glycemic shake which has recipes for low glycemic meal entrees with
instructional, how to information, videos and other products developed to
provide a comprehensive approach to weight management, proper diet and exercise,
nutrition and healthy living. The Company believes bioavailability, safety and
quality characterize Voyager's products.
Business of Voyager
The Company's products are distributed through a network marketing system.
The Company believes that network marketing is an effective and efficient way to
distribute its products because network marketing allows person-to-person
product education, which is not readily available through traditional
distribution channels. Network marketing appeals to a broad cross-section of
people, particularly those seeking to supplement family income, start a
home-based business or pursue entrepreneurial opportunities other than
conventional full-time employment. The Company considers its rewarding
compensation program and weekly associate incentive payments to be attractive
components of its network marketing system. As of July 31, 2000, the Company has
approximately one thousand five hundred (1,500) current associates in the United
States. The company defines a current associate as a associate that has
purchased product anytime from the company in the most recent twelve-month
period. North America is the primary market for the Company' products. Preferred
Customer purchase Voyager products for personal use, but do not wish to become
associates.
5
<PAGE>
Voyager Distribution Philosophy
Voyagers sales philosophy and distribution system is network marketing.
Products are sold exclusively to or through independent associates who are not
employees of the Company.
Network marketing is an effective vehicle to distribute the Company's
products because (i) a consumer can be educated about a product in person by a
associate, which is more direct than the use of television and print
advertisements; (ii) direct sales allow for actual product sampling by a
potential consumer; (iii) the impact of associate and consumer testimonials is
enhanced; and (iv) as compared to other distribution methods, associates can
give customers higher levels of service and attention among other things,
educating consumers on product benefits and following up on sales to ensure
proper product usage and customer satisfaction, and to encourage repeat
purchases. Under the Company's network marketing system, most independent
associates purchase products either for personal consumption or resale. Direct
selling as a distribution channel has been enhanced in the past decade due to
advancements in communications, including telecommunication, and the
proliferation of the use of videos and fax machines. Direct selling companies
can now produce high quality videos for use in product education, demonstrations
and sponsoring sessions that project a desired image for the Company and the
product line.
Management believes that high quality sales aids play an important role in
the success of associate efforts. For this reason the Company will in the next
12 months, engage in the production of video and audio cassettes, for the
purposes of affecting a more efficient and comprehensive sales tool. Management
is committed to fully utilizing current and future technological advances that
continue to enhance the effectiveness of direct selling.
The Company's network marketing program differs from many other
network-marketing programs in several respects. First, the compensation plan
allows the Company associates to develop a seamless network of down line
associates. Second, the Company's order and fulfillment systems eliminate the
need for associates to carry significant levels of inventory. Third, the
compensation plan is financially rewarding and can result in commissions to
associates aggregating up to fifty three percent (53%) of a product's price.
Commissions have averaged fifty one percent (51%) of revenue from commissionable
sales over the past 2 years.
Voyager's Compensation Plan
Management believes that one of the Company's key competitive advantages is
the compensation plan. The compensation plan is seamlessly integrated across all
markets in which company products are sold. This seamless integration means that
the Company's associate base has total reach and that the knowledge and
experience resident in current associates can be used to build associate
leadership in new markets. The compensation plan allows an individual the
opportunity to develop a business, the success of which is based upon that
individual's level of commitment, time spent, personal skills, contacts and
motivation. For many, a distributorship is a very small business, in which
products may be purchased primarily for personal consumption and for resale to
relatively few customers. For others, a distributorship becomes a full time
occupation. The Company believes that the compensation plan is among the most
financially rewarding plans offered
6
<PAGE>
to associates by network marketing companies. There are two fundamental ways in
which associates can earn money: (i) through retail markups; and (ii) through a
series of commissions on product sales within the associates's down line.
Each product carries a specified commission value. Commissions are based on
total personal and group sales volume per month. Commission value is essentially
based upon a product's cost, net of sales tax. As an associates's retail
business expands and as he or she successfully sponsors other associates into
the business who in turn expand their own business, he or she may qualify to
receive a higher percentage of commissions.
Generally, associates can receive commission bonuses if, on a monthly basis
(I) the associates achieves a qualifying personal volume, (ii) the associate
sells and/or consumes at least 51% of personal sales volume, and (iii) the
associate is not in default of any material policies or procedures.
Voyager's Associate Support
The Company is committed to providing a high level of support services to
the needs of its associates in each market. The Company meets the needs and
builds the loyalty of its associates with personalized associate services. A
support staff that assists associates as they build networks of down line
associates. Because many associates have only a limited number of hours each
week to concentrate on their business, management believes that maximizing an
associate's efforts through effective support of each associate will continue to
be important to the success of the Company.
Through training meetings, annual conventions, associate focus groups,
regular telephone conference calls and personal contacts with associates, the
Company seeks to understand and satisfy the needs of each associate. The Company
provides walk-in, telephonic and computerized fulfillment and tracking services
that result in user-friendly, and timely product distribution. In addition, the
Company is committed to evaluating new ideas in technology and services, such as
automatic product reordering, that the Company can provide to associates. The
Company currently utilizes, teleconferencing, fax services, and Internet. Online
Internet access including associate sign- up, shipment tracking, ordering, and
group and personal sales volume inquiries are also provided to associates. The
Company sponsors events throughout the year , which offer information about the
Company's products and network marketing system. These meetings are designed to
assist Voyager associates in business development and to provide a forum for
interaction with successful Voyager associate communities and the Company's
Scientific Medical Advisory Board.
Voyager associates may not use any form of media advertising not approved
by the Company to promote products. Products may be promoted by personal contact
or by literature produced by or approved by the Company. Generic business
opportunity advertisements without using the company name may be placed in
accordance with certain guidelines in certain markets. Associates may not use
trademarks or other intellectual property of the Company without consent.
Products may not be sold, and the business opportunity may not be promoted,
in traditional retail environments such as food markets, pharmacies and
drugstores. Associates who own or are employed by a service related business
such as a doctor's office, hair salon, or health club, may make
7
<PAGE>
products available to regular customers as long as products are not displayed
visibly to the general public in such a way as to attract the general public
into the establishment to purchase products.
Voyager's Associate Payments
Associates generally pay for products prior to shipment. The Company
carries no account receivable from associates. Associates pay for products in
one of several ways: cash, money order, check or credit card.
Voyager Growth Strategy
During the fiscal year 2001, Voyager will introduce novel, patented, patent
pending and proprietary products. Management believes the novel products will
attract participation from additional associates around the United States.
Voyager's Management is totally committed to growth through proprietary and
patent applied products which will attract and retain associates and preferred
customers though "Modular Designs" formulated by Voyager's Scientific and
Medical Advisory Board, which should increase total product sales through an
e-commerce infrastructure.
Industry Overview
The nutritional supplements industry includes many small and medium-sized
companies that manufacture and distribute products generally intended to enhance
the body's performance and well- being. Nutritional supplements include
vitamins, minerals, dietary supplements, herbs, botanicals and compounds derived
there from.
According to Adams, Harkness & Hill in their Living Industry report dated
February 28, 2000, the overall market for natural products is approximately $19
billion and growing at a 15% annual rate.
The Company believes that growth in the nutritional supplement market is
driven by several factors including:
o Increased public's awareness and understanding of the Connection
between diet and health, by way of the Internet.
o The aging baby-boomer generation, which is more likely to consume
nutritional supplements,
o Product and scientific research,
o The adoption of the Dietary Supplement Health and Education Act of
1994 ("DSHEA") in the United States.
Nutritional supplements are sold through mass-market retailers, including
mass merchandisers, drug stores, supermarkets and discount stores, health food
stores and direct sales
8
<PAGE>
organizations, including network marketing organizations and catalog companies.
Direct selling, of which network marketing is a significant segment, has
increased in popularity as a distribution channel due primarily to advances in
technology and communications resulting in improved product distribution and
faster dissemination of information. The distribution of products through
network marketing has grown significantly in recent years. The World Federation
of Direct Selling Associations reported that, from 1990 through 1998, worldwide
direct distribution of goods and services to consumers increased approximately
71%, resulting in the sale of approximately $81.3 billion of goods and services
in 1998. The Direct Sellers Association ("DSA") reported total 1998 direct sales
at retail of $23.2 billion in the United States. According to the "Survey of
Attitudes toward Direct Selling," commissioned by the DSA, and conducted and
prepared by Wirthlin Worldwide, among the three product categories experiencing
the greatest gains in the direct selling industry since 1976 are food, nutrition
and wellness products.
As a developer of novel nutritional supplements with a network marketing
distribution system, the Company believes it is well positioned to capitalize on
the demand for nutritional supplement products and growth trends in direct
sales.
Markets.
The Company believes that, significant growth opportunities exist in the
United States markets. The Company's decision to enter new markets is based on
its assessment of several factors, (a) anticipated demand for the Company's
novel products, and (b) increased e-commerce Internet interactive associate
support systems for global sales aids with real science.
