As filed with the Securities and Exchange Commission on January 7, 1997
Registration Statement No. 333-19239
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
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TASTY FRIES, INC.
(Name of Small Business Issuer in its Charter)
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<S> <C> <C>
NEVADA 2000 65-0259052
(State of Incorporation) (Primary Standard Industrial (IRS Employer Identification No.)
Classification Code Number)
</TABLE>
650 SENTRY PARKWAY, SUITE ONE
BLUE BELL, PENNSYLVANIA 19422
(610) 941-2109
(Address and telephone number of principal executive offices
and principal place of business)
EDWARD C. KELLY, PRESIDENT AND CHIEF EXECUTIVE OFFICER
TASTY FRIES, INC.
650 SENTRY PARKWAY, SUITE ONE
BLUE BELL, PENNSYLVANIA 19422
(610) 941-2109
(Name, address and telephone number of agent for service)
Copies to:
KIPNIS TESCHER LIPPMAN VALINSKY & KAIN, P.A.
ONE FINANCIAL PLAZA, SUITE 2308
FORT LAUDERDALE, FLORIDA 33394
ATTENTION: MICHELLE KRAMISH KAIN, ESQ.
(954) 467-1964
(954) 467-2264 (FAX)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Act of 1933, as
amended (the "Act"), check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Act, check the following box and list the Act registration statement number
of the earlier effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREFORE BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8 (A) OF
THE ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE
AS THE COMMISSION, ACTING PURSUANT TO SECTION 8 (A), MAY DETERMINE.
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<PAGE>
TASTY FRIES, INC.
CROSS REFERENCE SHEET
FORM SB-2 ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS
--------------------------------- ---------------------
1. Front of Registration Statement Facing Page of Registration Statement;
and Outside Front Cover Page of Outside Front Cover Page
Prospectus
2. Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus Cover Pages
3. Summary Information and Prospectus Summary; Risk Factors;
Risk Factors The Company
4. Use of Proceeds Prospectus Summary; Use of Proceeds
5. Determination of Offering Price Outside Front Cover Page;
Price Use of Proceeds
6. Dilution Dilution
7. Selling Stockholders Selling Securityholders
8. Plan of Distribution Outside Front Cover Page; Risk Factors;
Plan of Distribution
9. Legal Proceedings Business - Litigation
10. Directors, Executive Management
Officers, Promoters
and Control Persons
11. Security Ownership Principal Securityholders
Of Certain Beneficial
Owners and Management
12. Description of Securities Prospectus Summary; Risk Factors;
Description of Securities.
3
<PAGE>
FORM SB-2 ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS
--------------------------------- ---------------------
13. Interests of Named Legal Matters; Experts
Experts and Counsel
14. Disclosure of Commission Indemnification of
Position on Indemnification Directors and Officers
for Securities Act Liabilities
15. Organization Within Not Applicable
Last Five Years
16. Description of Business Prospectus Summary; Business
17. Management's Discussion Management's Discussion and Analysis
and Analysis or Plan of of Financial Condition and Results
Operation(s) of Operation - Plan of Operation
18. Description of Property Business - Property
19. Certain Relationships and Certain Transactions
Related Transactions
20. Market for Common Equity Outside Front Cover Page; Risk Factors;
and Related Stockholder Matters Market for Common Equity; Dividend
Policy; Description of Securities -
Shares Eligible for Future Sale
21. Executive Compensation Executive Compensation
22. Financial Statements Financial Statements
23. Changes In and Disagreements
With Accountants on Accounting
and Financial Disclosure Not Applicable
4
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 7, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
TASTY FRIES, INC.
An Aggregate of 6,229,408 Shares of Common Stock
(par value $.001 per share)
This Prospectus relates to the sale of 6,229,408 shares (the "Shares")
of Common Stock, $.001 par value per share (the "Common Stock"), which includes
2,000,000 shares of Common Stock to be issued upon the exercise of anti-dilution
warrants (the "Warrant" or "Warrants") to be issued to certain Selling
Securityholders (the "Warrant Shares") of Tasty Fries, Inc. (the "Company" or
the "Issuer"), all of which may be offered and sold from time to time by such
Selling Securityholders (the "Selling Securityholders") of the Issuer. See
"SELLING SECURITYHOLDERS" and "PLAN OF DISTRIBUTION." Following the effective
date of the Registration Statement of which this Prospectus is a part, the
Shares and the Warrant Shares may be offered for sale, in whole or in part, in
regular market transactions or through broker-dealers at prevailing market
prices. The Selling Securityholders and any broker-dealer who participates in
the distribution of the Shares or the Warrant Shares (which sometimes are
collectively referred to herein as the "Shares") may be deemed to be
underwriters ("Underwriters") within the meaning of the Securities Act of 1933,
as amended (the "Act"). The Issuer will receive the proceeds from the exercise
price of each Warrant so exercised, if any, but will not receive any proceeds
from the sale of any of the Shares. The Issuer will incur certain expenses in
connection with this offering. The Shares and the Warrant Shares involve certain
investment risks. See "RISK FACTORS."
There is currently a public trading market for the Shares on the OTC
Bulletin Board owned by the NASDAQ(R) Stock Market, Inc. See "RISK FACTORS",
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION - PLAN OF OPERATION" and "PLAN OF DISTRIBUTION." There can be no
assurance, however, that such a trading market will further develop, continue or
be sustained. On December 18, 1996, the closing bid price of the Common Stock as
reported by NASDAQ was $.125. See "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
5
<PAGE>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING HEREIN CONTAINED AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION.
------------------------
UNTIL ________________, 1997 (90 DAYS AFTER THE DATE OF THIS
PROSPECTUS) ALL BROKER-DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS WITH RESPECT TO SALES EFFECTED BY THEM.
THE ISSUER IS REQUIRED BY THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, TO FILE PERIODIC REPORTS AND OTHER INFORMATION WITH THE SECURITIES AND
EXCHANGE COMMISSION. SUCH MATERIAL MAY BE INSPECTED AT THE COMMISSION'S
PRINCIPAL OFFICES AT 450 FIFTH STREET N.W., WASHINGTON, D.C. 20459 AND COPIES
MAY BE OBTAINED ON PAYMENT OF CERTAIN FEES PRESCRIBED BY THE COMMISSION.