The Company's state of the art infrastructure has integrated its
associate compensation plan in markets where the Company's products are sold in
order to allow associates to receive commissions through its ability to process
associate and preferred customer product orders for next day commission on
products sales by our website which integrates a credit card processing
structure. The Company's Internet wireless presence allows associates to receive
a commission on product orders the same day, and simplifies order entry. The
Company anticipates that our Internet e- commerce support for the associates
will attract new associates.
Products
Product names used in this report are, in certain cases, trademarks and are
also the proprietary and patent applied for property of the Company, including:
Trademarks - Tiger Power, Dolorx, Bodylite, Vital 90, Biorenew and
the phrase "You Never See A Fat Tiger".
Applied for - Biomatrix (New Product) and Vital Spectrum (New Product)
The Company's primary product lines consist of nutritional, anti-ageing,
weight management and pain relief products. In each of the last three fiscal
years, the nutritional product line constituted 80% or more of the Company's net
sales. The Company's principal product lines are briefly described
9
<PAGE>
below:
Primary Products
TIGER POWER
Tiger Power (Liquid & Capsules) is a non-ephedrine weight loss
formula-based preparation. Dr. John Hower a member of the Scientific Medical and
Advisory Board, using new "Modular Design" technology, has been able to create a
dietary supplement, both safe and effective, that helps not only promotes
significant weight loss but also works to maintain desirable weight levels over
time. Recent scientific advances establish that weight gain or loss is the
result of a complex interplay between emotions, moods, hormone levels and to an
extent the foods we eat. Tiger Power contains forty-one (41) ingredients,
combined into "Modules", formulated into a proprietary patented exclusive
one-of-a-kind product. Tiger Power promotes sugar and insulin stabilization so
that fat is used more for energy rather than for storage as unwanted pounds. The
appetite suppressant properties of Tiger Power promote more control over food
choices. Tiger Power promotes neurotransmitter synthesis and function, thus
stabilizing moods and eliminating cravings. By promoting general metabolic
wellness and nutrition, Tiger Power provides the building blocks naturally for a
sound nutritional strategy.
BIOMATRIX
The Source of Life
BioMatrix is a new product introduction. It is a complete super food
containing Blue Green Algae, Digestive Enzymes, Probiotics and Curcumin. This is
a very futuristic and innovative product. It represents the company's direction
for product development and has caused a lot of interest from Associates and
Customers alike. Since its introduction it is moving toward becoming the best
selling product available and has been a major contributor to a substantial
increase in sales during the last quarter of the year.
Further product introductions through 2001 will reflect this sensitivity to
the current trend in whole food development in the market.
Voyager's Product Research and Development
The Company's Medical Board is committed to continuous novel product
innovation and improvement through sound scientific research. The mission of the
Company's research and development team is to develop superior products that
support life-long health. Products are developed and enhanced using a
combination of published research, in vitro testing, in-house clinical studies
and sponsored research. The Company and the Medical Board periodically consults
with additional physicians who advise the Medical board and the Company on
product development. The Scientific medical Advisory Board has limited the
Company cost for research and development activities to a very small amount of
money by absorbing costs themselves. The Voyager Medical Advisory Board intends
to continue to use its resources in the research and development of new products
and reformulation of existing products of the Company. The Scientific Medical
Advisory
10
<PAGE>
Board and the Company maintains a research and development program based upon
established scientific research methodologies. Contract clinical studies are
conducted on selected existing products for which the retrospective analysis has
demonstrated a positive effect and on new products to investigate efficacy.
Product Manufacturing and Quality Assurance
The company requests information so listed below in the following steps and
additional confidential information is requested from the F.D.A.
o Identifying and evaluating suppliers of raw materials,
o Acquiring premium-quality raw materials,
o Weighing or otherwise measuring the raw materials,
o Mixing raw materials into batches,
o Forming the mixtures into tablets,
o Coating and sorting the tablets, and
o Bottling and labeling the finished products.
All the Company's products are currently produced by manufactures
unaffiliated with the Company. The Company's profit margins and its ability to
deliver its existing products on a timely basis are dependent upon the ability
of the Company's outside manufactures to continue to supply products in a timely
and cost efficient manner. Furthermore, the Company's ability to enter new
markets and sustain satisfactory levels of sales in each market depends in part
upon the ability of suitable outside manufactures to reformulate existing
products, if necessary to comply with local regulations or market environments,
for introduction into such markets. Finally, the development of additional new
products in the future will likewise be dependent in part on the services of
suitable F.D.A certified outside manufacturers.
The Company currently acquires products or ingredients from suppliers that
are considered by the Company to be the superior suppliers of such ingredients.
The Company believes that, in the event it is unable to purchase any products or
ingredients from its current suppliers, the Company could produce such products,
replace such products, or substitute ingredients without great difficulty or
prohibitive increases in the cost of goods sold. However, there can be no
assurance that the loss of such a supplier would not have a material adverse
effect on the Company's business and results of operations.
The Company currently relies on three (3) unaffiliated manufacturer to
produce approximately 99% of its products, the Company's agreement with the
primary supplier of the Company's products is limited to a non-disclosure
agreement. The Company believes that in the event that the Company's
relationship with the key manufacturer is terminated, the Company will be able
to find suitable replacement manufacturers. However, there can be no assurance
that the loss of the manufacturer would not have a material adverse effect on
the Company's business and results of operations.
Product Testing Year 2001
11
<PAGE>
The Company will contract independent companies to conduct sample testing
of raw materials and finished products for purity, potency and composition
conforming to the Company's specifications.
The Company's third-party manufacturers and vendors package the Company's
products according to formulations developed by or in conjunction with Voyager's
product development team.
Voyager will conduct product quality assurance testing in laboratories
located in California. The tests will be for biological contamination in raw
materials, finished goods and for chemical contamination, accurate active
ingredient levels of raw materials, finished products and conduct stability
tests on finished products. The Company will ask for assays on vitamins and
mineral constituents under United States Pharmacopoeia and other validated
methods in its analytical chemistry laboratories.
Product Availability
Most of the raw ingredients used in the manufacture of the Company's
products are available from a number of suppliers. The Company has not generally
experienced difficulty in obtaining necessary quantities of raw ingredients.
When supplies of certain raw materials have tightened, the Company has been able
to find alternative sources of raw materials when needed and believes it will be
able to do so in the future.
Distribution and Marketing
Voyager distributes its products primarily through a network marketing
system. Network marketing is a form of person-to-person direct selling through a
network of vertically organized associates who purchase products at wholesale
prices from the manufacturer and then make retail sales to consumers. The
emergence of readily available means of mass communication such as personal
computers, facsimiles, low-cost long distance telephone services, satellite
conferencing and the Internet have contributed to the rapid growth of direct
selling, including network marketing. Network marketing is gaining in popularity
as a viable alternative to traditional retail and mail order marketing. The
concept of network marketing is based on the strength of personal
recommendations that frequently come from friends, neighbors, relatives and
close acquaintances. The Company believes that network marketing is an effective
way to distribute its products because it allows person-to-person product
education, which is not as readily available through traditional distribution
channels.
Customers who desire to sell the Company's products may become
associates by being sponsored into the program by another associate, thereby
becoming part of the sponsoring associate's down line. The Company believes many
of its associates are attracted to Voyager because of the quality of its
products and its rewarding compensation plan. New associates must enter into a
written contract, which obligates them to adhere to Voyager's policies and
procedures.
Associates order products directly from the Company's website
(www.vygp.com), subject to certain limitations and restrictions. For example, an
associate may not purchase more products
12
<PAGE>
during any four-week period than the associate can reasonably expect to sell and
personally consume during that same period. Associate status continues until
terminated by the Company or voluntarily canceled by the associate. Primarily an
associate's sponsor provides initial training of associates about the Company,
its products, the associate compensation plan, and how to effectively engage in
network marketing and others in their up line organization. In addition, the
Company develops and sells a variety of training materials and sales aids, as
well as a detailed policies and procedures manuals and description of the
Company's associate compensation plan. The Company sponsors and conducts
regional, national and international associate events and intensive leadership
training seminars. Attendance at these sessions is voluntary, and the Company
undertakes no generalized effort to provide individualized training to
associates. Associates may not sell competitive products to other Voyager
associates or solicit Voyager associates to participate in other network
marketing opportunities. The Company also restricts advertising and making
representations or claims concerning its products or compensation plan.
The Voyager Compensation Plan
The compensation plan provides several opportunities for associates to earn
compensation, provided they are willing to consistently work at building,
training and retaining their down line organizations to maintain sales of the
Company's products to consumers. The Company believes its associate compensation
plan is distinctive for its equitable associate payouts, which are designed to
create appropriate incentives for sales of Voyager products. Each associate must
purchase and sell product in order to earn commissions and bonuses. Associates
cannot simply recruit others for the purpose of developing a down line and then
earn income passively. Associates can earn compensation in three ways:
o Purchasing products at special associate prices from the Company and
selling them to consumers at higher retail prices,
o Generating sales volume points in their down lines, and
o Participating in a leadership bonus pool paid to associates who meet
certain performance requirements.