THE ISSUER WILL FURNISH, UPON REQUEST AND AT ITS EXPENSE, TO THE
HOLDERS OF THE SHARES AND THE WARRANT SHARES THE ISSUER'S FORM 10-KSB FOR THE
MOST RECENTLY COMPLETED FISCAL YEAR CONTAINING AUDITED FINANCIAL STATEMENTS
EXAMINED AND REPORTED UPON, AND WITH AN OPINION EXPRESSED BY, AN INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANT. THE ISSUER MAY FURNISH OTHER UNAUDITED INTERIM
REPORTS TO ITS SECURITYHOLDERS, UPON REQUEST, AS IT DEEMS APPROPRIATE.
6
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE
REQUIRES OR INDICATES OTHERWISE, ALL REFERENCES IN THIS PROSPECTUS TO THE
"COMPANY" OR "TASTY FRIES" SHALL MEAN TASTY FRIES, INC., A NEVADA CORPORATION,
AND GIVE EFFECT TO THE 1 FOR 20 REVERSE STOCK SPLIT EFFECTIVE ON DECEMBER 23,
1996.
THE COMPANY
The Company was incorporated in Nevada on October 18, 1985 under the
name Y.O. Systems, Ltd. and was formed as a "blank check" company for the
purpose of seeking a business acquisition without regard to any specific
industry or business but was unsuccessful. It subsequently changed its name to
Metro Systems, Inc. in 1987. In July 1991 it acquired Adelaide Holdings, Inc., a
private Delaware corporation, and changed its name to Adelaide Holdings, Inc.
Thereafter, in September 1993, it changed its name to Tasty Fries, Inc.
The Company is a Nevada corporation with its principal executive
offices at 650 Sentry Parkway, Suite One, Blue Bell, Pennsylvania 19422. Its
telephone number is (610) 941-2109.
The Company has developed a patented french fries vending machine (the
"Machine") and the related proprietary potato powder mix for the production of
fresh french fries in the Machine (the "Potato Product") as well as other
related products (collectively, the "Products") which it plans to market,
distribute, and sell on a world-wide basis. The Company had previously received
a federally registered trademark for its former name and logo, "Adelaide". The
Company has subsequently federally registered its current name and logo, "Tasty
Fries," as a federal trademark on the Supplemental Register and has been
marketing the Machine and the Products under that name. See "RISK FACTORS-PATENT
PROTECTION AND PROPRIETARY RIGHTS" and "BUSINESS-PATENTS AND PROPRIETARY
RIGHTS." The Company's early plans were to principally market its products
through an exclusive distributorship network which then current management
believed would offer uniform and consistent products to consumers worldwide. In
furtherance of this plan, the Company sold distributorships for different
markets throughout the United States and several foreign countries. In mid-1995
a change in its marketing focus evolved which has resulted in the Company
negotiating to reacquire distributorships previously sold. One such
distributorship has been reacquired and negotiations are on-going for a second.
The Company may, in its discretion, on a more limited basis than previously
undertaken, market and sell distributorships in certain locations to larger
distributors with significant experience in the vending business in locations
where it is not deemed feasible, due to costs and location, by management to be
operated directly by the Company. The Company may, in certain circumstances,
retain the ownership of the Machines and lease the Machines to distributors. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - PLAN OF OPERATION" AND "BUSINESS".
7
<PAGE>
RISK FACTORS
An investment in the Shares and the Warrant Shares involves various
significant risks and prospective investors should carefully consider the
matters discussed under "RISK FACTORS" prior to any investment in the Company.
See "RISK FACTORS".
THE OFFERING
The principal terms of the Shares and the Warrant Shares offered hereby
in the offering are summarized below. For a more complete description, see
"DESCRIPTION OF SECURITIES". The Selling Securityholders will receive all the
proceeds from the sale of the Shares.
SECURITIES OFFERED
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<S> <C>
Common Stock............ 4,229,408 shares of Common Stock which may be sold, from time
to time, in whole or in part, by the Selling Securityholders.
Warrant Shares.......... 2,000,000 shares of Common Stock to be issued upon the exercise,
in whole or in part, of the Warrants by the Warrantholders. The
Company will receive the proceeds from the exercise of the
Warrants, if any.
Rights of
Common Stock............. The Shares and the Warrant Shares, once issued and outstanding,
share equally in all rights of the Common Stock, including without
limitation, dividend and voting rights.
Proceeds to the Company.. All proceeds from the sale of the Shares and Warrant Shares will
be received by the respective Selling Securityholders. The
Company will receive the proceeds from the exercise of the
Warrants, if any. To the extent that certain Shares being
registered hereby underlie options and other outstanding warrants,
the proceeds from such exercise, if any, would be received by the
Company and would be utilized by the Company primarily for
working capital purposes. See "USE OF PROCEEDS".
Quotation................ The Common Stock is quoted on the OTC Bulletin Board owned
by the NASDAQ(R) Stock Market, Inc.
Trading Symbol........... "TFRY"
</TABLE>
8
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for each of the two years
ended January 31, 1996 and 1995, have been derived from the audited financial
statements of the Company. The selected financial data presented below for the
nine months ended October 31, 1996 and October 31, 1995 are unaudited but, in
management's opinion, includes all adjustments consisting of normal recurring
adjustments necessary to present fairly the financial data for, and at the end
of, such period. See "FINANCIAL STATEMENTS".
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
OCTOBER 31, JANUARY 31,
----------------------- -------------------------
1995 1996 1995 1996
---- ---- ---- ----
(unaudited) (audited)
<S> <C> <C> <C> <C>
Revenues 0 478 0 618
Loss before interest expense (793,692) (1,607,453) (1,464,038) (1,488,030)
Interest expense 25,197 6,404 14,895 26,458
Net loss (818,889) (1,613,857) (1,478,933) (1,514,488)
Net loss per share (.01) (.02) (.05) (.03)
BALANCE SHEET DATA:
Total assets 2,635,127 172,835 229,070 2,247,788
Working capital (deficit) 1,855,975 (972,939) (1,210,487) 1,236,990
Total liabilities 779,152 1,120,686 1,410,792 980,283
Stockholders' equity (deficit) 1,885,604 (947,851) (1,181,722) 1,267,505
</TABLE>
9
<PAGE>
RISK FACTORS
THE PURCHASE OF THE SHARES AND WARRANT SHARES OFFERED HEREBY INVOLVES A
HIGH DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS, TOGETHER WITH THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION.