The Company seeks to seamlessly integrate its associate compensation plan
across all markets in which its products are sold, in order to allow Voyager
associates to receive commissions for global, rather than merely local, product
sales in the future. This seamless down line structure is being designed to
allow an associate to build a global network by creating down lines across
national borders in the future.
Product Return Policy
The Company's product return policy allows retail customers to return
unused portion of any product to the associate and receive a full cash refund.
Any associate who provides a refund to a customer is reimbursed by the Company
with product or credit in his or her account upon providing proper documentation
and the remainder of the returned product. Return of unused and resalable
products initiated by an associate will be refunded 100% of the purchase price
to the associate, less a 10% restocking fee for up to one year from the date of
purchase. Product that was damaged during
13
<PAGE>
shipment to the associate is also 100% refundable. Product returns valued at
$100 or more, other than product that was damaged at the time of receipt by the
associate, may result in termination of the associate status. Returns as a
percentage of net sales were less than .5%in 2000.
Substantially all of the Company's sales are made through independent
Voyager associates. No single associate accounted for 3% or more of net sales in
any of the last three fiscal years. Associates submit signed application and
agreement forms to the Company, which obligate the associates to follow the
Company's policies and procedures. Associates are independent contractors and
are not agents, employees, or legal representatives of Voyager. Employees and
affiliates of the Company cannot be associates, although there is no prohibition
on their family members from becoming associates as long as they do not reside
in the same household. Associates may sell products only in markets where the
Company has approved the sale of its products.
Policies and Procedures Manual - Voyager Associate misbehavior.
The Company systematically reviews reports of alleged associate
misbehavior. If Voyager determines that an associate has violated any of the
associate policies or procedures, it may take a number of disciplinary actions.
For example, the Company may terminate the associate's rights completely or
impose sanctions such as warnings, fines, probation, withdraw or deny awards,
suspend privileges, withhold commissions until specific conditions are
satisfied, or take other appropriate injunctions at the Company's discretion.
During the year 2000 an in-house compliance officer and a full-time commission
auditor also will routinely review associate activities. Infractions of the
policies and procedures reported to an elected compliance committee by the Board
of Directors will determine what disciplinary action may be warranted in each
case.
Information Technology - Internet Automation
The Company believes its ability to efficiently manage its distribution,
compensation, manufacturing, inventory control and communications functions
through the use of sophisticated and dependable information processing systems
is critical to its success. The Company's former information technology
infrastructure system has been totally replaced with a new state of the art
technologically designed system selected to facilitate order entry and customer
billing, maintain associate records, accurately track purchases and associate
incentive payments, manage accounting, finance and manufacturing operations, and
provide customer service and technical support.
Regulatory Matters
Product Regulation.
Manufacturing, packaging, labeling, advertising, promotion, distribution,
and sale of the Company's products are subject to regulation by numerous
governmental agencies in the United States. In the United States, the FDA
regulates the Company's products under the Food, Drug, and Cosmetic Act ("FDC
Act") and regulations promulgated hereunder. The Company's products are also
subject to regulation by, among others, the Consumer Product Safety Commission,
the US Department of Agriculture, and the Environmental Protection Agency
("EPA"). Advertising of the
14
<PAGE>
Company's products is subject to regulation by the Federal Trade Commission
("FTC") under the Federal Trade Commission Act ("FTC Act").
The majority of the Company's products are regulated as dietary supplements
under the FDC Act. Dietary supplements are regulated as foods under the
Nutrition Labeling and Education Act of 1990 ("NLEA"). The LEA establishes
requirements for ingredient and nutritional labeling and labeling claims for
foods. Dietary supplements are also regulated under DSHEA. The Company believes
DSHEA is favorable to the dietary supplement industry. The legislation for the
first time defined "dietary supplement". Under DSHEA, a dietary supplement is a
product intended to supplement the diet that contains one or more of certain
dietary ingredients, such as a vitamin, a mineral, an herb or botanical, amino
acid, a dietary substance for use by humans to supplement the diet by increasing
the total dietary intake, or a concentrate, metabolite, constituent, extract or
combination of the preceding ingredients.
Under the current provisions of the FDC Act, there are four categories of
claims that pertain to the regulation of dietary supplements. Drug claims are
representations that a product is intended to diagnose, mitigate, treat, cure,
or prevent a disease. Drug claims are prohibited from use in the labeling of
dietary supplements. Health claims are claims that describe the relationship
between a nutrient or dietary ingredient and a disease or health-related
condition and can be made on the labeling of dietary supplements if supported by
significant scientific agreement and authorized by the FDA in advance after
notice and comment rulemaking. Nutrient content claims, which describe the
nutritional value of the product, may be made if defined by the FDA through
notice and comment rulemaking and if one serving of the product meets the
definition. Nutrient content claims may also be made for dietary supplements if
a scientific body of the US government with official responsibility for the
public health has made an authoritative statement regarding the claim, the claim
accurately reflects that statement, and the manufacturer, among other things,
provides the FDA with notice of and basis for the claim at least 120 days before
the introduction of the supplement with a label containing the claim into
interstate commerce. Statements of nutritional support or product performance,
which are permitted on labeling of dietary supplements without FDA pre-approval,
are defined to include statements that:
o Claim a benefit related to a classical nutrient deficiency disease and
discloses the prevalence of such disease in the United States,
o Describe the role of a nutrient or dietary ingredient intended to
affect the structure or function in humans,
o Characterize the documented mechanism by which a dietary ingredient
acts to maintain such structure or function, or
o Describe general well being from consumption of a nutrient or dietary
ingredient.
In order to make a nutritional support claim the marketer must possess
substantiation to demonstrate that the claim is not false or misleading. If the
dietary ingredient does not provide traditional nutritional value, or a
structure/function claim does not derive from an ingredient's nutritional value,
prominent disclosure of the lack of FDA review of the relevant statement and
notification to the FDA of use of the claim is required. The FDA recently issued
a proposed rule on what constitutes permitted structure/function claims as
distinguished from prohibited disease claims.
15
<PAGE>
Although the Company believes its product claims comply with the law, depending
on the content of the final regulation, the Company may need to revise its
labeling.
In addition, a dietary supplement that contains a new dietary ingredient
(defined as an ingredient not on the market before October 15, 1994) must have a
history of use or other evidence of safety establishing that it is reasonably
expected to be safe. The manufacturer must notify the FDA at least 75 days
before marketing products containing new dietary ingredients and provide to the
FDA the information upon which the manufacturer based its conclusion that the
product has a reasonable expectation of safety.
The FDA issued final dietary supplement labeling regulations in 1997 that
require a new format for product labels and will necessitate revising dietary
supplement product labels by March 23, 1999. All companies in the dietary
supplement industry are required to comply with these new regulations. The
Company updated its product labels in 1997 in response to these new regulations.
The FDA also announced that it is considering the adoption of new GMP's specific
to dietary supplements. Such GMP's, if promulgated, may be significantly more
rigorous than currently applicable GMP's and contain quality assurance
requirements similar to the FDA's GMP's for drug products. The Company believes
it currently manufactures its dietary supplement products according to the
standards of the drug GMP's. However, the Company may be required to expend
additional capital and resources on manufacturing controls in the future in
order to comply with the law.
Future products marketed by the Company may include over-the-counter
("OTC") drugs, and medical devices. The Company may have future products subject
to premarket approval by the FDA. Future products maybe subject to regulation by
the FDA under the FDC Act's adulteration and misbranding provisions. Future
products may also be subject to specific labeling regulations, including warning
statements if the safety of a cosmetic is not adequately substantiated or if the
product may be hazardous, as well as ingredient statements and other packaging
requirements under the Fair Packaging and Labeling Act. Future Products of the
Company may meet the definition of a drug (e.g., are intended to treat or
prevent disease or affect the structure or function of the body), such as the
Company's anti-aging products, may be regulated as drugs. OTC drug products may
be marketed if they conform to the requirements of any OTC monograph that is
applicable to a drug. Drug products not conforming to monograph requirements for
OTC drug products require an approved New Drug Application ("NDA") before
marketing. An NDA requires, among other things, one or more adequate and
well-controlled clinical trials demonstrating the drug's safety and
effectiveness before approval. The Company in the future if the agency finds
that a product or ingredient of one of the Company's OTC drug products is not
generally recognized as safe and effective or does not include it in a final
monograph applicable to one of the Company's OTC drug products, the Company will
have to reformulate or cease marketing the product until it is the subject of an
approved NDA or until such time, if ever, that the monograph is amended to
include the Company's product..