LIMITED OPERATING HISTORY; NO REVENUES FROM OPERATIONS; NO ASSURANCE OF
SUCCESSFUL IMPLEMENTATION OF BUSINESS STRATEGY. Although the Company has
operated since July 1991 in its current business, it has had virtually no
revenues from operations. Virtually all revenues received to date have been
through the sale of equity and debt securities to investors in private
placements. Limited revenues have also been received from the downpayments made
by certain distributors for their distribution rights for the Machine and the
Products. As of October 31, 1996, the amount of all such downpayments aggregated
$406,000. The Company has utilized the proceeds from the sale of securities and
distributor downpayments to fund its research and development of the Machine and
the Products, repay debt, satisfy judgments and court awards and for working
capital purposes. The Company has incurred substantial net losses since 1991 and
is still in its development stage.
The Company continues to face all of the risks inherent in the growth
of a developing business, including among other things, limited access to
capital, and long delays in the implementation of its business plan resulting
from the need to totally redesign, develop and test a new machine and a
continuing lack of sufficient working capital to fund development and
operations. There can be no assurances that the Company's business will
ultimately be successful and/or profitable. As a result, the purchase of the
Shares and Warrant Shares offered hereby must be regarded by investors as the
placing of funds at a high and uncertain risk in a developing business with all
of the unforeseen costs, expenses, problems and difficulties to which such
businesses are subject. Investors in this offering may lose all or a substantial
part of their investment. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - PLAN OF OPERATION", "BUSINESS" and
"FINANCIAL STATEMENTS."
HISTORY OF SUBSTANTIAL LOSSES; NEED FOR ADDITIONAL CAPITAL. The Company incurred
net losses of $1,514,488 and $1,478,933 for the fiscal years ended January 31,
1996 and 1995, respectively, and a net loss for the nine months ended October
31, 1996 and 1995 of $1,613,857 and $818,889, respectively. In order to attain
any profitability, the Company must commence commercial production and delivery
of the Machine and its Products to distributors and lessees, if any, and
successfully plan and control costs so as to produce a positive operating
margin. There can be no assurance that the Company can do so, and the failure of
the Company to achieve and maintain profitability could ultimately result in the
inability of the Company to pay its financial obligations as they become due.
This would, as it has in the past, have a material adverse effect on the
Company. See "FINANCIAL STATEMENTS".
10
<PAGE>
At January 31, 1996 and 1995, the Company reported a working capital
deficit of approximately $1,236,990 and ($1,210,487), respectively. As of
October 31, 1996, the Company reported a working capital deficit of
approximately ($972,439). Presently existing capital resources are not
sufficient for the Company to maintain its current and planned operations
through the remainder of the fiscal year ending January 31, 1997. The Company
has historically funded its operations through a combination of the sale of
securities, issuance of stock for services or in settlement of corporate
obligations and to a much lesser extent, the downpayments of distributors. Until
such time as the Company's operating results may reach a sufficient level to
fund the Company's operations, as to which no assurances are given, the Company
must continue to seek and obtain outside financing to fund its business and to
meet its obligations as they become due. Any debt or equity financing, to the
extent available, as to which no assurances are given, may be dilutive to the
interests of investors in this offering. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION"
and "FINANCIAL STATEMENTS".
NO MANUFACTURING FACILITIES; COMPLETION OF TOOLING. The Company has not and does
not intend to establish its own manufacturing operations. The Company has been
and will continue to be dependent upon third parties to manufacture its Machines
and Products, including the Potato Product. In June 1996, the Company entered
into a manufacturing agreement with a local Pennsylvania electronics company to
manufacture the Machines. It previously had an agreement with Premier Design,
Ltd. ("Premier"), a company owned by Mr. Edward Kelly, President and Chief
Executive Officer of the Company and a former director, Harry Schmidt, to
manufacture the Machine. See "BUSINESS - DESIGN AND MANUFACTURING".
Before the Machines can be manufactured on a commercial basis, the
Company's third party unaffiliated contractor must complete the necessary
tooling of certain component parts which has been started but is now
significantly delayed due to the Company's lack of capital to fund the
completion. Once funding is received, the tooling process can be completed and
commercial production can proceed. Although the Company is in negotiations to
secure this funding from two major sources, no assurances can be given that
either source or any other source of funding will ultimately be available to the
Company. In such event, the Company will be unable to complete tooling which may
require it to curtail or cease operations entirely. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF
OPERATION" and "BUSINESS."
PRODUCTION DEVELOPMENT RISKS. The Machines have been operated by the Company on
a limited basis at trade shows, at previews to the investment banking community,
at a limited number of beta test sites and, in certain instances, by
distributors and others in foreign countries. Operating results have been
excellent to date; however, the Machines are always subject to refinement,
adjustment and improvement by the Company and its trained technical personnel.
There is no assurance that the Machines will continue to perform in accordance
with the Company's expectations over a long period of time.
11
<PAGE>
PATENT PROTECTION AND PROPRIETARY RIGHTS. A patent was issued by the U.S. Patent
and Trademark Office in July 1996 for the Machine to Mr. Edward C. Kelly, the
inventor, who is President, Chief Executive Officer and Chairman of the Board of
the Company. The patent, prior to issue, was assigned to Premier, a private
company jointly owned by Mr. Kelly and Harry Schmidt, a former director of the
Company, in January 1995 pursuant to the terms of an amendment ("the "Premier
Amendment") to the Manufacturing Requirements Agreement, between the Company and
Premier (the "Premier Agreement"). The Premier Amendment provides that the
patent for the Machine will be assigned one-half (1/2) to the Company upon
payment by the Company to Premier of one-half of the Machine's total development
cost. The Company and Premier have verbally agreed that the Company's share of
such development costs is $650,000 of which $100,000 has been paid to date.
Pursuant to the terms of the Premier Agreement, until such time as the Company
pays 50% of such amount ($325,000 of which $100,000 has been paid) with the
balance to be paid in 12 months, the Company's one-half ownership of the patent
will not be assigned. The Company has also filed for a patent pursuant to the
Patent Cooperation Treaty ("PCT") for the Machine in 57 foreign countries. Even
if the Company receives all patents applied for, there can be no assurances
given that third parties will not assert infringement claims against the Company
in the future or that others will not infringe upon such patent. The cost of
defending or commencing patent infringement litigation is expensive with no
assurances as to the outcome thereof. The Company also has a federally
registered trademark for its former name and logo, "Adelaide", and a federally
registered trademark for its current name and logo, "Tasty Fries," on the
Supplemental Register and has been marketing the Machine and its Products under
that name. See "SUMMARY OF THE OFFERING", "BUSINESS" and "CERTAIN TRANSACTIONS".
DEPENDENCE ON MANAGEMENT. The Company is wholly dependent upon the time, talent
and experience of Edward C. Kelly, its President and Chief Executive Officer,
who exercises control over the day-to-day affairs of the Company. The Company's
future success is materially dependent on the continued services of Mr. Kelly
and on its ability to attract, motivate and retain highly-qualified employees.
Mr. Kelly has an Employment Agreement, as amended, with the Company and
significant equity ownership of the Company. The loss of the services of Mr.
Kelly for any reason could have a material adverse effect on the Company. The
Company does not currently maintain key-man life insurance on Mr. Kelly or any
of its other employees. See "MANAGEMENT" and "PRINCIPAL SECURITYHOLDERS -
SECURITY OWNERSHIP OF MANAGEMENT".
ISSUANCE OF ADDITIONAL SHARES; REVERSE SPLIT OF COMMON STOCK; OUTSTANDING
OPTIONS, WARRANTS AND OTHER RIGHTS. Possible or actual sales of a substantial
number of Shares and Warrant Shares by the Selling Securityholders in the
offering could have a materially negative impact on the market price of the
Common Stock of the Company. All 4,229,408 Shares and 2,000,000 Warrant Shares
included in the Registration Statement of which this Prospectus is a part become
transferable upon its effectiveness. The availability of public trading for such
a substantial number of Shares may have a material adverse effect on the trading
prices of the Common Stock. See "SELLING SECURITYHOLDERS".
12
<PAGE>
Upon consummation of the Company's reverse split of its Common Stock on
a 1 for 20 basis effective on December 23, 1996, and the change of its
authorized common stock to 25,000,000 and its par value to $.001 per share
pursuant to an amendment to its Articles of Incorporation filed on December 18,
1996, all as approved by majority consent of its stockholders of record on
December 6, 1996, the Board of Directors has the power to issue these authorized
shares. The Company is presently committed to issue 702,500 shares upon the
exercise of certain outstanding options at various exercise prices ranging from
$2.00 to $5.00 per share, 27,000 shares upon the exercise of certain outstanding
warrants (other than the Warrants) exercisable at $2.00 per share and 2,000,000
Warrant Shares at the present time pursuant to the Stock Purchase Agreement
between the Company, Whetstone Ventures Corporation, Inc. and Edward C. Kelly,
President and Chief Executive Officer dated April 30, 1996 ( the "Stock Purchase
Agreement"). It has no other present commitments to issue any additional shares
to any other persons. The Company may, in the future, issue shares for services
or other corporate purposes as it has done in the past. Any additional share
issuances by the Company following the offering from its authorized but unissued
shares would have the effect of diluting the interest of investors in this
offering. See "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT" and
"DESCRIPTION OF SECURITIES - SHARES ELIGIBLE FOR FUTURE SALE."
COMPETITION. The Company faces competition from other suppliers of french fries,
including fast food outlets. The Company is aware of other companies which have
test marketed french fry vending machines or are in the process of developing
such machines. Certain of the companies which are viewed as competitors or which
may become competitors in the future, have more capital and greater resources
than the Company. Currently, the Company is aware of only one competitor which
is Ore-Ida, a major manufacturer and distributor of frozen potato products. The
Ore-Ida vending machine is not comparable to the Company's Machine for many
reasons, including that it only cooks frozen french fries as contrasted to the
Company's Machine which cooks only freshly made french fries. Management
believes, although no assurances are given, that due to current consumer demand
for french fried potatoes, it is anticipated that there will be strong
competition in the future in the area of french fry vending once technological
problems have been solved. See "BUSINESS - COMPETITION".
PREFERRED STOCK AUTHORIZED FOR ISSUANCE. After the termination of this offering
and regardless of the amount of securities which may be sold hereby, the Company
will have available for issuance up to 5,000,000 shares of preferred stock,
$.001 par value per share. The Company's directors are authorized to issue such
preferred stock in one or more series and to fix the voting powers and the
designations, preferences and relative participating, optional or other rights
and restrictions thereof. Accordingly, the Company may issue one or more series
of preferred stock in the future that will have preference over the Shares
offered hereby with respect to the payment of dividends and upon its
liquidation, dissolution or winding up or have voting or conversion rights which
could adversely affect the voting power and percentage ownership of the holders
of the preferred stock and Common Stock. See "DESCRIPTION OF SECURITIES -
PREFERRED STOCK".
13
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE. As of the date hereof, the Company had
4,700,025 shares of Common Stock issued and outstanding. Such shares of Common
Stock will become eligible for public sale at various times, subject to
compliance with an exemption from the registration requirements of the Act, such
as Rule 144 or Rule 144A or earlier registration under the Act. No predictions
can be made as to the effect, if any, that market sales of such shares or the
availability of such shares for sale or any shares which may be later issued
will have on the market price of the shares of Common Stock, which may prevail
from time to time. Sales of substantial amounts of shares of Common Stock in the
public market could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of equity securities. See "DESCRIPTION OF SECURITIES - SHARES ELIGIBLE FOR
FUTURE SALE".