The Company's future products will be designed and marketed not to require
premarket approval or clearance by the FDA. The Medical Device Amendments of
1976 to the FDC Act established three regulatory classes for medical devices
depending on the degree of control necessary to provide a reasonable assurance
of safety and effectiveness. Generally, Class I devices present the
16
<PAGE>
least risk to health and Class III devices present the greatest risk to health
and the most complex or novel technologies. Some Class I and most Class II
devices currently require pre-market notification and clearance by the FDA
before marketing under section 510(k) of the FDC Act. Devices for which the FDA
has not promulgated a classification regulation also require premarket
notification and clearance. Class III devices require premarket approval before
commercial distribution, because the FDA either has promulgated a regulation
requiring a premarket application for a pre-amendments type of device, or a
post-amendments device was not found substantially equivalent to a legally
marketed device.
The Company's advertising of its products is subject to regulation by the
FTC under the FTC Act. Section 5 of the FTC Act prohibits unfair methods of
competition and unfair or deceptive acts or practices in or affecting commerce.
Section 12 of the FTC Act provides that the dissemination or the causing to be
disseminated of any false advertisement pertaining to drugs or foods, which
would include dietary supplements, is an unfair or deceptive act or practice.
Under the FTC's Substantiation Doctrine, an advertiser is required to have a
"reasonable basis" for all objective product claims before the claims are made.
Failure to adequately substantiate claims may be considered either deceptive or
unfair practices. Pursuant to this FTC requirement, the Company is required to
have adequate substantiation for all material advertising claims made for its
products.
In recent years the FTC has initiated numerous investigations of and
actions against dietary supplement, weight loss, and cosmetic products and
companies. The FTC has recently issued a guidance document to assist these
companies in understanding and complying with the substantiation requirement.
The Company is organizing the documentation to support its advertising and
promotional practices in compliance with the guideline.
The FTC may enforce compliance with the law in a variety of ways, both
administratively and judicially. Means available to the FTC include compulsory
process, cease and desist orders, and injunctions. FTC enforcement can result in
orders requiring, among other things, limits on advertising, corrective
advertising, consumer redress, divestiture of assets, rescission of contracts,
and such other relief as deemed necessary. Violation of such orders could result
in substantial financial or other penalties. Any such action by the FTC could
materially adversely affect the Company's ability to successfully market its
products.
The Company cannot predict the nature of any future laws, regulations,
interpretations, or applications, nor can it determine what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on its business in the future. They could include, however,
requirements for the reformulation of certain products to meet new standards,
the recall or discontinuation of certain products that cannot be reformulated,
additional record keeping, expanded documentation of the properties of certain
products, expanded or different labeling, and additional scientific
substantiation. Any or all such requirements could have a material adverse
effect on the Company's business, financial condition and results of operations.
Regulations-Network Marketing.
Other laws and regulations affecting the Company have been enacted to
prevent the use of
17
<PAGE>
deceptive or fraudulent practices that have sometimes been inappropriately
associated with legitimate direct selling and network marketing activities.
These include anti-pyramiding, securities, lottery, referral selling, anti-fraud
and business opportunity statutes, regulations and court cases. Illegal schemes
typically referred to as "pyramid," "chain distribution," or "endless chain"
schemes, compensate participants primarily for the introduction or enrollment of
additional participants into the scheme. Often, such schemes are characterized
by large up-front entry or sign-up fees, over- priced products of low value,
little or no emphasis on the sale or use of products, high-pressure recruiting
tactics and claims of huge and quick financial rewards with little or no effort.
Generally these laws are directed at ensuring that product sales ultimately are
made to consumers and that advancement within such sales organizations is based
on sales of the enterprise's products, rather than investments in such
organizations or other non-retail sales related criteria. Where required by law,
the Company obtains regulatory approval of its network marketing system, or,
where such approval is not required or available, the favorable opinion of local
counsel as to regulatory compliance.
o In the United States, the FTC and state attorneys generally regulate
the network marketing system of the Company.
The Company has never received a request to supply information regarding
its network- marketing plan to certain regulatory agencies. Although the Company
has from time to time modified its network marketing system to comply with
interpretations of various regulatory authorities, it believes that its
network-marketing program presently is in compliance with laws and regulations
relating to direct selling activities. Nevertheless, the Company remains subject
to the risk that, in one or more of its present or future markets, its marketing
system or the conduct of certain of its associates could be found not to be in
compliance with applicable laws and regulations. Failure by the Company or its
associates to comply with these laws and regulations could have an adverse
material effect on the Company in a particular market or in general. Any or all
of such factors could adversely affect the way the Company does business and
could affect the Company's ability to attract potential associates or enter new
markets. In the United States, the FTC has been active in its enforcement
efforts against both pyramid schemes and legitimate network marketing
organizations with certain legally problematic components, having instituted
several enforcement actions resulting in signed settlement agreements and
payment of large fines. Although the Company has not been the target of an FTC
investigation, there can be no assurance that the FTC will not investigate the
Company in the future.
The Company cannot predict the nature of any future law, regulation,
interpretation or application, nor can it predict what effect additional
governmental legislation or regulations, judicial decisions, or administrative
orders, when and if promulgated, would have on its business in the future. It is
possible that such future developments may require revisions to the Company's
network marketing program. Any or all of such requirements could have a material
adverse effect on the Company's business, results of operations and financial
condition.
Competition
The business of developing and distributing nutritional, anti-ageing,
weight management, and
18
<PAGE>
pain relief products such as those offered by the Company is highly competitive.
Numerous manufacturers, associates and retailers compete for consumers and, in
the case of other network marketing companies, for associates. The Company
competes directly with other entities that manufacture, market and distribute
products in each of its product lines. Many of the Company's competitors are
substantially larger than the Company and have greater financial resources and
broader name recognition. The Company's markets are highly sensitive to the
introduction of new products that may rapidly capture a significant share of
such markets.
The nutritional supplement market in which the Company's leading products
compete is characterized by:
o Large selections of essentially similar products that are difficult to
differentiate,
o Retail consumer emphasis on value pricing,
o Constantly changing formulations based on evolving scientific
research,
o Low entry barriers resulting from low brand loyalty, rapid change,
widely available manufacturing, low regulatory requirements and ready
access to large distribution channels, and
o A lack of uniform standards regarding product ingredient sources,
potency, purity, absorption rate and form.
Similar factors are also characteristic of products comprising the
Company's other product lines. There can be no assurance that the Company will
be able to effectively compete in this intensely competitive environment. In
addition, nutritional, anti-ageing, weight management and pain relief products
can be purchased in a wide variety of channels of distribution, including retail
stores. The Company's product offerings in each product category are relatively
few compared to the wide variety of products offered by many of its competitors
and are often premium priced. As a result, the Company's ability to remain
competitive depends in part upon the successful introduction of new products and
enhancements of existing products.
The Company is also subject to significant competition from other network
marketing organizations for the time, attention and commitment of new and
current associates. The Company's ability to remain competitive depends, in
significant part, on the Company's success in recruiting and retaining
associates. The Company believes that it offers a rewarding associate
compensation plan and attractive associate benefits and services.
Intellectual Property
Trademarks
The Company uses registered trademarks in its business, particularly
relating to its corporate and product names. The Company owns five trademarks
registered with the United States Patent and Trademark Office. The Company has
also filed applications to register eight additional trademarks. Federal
registration of a trademark enables the registered owner of the mark to bar the
unauthorized use of the registered mark in connection with a similar product in
the same channels of trade by any third party anywhere in the United States,
regardless of whether the registered owner
19
<PAGE>
has ever used the trademark in the area where the unauthorized use occurs. The
Company also has filed applications and owns trademark registrations, and
intends to register additional trademarks, in foreign countries where the
Company's products are or may be sold. Protection afforded registered trademarks
in some jurisdictions may not be as extensive as the protection available in the
United States. The Company under common law claims certain product names,
unregistered trademarks and service marks.
Common law trademark rights do not provide the Company with the same
level of protection afforded by registration of a trademark. In addition, common
law trademark rights are limited to the geographic area in which the trademark
is actually used. The Company believes its trademarks, registered and claimed
under common law, constitute valuable assets of the Company, adding to
recognition of the Company and the marketing of its products. The Company
therefore believes such proprietary rights have been and will continue to be
important in enabling the Company to compete in its industry.
Trade Secrets
The Company has certain trade secrets that it intends to protect, in part,
through confidentiality agreements with employees and other parties. Certain of
the Company's employees involved in research and development activities have not
entered into such agreements. Even where such agreements exist, there can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach or that the Company's trade secrets will
not otherwise become known to or independently developed by competitors.
Patents (Not Meaningful Protection)
To the extent we may have patents, we found the scope of such patents
are not sufficiently broad to provide meaningful protection against
infringement. Labeling regulations require the Company to disclose product
ingredients and formulations, which makes enforcement of patents in the
nutritional supplements industry difficult. The Company does not believe that
the lack of patents in any way will adversely affect the Company's ability to
compete in the nutritional supplement, anti- ageing, pain relief or weight
management industries.
The Company intends to protect its legal rights concerning its intellectual
property (except perhaps patent rights) by all appropriate legal action. The
Company may become involved from time to time in litigation to determine the
enforceability, scope and validity of any of the foregoing proprietary rights.