NO DIVIDENDS. The Company has never paid any cash dividends on its Common Stock
and the Board of Directors does not anticipate paying cash dividends in the
foreseeable future. It currently intends to retain future earnings, if any, to
finance the growth of the business. See "DIVIDEND POLICY".
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
by the Selling Securityholders. The Company will receive proceeds from the
exercise of the Warrants, if any, or from the exercise of other outstanding
options and warrants, the underlying Shares of which, in some instances, are
being registered hereby, from time to time, in whole or in part, when so
exercised, if at all. Any proceeds received from the exercise of the Warrants
and such other outstanding options and warrants would be used primarily for
working capital. See "PROSPECTUS SUMMARY" and "SELLING SECURITYHOLDERS."
DIVIDEND POLICY
The Company has never paid a cash dividend on its Common Stock and does
not expect to pay a cash dividend in the foreseeable future. The Board of
Directors intends to retain all future earnings, if any, for use in the
Company's business. See "RISK FACTORS - NO DIVIDENDS".
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CAPITALIZATION
The following table sets forth the capitalization of the Company at
October 31, 1996, as adjusted to reflect the 1 for 20 reverse stock split
effective on December 23, 1996 and to reflect the exercise of 50% of the
Warrants and 100% of the Warrants. This table should be reviewed in conjunction
with the financial statements of the Company and the notes thereto included
elsewhere in this Prospectus. See "FINANCIAL STATEMENTS."
OCTOBER 31, 1996
----------------
ACTUAL AS ADJUSTED AS ADJUSTED
------ FOR REVERSE SPLIT FOR REVERSE SPLIT
AND EXERCISE OF AND EXERCISE OF
50% OF 100% OF
WARRANTS(1) WARRANTS(1)
----------- -----------
Stockholders' Equity:
Common Stock -
$.001 par value;
25,000,000 shares
authorized; 4,700,025 shares
issued and outstanding 4,700
5,700,025 shares outstanding
(50% of Warrants exercised) 5,700
6,700,025 shares outstanding
(100% of Warrants
exercised) 6,700
Additional Paid-in Capital 5,283,076 7,532,076 9,781,076
Retained Earnings (loss) (6,235,627) (6,235,627) (6,235,627)
TOTAL STOCKHOLDERS' (947,851) 1,302,149 3,552,149
EQUITY
TOTAL CAPITALIZATION (947,851) 1,302,149 3,552,149
(1) The Company will receive proceeds from the exercise of the Warrants and
from the exercise of other outstanding options and warrants, the
underlying Shares of which, in some instances, are being registered
hereby. See "SELLING SECURITYHOLDERS". The net proceeds from such
exercises, if any, to the extent not immediately necessary for working
capital purposes, may be temporarily invested in short-term obligations
of government or banks. Even if all Warrants and such other options and
warrants are exercised, the Company will still be required to seek and
obtain additional financing from conventional sources, such as banks,
or through the private sale of equity or debt securities. There can be
no assurance that the Company will be able to obtain such financing or
that such financing, if available, would be on terms and conditions
acceptable to the Company. If the Company were unable to obtain needed
funds, it could be forced to curtail or cease its activities. See "RISK
FACTORS - HISTORY OF SUBSTANTIAL LOSSES; NEED FOR ADDITIONAL
FINANCING".
15
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DILUTION
After giving effect to the 1 for 20 reverse stock split effective on
December 23, 1996, as of October 31, 1996, the Company had 4,700,025 shares of
Common Stock outstanding with a net tangible book value of approximately $.001
per share.
Assuming the exercise of all of the Warrants, giving effect to the
reverse stock split of 1 for 20, 1996, and assuming no other changes to the
Company's financial position, the net tangible book value of the Company would
be $3,552,149 or approximately $.53 per share. This represents an immediate
dilution of $1.72 per share to new investors and an immediate increase in the
net tangible book value of shares held by present stockholders of $.73 per
share. See "RISK FACTORS - ISSUANCE OF ADDITIONAL SHARES; REVERSE SPLIT OF
COMMON STOCK; OUTSTANDING OPTIONS, WARRANTS AND OTHER RIGHTS".
"Net tangible book value" is the amount that results from subtracting
total liabilities, deferred costs and intangible assets of the Company from its
total assets. "Dilution" is the difference between the public offering price and
the net tangible book value of the Shares immediately after the offering.
Additionally, dilution is calculated based on book value of the Company's
assets, which may not necessarily reflect the actual market value of such
assets.
The following table illustrates the per share dilution:
Assuming 50% of Warrants Assuming 100% of
Exercised(1) Warrants Exercised(1)
Public offering price per $2.25 $2.25
Share
Net tangible book value per ($.20) ($.20)
Share before Warrants
exercised
Increase per Share $.73 $.73
attributable to existing
stockholders
Net tangible book value per $.53 $.53
Share after Warrants
exercised
Dilution of net tangible ----- -----
book value per Share of
Warrants exercised
(1) There can be no assurances that any of the Warrants will be exercised.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
PLAN OF OPERATION
Since 1993 the Company has encountered significant delays in connection
with the production of its Machine which was initially caused by the necessity
to design, develop and test a totally new Machine commencing in late 1993. As a
result, the Company was unable to ship its Machine as originally anticipated by
the end of 1993 or as intended in 1994. The Company completed the initial
engineering development of the Machine during the last quarter of 1994 but
continued to experience delays in the final stages of development and testing
throughout 1995 and 1996, much of which resulted from a material lack of working
capital and the necessity to allocate a material amount of the limited capital
received from the private sales of equity and debt securities for litigation and
related expenses, including payments mandated to be paid to California Food &
Vending, Inc. ("CFV") by federal court order granting CFV's motion to assign
benefits granted on March 16, 1996 (the "Court Order"). See "BUSINESS -
LITIGATION."
The Company anticipated that it would complete the testing of the
Machine by September 1, 1995 based upon the expected delivery of the ten
pre-production Machines in late July 1995, but actual testing did not commence
until early December 1995 due to the delayed delivery of such pre-production
Machines by Premier Design, Ltd. ("Premier"). As a result of such testing,
certain modifications to and enhancements of the Machine were made. Further,
testing occurred on a more limited basis than initially expected due to the lack
of working capital discussed herein. Accordingly, no Machines were shipped to
distributors in the fiscal year ended January 31, 1996 although a demonstration
Machine was shipped to CFV in February 1996 pursuant to the Company's Settlement
Agreement with CFV. See "BUSINESS - LITIGATION." The Company expected to
commence commercial production of the Machine in September or October 1996,
although no assurances were given that this date would be met. Due to a lack of
working capital to complete the tooling of certain component parts of the
Machine for commercial production, this schedule has been delayed until the
second quarter of 1997. No assurances can be given that the Company will secure
the additional $350,000 to complete the tooling process to meet such timetable.
See "BUSINESS - DESIGN AND MANUFACTURING."
In connection with the development of the Machine, the Company paid
$75,000 toward the first $150,000 of development costs as provided in the
Premier Agreement. In April 1994, the Company advanced Premier $125,000 to be
applied to the aggregate cost of manufacturing ten pre-production Machines to be
placed in strategic locations for beta testing to gather data relating to, among
other things, the Machine's performance, marketing trends and customer
satisfaction. From May through July 1995, the Company paid Premier an aggregate
of an additional $250,000 ($35,000 for each of ten pre-production Machines less
the $125,000 paid in April 1994). The cost of these Machines was capitalized by
the Company for $246,600; however, the only revenue to be realized from the sale
of the ten pre-production Machines is $7,000 per Machine or $70,000 in the
aggregate. In July 1996, the Company paid Premier $100,000 toward the $650,000
owed to Premier for its one-half share of the Machine's development costs. The
remaining balance of $550,000 is still due and owed to Premier. See "BUSINESS -
DESIGN AND MANUFACTURING," and "FINANCIAL STATEMENTS".
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The ten pre-production Machines were placed at beta test sites located
at bowling alleys and corporate office centers in the greater Philadelphia area
and were monitored over a 90 day period by the Company. Testing of these
Machines was successful based upon customer acceptance and approval, taste,
price, convenience, Machine operation and the minimum down time experienced. The
testing enabled management to correct and improve the Machine in certain key
areas to enhance performance and operation. The Company's third party contractor
is in the process of tooling certain component parts of the Machine which will
then be assembled by S & H Electronics, Inc., a local Pennsylvania manufacturer
with whom the Company entered into a manufacturing agreement in June 1996
because of Premier's inability to manufacture the Machines under the terms of
the Premier Amendment. See "BUSINESS - DESIGN AND MANUFACTURING." As previously
discussed, the tooling process has been delayed due to the unavailability of
working capital to complete same. Once tooling may be completed and the Company
is able to order Machines from the manufacturer for delivery to purchasers, the
Company will require payment from such purchasers on terms which management
believes will cover its cash payment requirements to the manufacturer so that
the Company will not be required to advance cash for Machines or build an
inventory, although no assurances are given that this will occur. If management
is incorrect, the Company will be required to advance cash to the manufacturer.
This will require the Company to raise additional funds. There can be no
assurances given that any funding, including that which may be required to be
advanced, will be available or if available, on terms satisfactory to the
Company.
In September 1996, the Company entered into a vendor agreement (the
"Vendor Agreement") with Forrest Financial Corp. (the "Leasing Company") to
provide lease financing to distributors and others who may wish to lease
Machines rather than purchase. Pursuant to the terms of the Vendor Agreement,
approximately $15,000,000 will be made available by the Leasing Company to
qualified lessees for such purpose. Management believes that the availability of
financing to lease the Machine to qualified lessees may attract more vending
machine companies and operators. To the extent that Machines are leased and
funded in this manner, the Company will no longer be required to provide initial
cash funding for production but rather will receive funding directly from the
Leasing Company. This should, although no assurances are given, enable the
Company to attain greater profit margins without incurring the attendant cost of
capital. See "BUSINESS - MARKETING THROUGH DISTRIBUTORSHIPS".
The Company presently estimates, based upon current distribution
agreements, that it will provide at a minimum up to approximately 2,600 Machines
to its existing and possible new distributors during the 12 months following
delivery of the first commercial production Machines. This number of Machines is
subject to the Company receiving adequate funding from purchasers of the
Machines, as to which no assurances are given. (See the discussion of leasing
above.) Further, although management previously anticipated that commercial
production would commence in September or October 1996, it now anticipates that
this will occur in the second quarter of 1997. No assurance can be given that
this revised timetable will be met, when such Machines will be shipped or the
number that will ultimately be shipped in the following 12 months. If a lesser
number of Machines is purchased or leased, the Company's financial condition and
operations will be materially and adversely effected. In addition, the Company
has developed its Potato Product for use in the Machine. Management estimates
that the cost to establish a manufacturing line to produce the Potato Product is
approximately $500,000. Due to the cost involved and the current availability of
certain other potato products comparable with the Company's Potato Product for
use in the Machine, the Company does not currently intend
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<PAGE>
to establish a manufacturing line at this time, Rather, the Company has been
seeking other available potato products and believes it has located and secured
the same from unaffiliated sources.
The Company has expanded its distributor base during the past year
which currently includes several foreign countries (see below), has reacquired
one distributorship for Common Stock and an option and is negotiating the
reacquisition of another. Management continues discussions with third parties,
who have seen the Machine in operation, for distributorships in South and
Central America, the Far East and the Middle East. To date, distribution
agreements for Brazil, Israel, Egypt and Jordan have been executed and there are
negotiations for other territories. The Company is presently negotiating with
individuals in Saudi Arabia for access to other Middle East territories. The
Company has, however, changed its marketing focus and anticipates, in most
instances, operating in other territories directly rather than through
distributorships with third parties. See "BUSINESS - MARKETING THROUGH
DISTRIBUTORSHIPS." No assurances are given, however, that the Company will
continue in this direction or that other distribution agreements or joint
venture agreements will not be entered into for other territories.