Any such litigation could result in substantial cost to the Company and divert
the efforts of its management and technical personnel.
Product Backlog
The Company typically ships products within 24 hours after the receipt of
the order. As of July 31, 2000, there was no backlog.
Product Inventory Practices
20
<PAGE>
The Company maintains significant amounts of inventory in stock in order to
provide a high level of service to its independent associates.
Environment
The Company presently is not aware of any instance in which it has
contravened federal, state or local provisions enacted for or relating to
protection of the environment or in which it otherwise may be subject under such
laws to liability for environmental conditions that materially could affect the
Company's operations.
Employees
As of July 31, 2000, the Company had approximately seven (7) employees (as
measured by full time equivalency) The Company believes its relationship with
its employees is good.
Item 2. Description of Property
The Company's headquarters are located in Carlsbad, California. The Company
at this time has no properties. The company occupies certain sales offices under
a noncancellable lease. This lease is for office space and expires September 30,
2001. It is expected that in the normal course of business, leases that expire
will be renewed or replaced by leases on other properties. The current lease
requires rental payments of $43,188.00 per year.
Item 3. Legal Proceedings.
The Company is not engaged in any legal proceedings other than the ordinary
routine litigation incidental to its business operations, which the Company does
not believe, in the aggregate, will have a material adverse effect on the
Company, or its operations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of shareholders.
21
<PAGE>
PART II
Item 5. Market for Common Equity and Related Shareholder Matters.
MARKET FOR VOYAGER GROUP INC- COMMON STOCK-RISK FACTORS
Shares of our common stock distributed in the spin-off will be freely
transferable, except for shares received by persons who may be deemed to be our
"affiliates" under the Securities Act of 1933, as amended (the "Securities
Act"). Persons who may be deemed to be our affiliates after the spin-off
generally include individuals or entities that control, are controlled by, or
are under common control with, us and may include some of our officers,
directors or principal stockholders. Persons or entities who or which are our
affiliates will be permitted to sell shares of our common stock only pursuant to
an effective registration statement under the Securities Act or any exemption
from the registration requirements of the Securities Act that may be available.
There are RISKS relating to securities markets that you should consider in
connection with your ownership of our common stock THE MARKET PRICE FOR OUR
COMMON STOCK COULD BE ADVERSELY AFFECTED BY SALES OF COMMON STOCK IN THE PUBLIC
MARKET
OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY FOLLOWING THE SPIN-OFF
The market price of our common stock could be subject to significant
fluctuations in response to our operating results, changes in earnings estimated
by securities brokers or our ability to meet those estimates, publicity
regarding the direst sales industry in general and other factors. Some or all of
these factors may be beyond our control. In addition, the stock market in
general has experienced extreme volatility that has often been seemingly
unrelated to the operating performance of particular companies, particularly
those that are technology related. These broad market fluctuations may adversely
affect the trading price of our common stock. In the past, securities class
action litigation has often been instituted against companies following periods
of volatility in the market price of their securities. Such litigation could
result in substantial costs and a diversion of management's attention and
resources.
In addition, the stock market has historically experienced extreme price and
volume fluctuations which have particularly affected the market prices of many
nutritional supplement companies and network marketing companies and which often
have been unrelated to the operating performance of such companies. Moreover,
the Company's common stock may be even more prone to volatility than the
securities of other businesses in similar industries in light of the relatively
small number of shares of common stock not held by affiliates. Given such
relatively small "public float," there can be no assurance that the prevailing
market prices of common stock will not be artificially inflated or deflated by
trading even on relatively small amounts of common stock.
Currently there is no regular public market for our common stock. Voyager
Group Inc. will
22
<PAGE>
make application for approval and for listing the common stock on the NASDAQ
Bulletin Board Market under the symbol "VYGP," subject to official notice of
NASDAQ BB. The following high and low sale prices for the Company's common stock
as reported on the Nasdaq Bulletin Board for the period indicated:
1999 High Low
First Quarter (10/31/98) - -
Second Quarter (01/31/99) - -
Third Quarter (04/30/99) - -
Fourth Quarter (07/31/99) - -
2000
First Quarter (10/31/99) - -
Second Quarter (01/31/00) - -
Third Quarter (04/30/00) - -
Fourth Quarter (07/31/00) - -
To the best of management's knowledge, there has been no trading of the
company's stock during the past two fiscal years.
Shareholders
As of October 29, 2000 there were approximately 200 stockholders of record
of the Company's common stock and an estimated 40 beneficial owners, including
shares of common stock held in street name.
Dividends
The Company has never declared or paid cash dividends on its common stock.
The Company currently intends to retain future earnings to fund the development
and growth of its business and does not anticipate paying any cash dividends in
the foreseeable future. Future cash dividends, if any, will be determined by the
Board of Directors and will be based on the Company's earnings, capital,
financial condition and other factors deemed relevant by the Board of Directors.
The Company's credit facility contains restrictions on the Company's ability
declare cash dividends on its capital stock or redeem or retire such stock
without the lender's written consent.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this report.
Overview
23
<PAGE>
Voyager develops and manufactures high-quality nutritional, anti-ageing,
pain relief and weight management products. The Company distributes its products
through a network marketing system.
The Company's four primary product lines consist of nutritional,
anti-ageing, pain relief and weight management products. Nutritional products
accounted for approximately 80% of the Company's net sales in 2000.
Cost of sales primarily consists of expenses related to raw materials,
labor, and quality assurance and overhead directly associated with the
procurement and production of Voyager's products and sales materials.
Selling and marketing include associate incentives, promotion and
advertising expenses. Associate incentives and promotion are the Company's most
significant expenses and represented 86 % of net sales in 2000. Associate
incentives include commissions and leadership bonuses, and are paid weekly based
on sales volume points. Each product sold by the Company is assigned a sales
volume point value independent of the product's price. Associates earn
commissions based on sales volume points generated in their down line.
General and administrative expenses include wages and benefits,
depreciation and amortization, rents and utilities, and professional fees along
with other administrative expenses. Wages and benefits represent the largest
component of general and administrative expenses. The Company has added human
resources and associated infrastructure for future expansion of operations.
Depreciation and amortization expense has increased as a result of
substantial investments in computer and systems communications equipment and
systems to support domestic expansion. The Company anticipates that additional
capital investments will be required in future periods to promote and support
growth in sales and the increasing size of the associate and Preferred Customer
base.
Research and development
The Company did not have any research and development costs during 2000 as
compared to $50,000 in 1999. Expenses when incurred include costs in developing
new products, supporting and enhancing existing products and reformulating
products for introduction in domestic markets. The Company would if incurred
capitalize product development costs after market feasibility is established.
These costs are amortized as cost of sales over an average of 12 months,
beginning with the month the products become available for sale.
Results of Operations
The following table summarizes operating results as a percentage of net
sales, respectively for the periods indicated:
24
<PAGE>
2000 1999
--- ---
Sales, Net ..................................... 100% 100%
Cost of Sales .................................. 31% 39%
--- ---
Gross Margin ................................... 69% 61%
Operating Expenses ............................. 187% 156%
--- ---
Operating Loss ................................. 118% 95%
Net Sales.
Net sales for the year ended July 31, 2000 were less than 1999 by
approximately $617,000 or 48%. During 2001 management will implement a plan of
restructuring the independent associates compensation plan and revise certain
products. Management plans further formulation of novel, proprietary, products,
and reformulation of certain existing products. Management has added an
executive team with over 60 years combined experience in the direct marketing
industry replacing vacancies created by resignations of former executive
officers. Management believes the implementation of these plans will promote
sales growth in the years to come. The introduction of new products during the
year 2001, in the opinion of management, will promote long-term growth, with a
high associate enrollment.
Cost of Sales
Cost of sales for 2000 decreased approximately $298,000 or 59% compared to
1999. As a percentage of sales, cost of sales decreased from 39% to 31%. The
decrease in cost of sales as a percentage of net sales is attributable to the
reprising of products as part of managements overall restructuring and
implementation of its independent associates compensation plan, reprising of
products, and total reorganization of executive management team.
Operating Expenses
Operating expenses during 2000 decreased approximately $748,000 or 37%
compared to 1999 from $2,002,547 to $1,254,863. Newly elected executives have
completely overhauled the Company's human resources, technological
communications, product order processing of customers, and increase in volume
based efficiencies in production and procurement activities.
Liquidity and Capital Resources
The President, C.E.O. and shareholders have committed to funding required
working capital necessary for the Company. Funding during the year ended July
31, 2000 was for infrastructure such as communication and computer systems.
There are no formal contractual commitments between the Company and these
parties for capital, lines of credit or similar short-term borrowings.
It is anticipated that the year 2001 should expand current sales and
increase associates membership through the introduction of new products and
associate services which should exceed
25
<PAGE>
the Company's working capital requirements for the next fiscal year.
The Company generates and uses cash flows through three activities:
operating, investing, and financing. During 2000, operating activities used cash
of $373,000 as compared to net cash used of $18,000 for 1999.
Cash flows used in investing activities is primarily due to the acquisition
of $102,000 of computer equipment and office furniture for 2000 compared to $0
for 1999.
Financing activities provided $459,000 for 2000 compared to $34,000 for
1999. The increase in cash flow from financing activities was primarily from
shareholder loans from an officers and a shareholder of the Company in the form
of promissory notes.
Management believes that its current cash balances, the available line of
credit and cash provided by operations will be sufficient to cover its needs in
the ordinary course of business for the next 12 months. If the Company
experiences unusual capital requirements to complete the new infra structure and
communication systems, additional financing may be required. However, no
assurance can be given that additional financing, if required, would be
available on favorable terms. The Company may attempt to raise additional
financing through the sale of its equity securities in the form of preferred
stock or loans to finance future growth of the Company. Any financing, which
involves the sale of equity securities and loans in the form of short-term
instruments convertible into such securities, could result in immediate dilution
to existing shareholders.
Inflation
The Company does not believe that inflation has had or will have a material
effect on its historical operations or profitability.
Regulation
The Company is not of aware of any recently enacted, presently pending or
proposed state or federal legislation, which would have a material adverse
effect on its results of operations.
Outlook -Forward Looking Statements
According to the Nutrition Business Journal, the nutritional industry in
the United States will grow at an annual rate of approximately 10% over the
next three years. This does represent a slower rate of industry growth than in
prior years. Management believes the Company's products offer opportunities for
rapid expansion.
If the Company's products fail consumer demand, the Company would
experience downward pressure on its net sales.
26
<PAGE>
Item 7. Financial Statements and Supplementary Data
The Financial Statements and Supplementary Data of the Company required by
this Item is set forth immediately following the signature page to this report.
See Item 13 for a list of the financial statements and financial statements
schedules included.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
There are not and have not been any disagreements between the Company and
its accountants on any matter of accounting principles, practices or financial
statements disclosure.
27
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
The executive officers of Voyager as of September 16, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position Term of Office
---- --- -------- --------------
<S> <C> <C> <C>
Marvin Higbee 43 President, Chief Executive Officer September 16, 2000 to present
and Chairman of the Board
Peter Powderham 44 Executive President of Business September 16, 2000 to present
Development and Secretary
Richard Higbee 31 Executive President of Sales and September 16, 2000 to present
Marketing and Treasurer
Meitzu Chen 38 Executive President of October 4, 2000 to present
Product Development and Director
John Hower, 56 Director - Chairman of Scientific August 8, 1999 to
M.D. PhD Advisory Board November 19, 2000
</TABLE>
The term of office of each director and executive officer ends at, or
immediately after, the next annual meeting of shareholders of the Company.
Marvin Higbee
Became President, Chief Executive Officer and Chairman of the Board of
Directors Of Voyager in September 16, 2000. He was a former executive officer
with Forever Living Products with worldwide sales in excess of one Billion. He
joined Natures Sunshine Products in 1995 as the Chief Executive in Venezuela
wherein he increased products sales by 176%. In 1996, Mr. Higbee became the head
of European Operations headquartered in England. In 1998, he became Chief
Executive Officer of Life Force International where he grew annual sales from
$3,000,000 to $30,000,000. Mr. Higbee holds a MSS in Economics from Brigham
Young University, and a BA in History from Utah State.
Peter Powderham,
A Director since September 16, 2000 serving as Executive President of
Business Development From January 1998 to August 2000 Mr. Powderham was an
advisor to Excel International, New Vision International and several other
companies concerning their European Integration. Further Mr. Powderham held the
position of Managing Director for the UK and Ireland
28
<PAGE>
with the Europe group of Nu Skin International Inc from April 1995 to August
1997. Mr. Powderham has held similar positions as COO or Managing Director with
many other privately held industry companies and he holds a Diploma in Company
Direction with the Institute of Directors, London.
Richard Higbee
Richard Higbee became Executive Vice President of Sales and Marketing for
Voyager Group Inc. on 16 September 2000. He was Vice President of Training and
Development for Life Force International, where he helped annual sales grow from
$3 million to $30 million. Mr Higbee worked as the Regional Sales Trainer for
Nature's Sunshine Products where sales increased by $20MM in his region. He was
also Regional Sales Manager for, Vinca Corporation. Mr Higbee holds a bachelors
degree in Psychology from Brigham Young University, Utah.
Meitzu Chen
Accepted the office of Director October 4 2000 and serves as Executive
President of Product Development. From June 1992 to July 1994 Ms Chen held the
position of Quality Control Manager for Pepsi/Frito-Lay. She has also been
quality auditor for Kraft General Foods and quality control supervisor with
Dominick's Finer Foods. Ms. Chen has an MBA and a BS Degree in Food Science.
Dr. John Hower
Dr. Hower, is a vascular surgeon, and has been employed as such since 1994
to present.
Item 10. Executive Compensation.
None of the executive officers of the company earn in excess of $100,000.
During the year ended July 31, 2000 the Company reimbursed approximately
$2,850 in lodging expenses of the Company's CEO during the period from
September, 1, 1999 through November 30, 1999. Additionally, the Company agreed
to pay lodging expenses on behalf of the Company's CEO of approximately $1,500
per month beginning December 1, 1999 through November 30, 2000. These payments
and reimbursements were in lieu of a salary and have been reported in the
accompanying financial statements as General & Administrative Expenses.
Employment Contracts and Other Arrangements
As of September 16, 2000 the Company has no employment agreement or
arrangements.
Compensation Report on Executive Compensation
This Compensation Report discusses the Company's compensation policies and
the basis for the compensation paid to its executive officers (including the
Named Executive Officers), during the year ended July 31, 2000.
29
<PAGE>
Compensation Policy
The Company's policy with respect to executive compensation has been
designed to:
Adequately and fairly compensate executive officers in relation to there
Responsibilities, capabilities and contributions to the Company and in a manner
that is commensurate with compensation paid by companies of comparable size or
within the Company's industry;
Reward executive officers for the achievement of key operating objectives and
for the enhancement of the long-term value of the Company; and
Align the interests of the executive officers with those of the Company's
shareholders.
The components of compensation paid to executive officers consist of: (a)
base salary, and (b) certain other benefits.
Year 2001, Voyager will approve a cash bonus program as an additional
component of executive compensation.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Voting Securities and Principal Holders Thereof
The following table sets forth, as of September 16, 2000 the number of
shares of the Company's 31,856,413 shares of voting securities owned by each
person known to the Company to be the beneficial owner of more than five percent
of the Company's outstanding voting securities. Except as indicated in the
footnotes below, each of the persons listed exercises sole voting and investment
power over the shares of the Company's voting securities listed for such person
in the table.
<TABLE>
<CAPTION>
Class Name/Address Number of Shares Percent of Class
----- ------------ ---------------- ----------------
<S> <C> <C> <C>
Common Stock
Dr. Morris Mann 1,825,000 6%
(WestRim Holdings)
California
Marlen Johnson ** 11,000,000* 35%
Box 8029
La Jolla, Ca 92038
John Southerland, ** 11,000,000* 35%
6354 Corte Del Abeto, Suite F
Carlsbad, California 92009
</TABLE>
30
<PAGE>
The following table sets forth, as of September 16, 2000 the number of
shares of the Company's 31,856,413 voting securities owned by the executive
officers and directors of the Company individually, and as a group. Except as
indicated in the footnotes below, each of the persons listed exercises sole
voting and investment power over the shares of the Company's voting securities
listed for such person in the table.
Class Name/Address Number of Shares Percent of Class
----- ------------ ---------------- ----------------
Common Stock
Officers and Directors as a group NONE 0%
Percentages rounded to nearest one percent.
* Convertible Preferred Stock
Consists of 100 (50 each) shares of Series J Convertible Preferred Stock
convertible into Common Stock on the basis of 1 to 220,000.
** Controling Stockholders:
As of September 16, 2000, Mr. John Southerland, former President and
C.E.O., and Mr. Marlen Johnson, shareholder, collectively own 100% of the
outstanding shares of the Convertible Preferred Stock Series J, representing
approximately 70% of the combined voting power of the outstanding shares of
common stock. Accordingly, as of such date, the Convertible Preferred Series J
stockholders, acting fully or partially in concert are able to control the
election of the Board of Directors of the Company and thus the direction and
future operations of the Company without supporting vote of any other of the
company's common shareholders, including decisions regarding acquisitions and
other business opportunities, the declaration of dividends and the issuance of
different class of securities.
Item 12. Certain Relationships and Related Transactions.
There are no agreements or understandings between the Company and any of
the Board of Directors families members pursuant to which anything more than the
ordinary compensation otherwise payable under the associate compensation plan is
paid to these associates or pursuant to which any other treatment is offered
them. The Board of Directors does not receive any position of the associate
incentives paid to these family members or their affiliates and has no
beneficial ownership interest in any of their business'.