It is management's intention to work closely with its distributors as
they take delivery and install and maintain the Machines. This working
relationship has been repeatedly postponed due to the persistent delays in
testing and developing a totally new Machine and the lack of working capital to
fund commercial production. Further, the Company's financial condition may be
materially and adversely effected if any current distributors breach their
respective distribution agreements and fail to accept delivery and pay for
Machines as required by such agreements. As of this date management believes
that approximately one-half of its distributors are in breach of their
agreements due to non-payment of distribution fees. Management intends to
formally notify these defaulting distributors, to the extent not previously
notified, that they have forfeited their distribution rights for such
non-payment. Notwithstanding the foregoing, management believes that there may
be other channels to distribute the Machine and related Products of the Company,
including joint venture agreements, which could be as effective and profitable
as the existing distribution network is expected to be. Although Management is
in preliminary discussions for several joint venture agreements, there are no
definitive agreements entered into as of this time. No assurances can be given
that management will successfully negotiate any joint venture agreements or be
successful in marketing and developing this area. Management will continue to
seek the most efficient and profitable ways to market and distribute the
Machines and the Products. See "BUSINESS - MARKETING THROUGH DISTRIBUTORSHIPS."
As of December 1, 1996 the Company had a total of six (6) full-time
employees, including Leonard Klarich, who has served as Executive Vice President
and Secretary since June 1996, is a Company director and has previously provided
consulting services to the Company during the current fiscal year. Mr. Klarich,
experienced in operating larger companies than the Company, is responsible for
marketing, distribution and administrative matters which has enabled Mr. Kelly
to focus on tooling, production and assembly of the Machine and to seek
regulatory approvals and design enhancements. Although preliminary matters have
already been addressed for the necessary approvals, only commercial production
Machines can obtain final approval. See "BUSINESS - EMPLOYEES" AND "MANAGEMENT".
Additional employees are expected to be hired during the next 12 months if the
Company's proposed plan of operation is successful and there is sufficient cash
flow from operations, if any, which remains constant to support such additional
expense. There can be no assurances that additional employees will be
19
<PAGE>
hired or that there will be sufficient income generated from operations to fund
such additional expenses. If hired, such additional employees may include a food
technician, a chief operating officer with significant experience in the vending
machine business, a chief financial officer, and sales and marketing personnel.
At the present time, management is unable to estimate how many employees will be
needed during the next 12 months, if any.
Due to the continued and significant lack of working capital and the
restrictions on cash expenditures resulting from the CFV Court Order in the
first quarter of the current fiscal year, the Company had been unable to
finalize new and expansive marketing literature to assist it and its
distributors in marketing its Machines. Management believes that it has made
significant inroads in stabilizing its working capital deficiencies and severe
financial problems it has experienced in the past and that the Company will be
able to move forward with its marketing efforts. In this regard, the Company has
completed all marketing and warranty materials and the necessary technical
manuals relative to the operation of the Machine. Further, it has finalized its
training program and completed an instructional video for distributors and the
technicians who will service the Machine. Several technicians representing
distributors have already attended the Company's training program.
In the past, the Company had retained and may in the future retain
consultants with significant experience in marketing and advertising and in the
food vending business to assist the Company with its marketing efforts as well
as other related matters. On May 23, 1996 the Company entered into a consulting
agreement with LBI Group, Inc. ("LBI") to provide certain business consulting
services, including marketing, for a 12 month period, subject to prior
termination by either party upon at least 30 days prior notice. In consideration
thereof, the Company granted an option to employees of LBI involved in providing
such consulting services to the Company to purchase on a pro-rata basis an
aggregate of 4,000,000 (pre-split) shares of free-trading Common Stock at an
exercise price of $.05 per share. Such free-trading shares were issued by the
Company upon exercise of the option by these LBI employees for $200,000 in July
1996. In August 1996 the Company, by letter, terminated the agreement with LBI
for alleged non-performance. Prior thereto, the employees of LBI returned an
aggregate of 1,000,000 shares to the Company which were canceled and returned to
treasury. The Company has been negotiating with LBI for the return of additional
shares. No assurances are given that any additional shares will be returned or
what action, if any, the Company may take in connection therewith.
Since its inception, the Company has had virtually no revenues from
operations and has relied almost exclusively on stockholder loans, limited
distribution deposits and private securities transactions to raise working
capital to fund operations. At October 31, 1996 the Company had approximately
$27,500 in cash. Until the most recent investment of $1,250,000 in April and May
1996, as described below, funding had been substantially inadequate to allow the
Company to continue its plan of operation. Accordingly, the Company secured
additional funds through the sale of restricted Common Stock to the extent and
on the best terms possible in light of its adverse financial position (see
below). Despite the $1,250,000 investment, a significant amount of which was
used to pay CFV and related expenses, it is now necessary for the Company to
seek additional funding primarily for tooling expenses and commercial
production. No assurances can be given that the Company will be able to secure
adequate financing from any source to pursue its current plan of operation, to
meet its obligations or to commence commercial production or expand marketing
over the next 12 months. If the Company is unable
20
<PAGE>
to obtain needed funds, it could be forced to curtail or cease its activities.
See "RISK FACTORS" and "USE OF PROCEEDS".
In September 1995, the Company entered into an agreement with Acumen
Services, Ltd. an off-shore Abaco, Bahamas company ("Acumen"), to purchase an
aggregate of 21,500,000 shares of Common Stock of the Company for a purchase
price of no less than $.10 per share payable pursuant to the terms of a
Promissory Note from Acumen providing for payment of the purchase price on the
earlier to occur of (i) the date that commercial production of the Machine
commences or (ii) January 2, 1996. In late November 1995, when it was apparent
that the delayed beta testing was about to commence, management and Acumen
agreed to provide for payment of the purchase price to occur solely upon
commercial production of the Machine. The 21,500,000 shares were held in escrow
until October 1995 when the Company agreed to the transfer of 3,900,000 shares
from Acumen to its Trustee (an off-shore, non-U.S. person pursuant to Regulation
S) and subject to payment in full for all shares so transferred as agreed. The
Trustee and Acumen executed Regulation S representation letters and the Trustee
also executed a Guaranty and Indemnity in favor of the Company agreeing to
return the shares or pay for them upon the written request of the Company. In
January 1996 the Company agreed to the transfer of an additional 3,000,000
shares by Acumen to the Trustee in the same manner and new Regulation S
representation letters were executed by both parties and a Guaranty and
Indemnity relative to such shares was executed by the Trustee. During the last
quarter of the fiscal year ended January 31, 1996, Acumen transferred 2,000,000
of such shares to two non-U.S. persons in two separate off-shore transactions in
conformity with Regulation S. Such non-U.S. persons thereafter directly paid the
Company for these shares, in the aggregate amount of $100,000 (USD),
representing a decrease in the price to be paid by Acumen to $.05 per share,
based upon the then current market price of the Company's Common Stock. The
Company believes that approximately 1,000,000 shares of the 3,000,000 shares
transferred from Acumen to the Trustee were thereafter transferred to U.S.