During the year ended July 31, 2000, two controlling shareholders of the
Company loaned $398,550 to the Company in the form of promissory notes bearing
interest at 7.5% and payable upon demand. Interest on these notes accrue until
paid. The notes provide for a perpetual payment of 2% of the total Monthly Gross
Sales in any month the Company's sales reach or exceed $200,000. In the event of
default, the notes shall bear interest at an alternative rate equal to an
additional 2%. As
31
<PAGE>
of July 31, 2000, $416,983.37 including interest was due on these promissory
notes.
During the year ended July 31, 2000 the Company reimbursed approximately
$2,850 in lodging expenses of the Company's CEO during the period from
September, 1, 1999 through November 30, 1999. Additionally, the Company agreed
to pay lodging expenses on behalf of the Company's CEO of approximately $1,500
per month beginning December 1, 1999 through November 30, 2000. These payments
and reimbursements were in lieu of a salary and have been reported in the
accompanying financial statements as General & Administrative Expenses.
Item 13. Exhibits and Reports on Form 8-K.
(a) The following documents are filed as part of this report.
1. Financial Statements PAGE
----
Independent Auditor's Report F-1
Balance Sheet,
July 31, 2000 and 1999 F-2
Statements of Income,
For the Years Ended July 31, 2000 and 1999 F-4
Statements of Cash Flows,
For the Years Ended July 31, 2000 and 1999 F-5
Statements of Changes in Stockholders' Equity,
For the Years Ended July 31, 2000 and 1999 F-7
Notes to Financial Statements F-8
2. Financial Statement Schedules
All Schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
32
<PAGE>
3. Exhibits
The following exhibits are included as part of this report:
Exhibit
Number Exhibit
3.1 Certificate of Incorporation The Voyager Group, Inc.
3.2 Corporate By-Laws of The Voyager Group Inc.
3.3 Amended and Restated Certificate of Incorporation of The Voyager Group, Inc.
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed.
33
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
The Voyager Group, Inc.
Registrant
DATE: December 13, 2000 By: /S/ Marvin Higbee
---------------------
Marvin Higbee, President, C.E.O. and
Chairman of the Board
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the date indicated.
DATE: December 13, 2000 By: /S/ Marvin Higbee
---------------------
Marvin Higbee, President, C.E.O., and
Chairman of the Board
DATE: December 13, 2000 By: /S/ Peter Powderham
-----------------------
Peter Powderham, Executive President,
Business Development, Secretary and
Director
DATE: December 13, 2000 By: /S/ Richard Higbee
---------------------
Richard Higbee, Executive President of
Sales & Marketing, Treasurer, and
Director
DATE: December 13, 2000 By: /S/ Meitzu Chen
-------------------
Meitzu Chen, Executive President of
Product Development, and
Director
34
<PAGE>
THE VOYAGER GROUP, INC.
- : -
INDEPENDENT AUDITORS' REPORT
JULY 31, 2000 AND 1999
<PAGE>
Independent Auditor's Report
To the Stockholders
of The Voyager Group, Inc.
We have audited the balance sheet of The Voyager Group, Inc. as of July 31,
2000 and 1999, and the related consolidated statements of income, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects the financial position of The Voyager Group, Inc. as of
July 31, 2000 and 1999 and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
Respectfully submitted
/s/ ROBISON, HILL & CO.
Certified Public Accountants
Salt Lake City, Utah
September 16, 2000
F - 1
<PAGE>
THE VOYAGER GROUP, INC.
BALANCE SHEETS
July 31,
---------------------------
2000 1999
--------- ---------
ASSETS
Current Assets:
Cash ..................................... $ -- $ 16,539
Inventory ................................ 146,304 113,504
Prepaid Expenses ......................... 4,960 1,575
Accounts Receivable ...................... 7,295 6,536
--------- ---------
Total Current Assets .................. 158,559 138,154
--------- ---------
Fixed Assets, at Cost:
Furniture and Equipment .................. 136,527 140,135
Leasehold Improvements ................... 6,741 6,741
Less - Accumulated
Depreciation ......................... (44,063) (89,716)
--------- ---------
99,205 57,160
--------- ---------
Other Assets:
Intangible Assets, Net ................... -- 25,000
Deposits ................................. 6,752 5,327
--------- ---------
Total Other Assets .................... 6,752 30,327
--------- ---------
Total Assets .......................... $ 264,516 $ 225,641
========= =========
F - 2
<PAGE>
THE VOYAGER GROUP, INC.
BALANCE SHEETS
(Continued)
July 31,
---------------------------
2000 1999
----------- -----------
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts Payable ............................. $ 42,107 $ 80,630
Accrued Liabilities .......................... 20,609 32,301
Accrued Commissions .......................... 12,837 30,934
Shareholder Advances ......................... 8,726 --
Parent Company Advances ...................... -- 2,222,536
Bank Indebtedness ............................ 99,233 109,806
Lease Obligations - Current Portion .......... 26,974 --
Shareholder Loans ............................ 416,983 3,087
----------- -----------
Total Current Liabilities ................. 627,469 2,479,294
----------- -----------
Long Term Liabilities:
Lease Obligations ............................ 35,560 --
----------- -----------
Total Liabilities ......................... 663,029 2,479,294
----------- -----------
Stockholders' Equity
Preferred Stock, $.001 par value;
Series J; 100 shares authorized,
100 and 0 shares issued and
outstanding .............................. -- --
Common Stock; $.001 par value;
100,000,000 shares authorized;
9,856,413 and 1000 shares
issued and outstanding July 31, 2000
and 1999, respectively ..................... 9,856 1
Additional Paid-in Capital ................... 2,716,644 5,321
Retained Earnings (Deficit) .................. (3,125,013) (2,258,975)
----------- -----------
Total Stockholders' Equity ................ (398,513) (2,253,653)
----------- -----------
Total Liabilities, and
Stockholders' Equity .................... $ 264,516 $ 225,641
=========== ===========
The accompanying notes are an integral part of these financial statements.
F - 3
<PAGE>
THE VOYAGER GROUP, INC.
STATEMENTS OF INCOME
For the Year Ended
July 31,
----------------------------
2000 1999
----------- -----------
Sales, net of allowances
of $2,534 and $13,594 ........................ $ 670,234 $ 1,287,419
Cost of Sales ................................ 209,180 507,496
----------- -----------
Gross Margin ............................ 461,054 779,923
Selling & Marketing .......................... 575,074 620,274
Research & Development ....................... -- 50,000
General & Administrative ..................... 679,789 1,332,273
----------- -----------
Net Income (Loss) from
Operations ............................... (793,809) (1,222,624)
Other Income (Expense)
Interest ................................... (35,120) (15,459)
Write Down of Assets ....................... (36,309) --
----------- -----------
Income (Loss) Before Income Taxes ............ (865,238) (1,238,083)
----------- -----------
Income Tax Benefit (Expense) ................. (800) (173,099)
----------- -----------
Net Income (Loss) ............................ $ (866,038) $(1,411,182)
=========== ===========
Earnings (Loss) Per Common Share:
Basic & Diluted ............................ $ (0.26) $ (1,411.18)
=========== ===========
Weighted Average Shares Outstanding:
Basic & Diluted ............................ 3,295,472 1,000
=========== ===========
The accompanying notes are an integral part of these financial statements.
F - 4
<PAGE>
THE VOYAGER GROUP, INC.
STATEMENTS OF CASH FLOWS
For the Year Ended
July 31,
-----------------------
2000 1999
--------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) .......................... $(866,038) $(1,411,182)
Adjustments to Reconcile Net Loss
to Net Cash Used in Operating Activities:
Depreciation and Amortization ............ 61,069 27,273
Non Cash Expenses ........................ 498,643 1,138,256
Loss on Disposal of Assets ............... 36,309 --
Changes in Assets and Liabilities-
Increase in Accounts Receivable ...... (758) 22,336
Increase in Prepaid Expenses ......... (3,385) (775)
Increase in Inventory ................ (32,800) 59,626
Increase in Other Assets ............. (1,425) 172,301
Increase in Accounts Payable ......... (38,523) 48,848
Increase in Accrued Liabilities ...... (8,110) (57,083)
Increase in Accrued Commissions ...... (18,096) (17,517)
--------- -----------
Net Cash Provided by Operating Activities (373,114) (17,917)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase Furniture and Equipment ........... (102,662) --
--------- -----------
Net Cash Provided by Investing Activities (102,662) --
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Capital Lease Obligations ..... 82,412 --
Payments of Capital Lease Obligations ....... (19,878)
Proceeds from Bank Indebtedness ............. --
Repayments of Bank Indebtedness ............. (10,573)
Shareholder Advances ........................ 8,726 --
Proceeds from Shareholder Loans ............. 398,550 34,456
--------- -----------
Net Cash Provided by Financing Activities 459,237 34,456
--------- -----------
Net Increase in Cash and Cash Equivalents ... (16,539) 16,539
Cash and Cash Equivalents at Beginning of Year 16,539 --
--------- -----------
Cash and Cash Equivalents at End of Year ... $ -- $ 16,539
========= ===========
F - 5
<PAGE>
THE VOYAGER GROUP, INC.
STATEMENTS OF CASH FLOWS
(Continued)
For the Year Ended
July 31,
---------------------
2000 1999
------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash Paid During the Year For:
Interest ....................................... $19,775 $15,459
Income Taxes ................................... $ 800 $ 800
The accompanying notes are an integral part of these financial statements.
F - 6
<PAGE>
THE VOYAGER GROUP, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Additional
Series J Common Stock Paid-in Retained
Shares Amount Shares Amount Capital Earnings
------ --------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance July 31, 1998 ....... -- $ -- 1,000 $ 1 $ 5,321 $ (847,793)
Net Loss .................... -- -- -- -- -- (1,411,182)
------ --------- ---------- --------- ---------- ------------
Balance July 31, 1999 ....... 1,000 1 5,321 (2,258,975)
Shares issued in spin off ... 100 -- 9,855,413 9,855 2,763,600 --
Net Loss .................... -- -- -- -- -- (892,455)
------ --------- ---------- --------- ---------- -----------
Balance July 31, 2000 ....... 100 $ -- 9,856,413 $ 9,856 $2,768,921 $(3,151,430)
====== ========= ========== ========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 7
<PAGE>
THE VOYAGER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000, AND 1999
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies for The Voyager Group, Inc. is
presented to assist in understanding the Company's financial statements. The
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
Organization and Basis of Presentation
The Company was first incorporated in the State of Delaware on January 5,
1995. On July 17, 1996 the Company entered into an agreement of reorganization
with Voyager Group USA-Brazil, Ltd. (a Nevada Corporation) (the "Parent
Company")whereby the Company became a wholly owned subsidiary of the Parent
Company.
On March 31, 2000, the Parent Company did spin off the Company, pursuant to
which the Company is no longer a wholly owned subsidiary of the Parent Company.
In accordance with the spin off, holders of the Parent Company Common Stock
received one share of the Company's Common Stock for each share of the Parent
Company Common Stock owned immediately prior to the spin off, and holders of the
Parent Company Series J Convertible Preferred Stock received one share of the
Company's Series J Convertible Preferred Stock for each share of the Parent
Company Series J Convertible Preferred Stock owned immediately prior to the spin
off.
Nature of Business
The Company's independent distributors distribute dietary supplements and
personal care products through a multi-level marketing network. The products are
formulated to appeal to the general public and address overall health
considerations.
Inventories
Inventories consist of dietary and personal care products and related
materials and are stated at the lower of cost (first-in, first-out method) or
market, or net realizable value.
Revenue Recognition
The Company recognizes revenue from product sales at the time of shipment.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires recognition of deferred
income tax assets and liabilities for the expected future income tax
consequences, based on enacted tax laws, of temporary differences between the
financial reporting and tax bases of assets and liabilities.
F - 8
<PAGE>
THE VOYAGER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000, AND 1999
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Depreciation
Depreciation is provided at rates based on estimated useful service lives
(five to seven years for office furniture and fixtures), using accelerated
methods.
Maintenance and repairs are charged to operations; betterments are
capitalized. The cost of property sold or otherwise disposed of and the
accumulated depreciation thereon are eliminated from the property and related
accumulated depreciation accounts, and any resulting gain or loss is credited or
charged to income.
Amortization
Intangible assets are amortized over useful life.
Cash Equivalents
For the purpose of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with maturity of three months or less to be
cash equivalents to the extent the funds are not being held for investment
purposes.
Earnings (Loss) Per Share
The effect of outstanding common stock equivalents, including Convertible
Preferred Stock Series J are anti-dilutive for the years ended July 31, 2000 and
1999 and are thus not considered.
The reconciliations of the numerators and denominators of the basic
and dilutedearnings per share computations are as follows:
2000 1999
----------- -----------
NUMERATOR
Net Loss ....................................... $ (892,455) $(1,411,182)
Net Loss To Common Stockholders ................ $ (892,455) $(1,411,182)
=========== ===========
DENOMINATOR
Weighted Average Number of Common Shares ....... 3,295,472 1,000
=========== ===========
F - 9
<PAGE>
THE VOYAGER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000, AND 1999
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Concentration of Credit Risk
The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. The Company maintains
reserves for estimated credit losses. Its accounts receivable balances are
primarily domestic. No customer accounts for more than 10% of sales.
The Company has no significant off-balance-sheet concentrations of credit
risk such as foreign exchange contracts, options contracts or other foreign
hedging arrangements.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made in the 1999 financial statements
to conform with the 2000 presentation.
NOTE 2 - PREFERRED STOCK
The Company created convertible Preferred Stock Series J-1999, authorizing
the issuance of 100 shares of convertible preferred stock to be sold, with a par
value of $.001. The preferred stock are convertible at a ratio of 220,000 shares
of common stock per preferred share converted. In the event of any voluntary or
involuntary liquidation, the holders of Series J preferred stock are entitled to
an amount equal to the net book value of the corporation plus all unpaid
dividends, before any distributions to holders of Common Stock, or any other
series of preferred stock of the corporation by reason of any voluntary or
involuntary liquidation, dissolution or winding up of the corporation unless
each holder of series J shall have received all amounts to which such series J
holders are entitled. The preferred stock is entitled to vote 220,000 votes per
preferred share.
F - 10
<PAGE>
THE VOYAGER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000, AND 1999
(Continued)
NOTE 2 - PREFERRED STOCK (Continued)
Convertible Preferred Stock Series J also includes a royalty certificate
for each "Major Investor" (meaning investors owning over 10 shares of Series J
preferred stock or common stock issued upon conversion thereof. The royalty
certificates represent a perpetual royalty payment of four percent on or before
the 15th of each month following the starting month when gross sales of the
Company exceeds $120,000 per month.
NOTE 3 - RELATED PARTY TRANSACTIONS
During the year ended July 31, 2000, two officers of the Company loaned
$398,550 to the Company in the form of promissory notes bearing interest at 7.5%
and payable upon demand. Interest on these notes accrue until paid. The notes
provide for a perpetual payment of 2% of the total Monthly Gross Sales in any
month the Company's sales reach or exceed $200,000. In the event of default, the
notes shall bear interest at an alternative rate equal to an additional 2%. As
of July 31, 2000, $416,983.37 including interest was due on these promissory
notes.
During the year ended July 31, 2000 the Company reimbursed approximately
$2,850 in lodging expenses of the Company's CEO during the period from
September, 1, 1999 through November 30, 1999. Additionally, the Company agreed
to pay lodging expenses on behalf of the Company's CEO of approximately $1,500
per month beginning December 1, 1999 through November 30, 2000. These payments
and reimbursements were in lieu of a salary and have been reported in the
accompanying financial statements as General & Administrative Expenses.
NOTE 4 - RENT EXPENSE
The Company occupies certain sales offices under a noncancellable lease.
The lease is for one year expiring September 30, 2001, after which the Company
has an option to renew at a 4% increase. The current lease requires minimum
rental payments of $3,599 per month ($43,188 per year).
NOTE 5 - INCOME TAXES
As of July 31, 2000, the Company had a net operating loss ("NOL") carry
forward for income tax reporting purposes of approximately $3,000,000 available
to offset future taxable income. This net operating loss carry-forward expires
at various dates between July 31, 2011 and 2019. An NOL generated in a
particular year will expire for federal tax purposes if not utilized within 15
years (for years beginning before August 6, 1997, and 20 years after August 6,
1997. Additionally, the Internal Revenue Code contains provisions which could
reduce or limit the availability and utilization of these NOLs if certain
ownership changes have taken place or will take place. In accordance with
F - 11
<PAGE>
THE VOYAGER GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000, AND 1999
(Continued)
NOTE 5 - INCOME TAXES (Continued)
SFAS No. 109, a valuation allowance is provided when it is more likely than not
that all or some portion of the deferred tax asset will not be realized. Due to
the uncertainty with respect to the ultimate realization of the NOLs, the
Company established a valuation allowance for the entire net deferred income tax
asset of $572,000 as of July 31, 1999, which includes $3,000 from the difference
between financial accounting and tax depreciation and $569,000 from net
operating loss carry forward. Also consistent with SFAS No. 109, an allocation
of the income (provision) benefit has been made to the loss from continuing
operations for the year ended July 31, 1999.
The components of the income tax (benefit) provision are as follows:
July 31,
--------------------------
2000 1999
--------- ----------
Current
Federal ............................... $ -- $ --
State ................................. 800 800
Deferred
Federal ............................... -- 108,423
State ................................. -- 63,876
--------- ----------
Total ............................. $ 800 $ 173,099
========= ==========
NOTE 6 - BANK INDEBTEDNESS
The Company has three lines of credit from banks with a total amount owing
of $99,233 and $109,806 as of July 31, 2000 and 1999 respectively. These lines
carry interest rates from 12.25% to 14.80%. The total available credit from
these sources is $110,000.
F - 12