citizens in violation of Regulation S. The balance of the shares issued to
Acumen were canceled and returned to the Company's treasury in late May 1996. A
written request for either the return of 3,900,000 shares transferred to the
Trustee or payment therefore was sent to the Trustee on May 30, 1996 but as of
the date hereof, the shares have not been returned or paid for. On June 26 the
Company instituted a lawsuit against the Trustee in the Circuit Court of the
Eleventh Judicial Circuit in and for Dade County, Florida alleging breach of the
Guaranty and Indemnity Agreement based upon the failure of the Trustee to return
the 3,900,000 shares plus interest and attorneys' fees. On September 4, 1996,
the Company obtained a Default against the Trustee. On October 28, 1996, the
Trustee filed a Motion to Vacate Default. On October 29, 1996, the Company filed
a Motion for Final Default Judgment. The pending Motions have not been set for
hearing before the Court.
On April 30, 1996 the Company entered into the Stock Purchase Agreement
with an accredited investor to purchase an aggregate of 25,000,000 shares of
restricted Common Stock at a purchase price of $.05 per share for aggregate
gross proceeds to the Company of $1,250,000 payable (i) $500,000 on April 30,
1996 for 10,000,000 shares and (ii) the balance of $750,000 payable on or before
May 30, 1996. An aggregate of $1,250,000 was paid to the Company on or before
May 31, 1996. The investor also received 250,000 post-split shares and
21
<PAGE>
will receive Warrants to purchase 1,449,750 shares. Although the Company entered
into the Stock Purchase Agreement with one investor, certain other individuals
provided a portion of the $1,250,000 used to fund such investor's purchase of
the Company's Common Stock. In addition, a portion of the 25,000,000 shares
issued to the investor were later transferred to the individuals who provided
such funds. As a result of requests by certain of these individuals who acquired
shares from the investor, the Company returned an aggregate of $225,000 to these
individuals in exchange for the shares of the Company's Common Stock held by
them. These funds were replaced by the purchase of an equivalent number of
shares of Common Stock by other investors for the same amount. The purchaser and
transferees of these shares of Common Stock are listed herein as Selling
Securityholders and their Shares and the Warrant Shares, once issued, among
others, are being registered for sale hereby. See "PRINCIPAL SECURITYHOLDERS"
and "SELLING SECURITYHOLDERS".
The Stock Purchase Agreement, among other things, also provides for (i)
the investor to receive 250,000 (post-split) shares of restricted Common Stock
in consideration for the investment after the reverse split is effective, (ii)
the appointment of a nominee to the Board of Directors, and (iii) the purchase
of up to an additional $1,000,000 in value of restricted Common Stock promptly
after a reverse stock split is approved by a majority of the Company's issued
and outstanding shares of voting stock. The number of post-split shares to be
purchased by the investor for the $1,000,000 shall be determined by dividing
$1,000,000 by the average of the bid and asked price of the Common Stock on
December 18, 1996, the effective date of the reverse split. Further, the Stock
Purchase Agreement provides that Edward C. Kelly, President of the Company,
shall be issued 1,500,000 post-split shares of Common Stock for past, present
and future services to the Company, exclusive of any salary, bonus or other
compensation in any form received or to be received by Mr. Kelly, based upon a
reverse split resulting in no greater than 6,000,000 shares of the Company's
Common Stock to be outstanding. All shares received by the investor and Mr.
Kelly will be restricted and will be registered in the Registration Statement of
which this Prospectus is a part, together with the shares underlying the
Warrants described below, to be filed with the Commission within 60 days from
the date of payment for all 25,000,000 shares. Both the investor (and its
transferees) and Mr. Kelly have agreed not to sell such shares for 60 days from
the effective date of the Registration Statement. The investor and Mr. Kelly
shall also receive Warrants to purchase the lesser of (i) 5,000,000 shares of
restricted Common Stock or (ii) such amount of shares to ensure that each of
them shall maintain ownership of no less than 25% of the issued and outstanding
Common Stock of the Company at any time for a period of three years from May 29,
1996 at an exercise price equal to the average of the bid and asked price per
share on the effective date of the reverse split. It was further agreed that the
Warrant Shares would also be registered. See "BUSINESS", "PRINCIPAL
SECURITYHOLDERS", "CERTAIN TRANSACTIONS" and "SELLING SECURITYHOLDERS".
On December 16, 1996, a majority of the issued and outstanding voting
securities of the Company, by written consent, approved a 1 for 20 reverse stock
split of the Company's Common Stock effective on December 23, 1996 and
authorized an amendment to the Company's Articles of Incorporation to change its
authorized common shares to 25,000,000 shares of
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<PAGE>
Common Stock and its par value to $.001 per share. The Amendment was filed with
the Nevada Secretary of State on December 18, 1996. See "DESCRIPTION OF
SECURITIES".
FORWARD-LOOKING STATEMENTS
When used in the Registration Statement of which this Prospectus is a
part and in future filings by the Company with the Commission, in the Company's
press releases or other public or stockholder communications, and in oral
statements made with the approval of an authorized executive officer, the words
or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties, including the Company's liquidity constraints,
potential increases in manufacturing costs and delays, pending litigation,
availability of raw materials, competition, demand for the Machine and Products
and delays in the distribution process that could cause actual results to differ
materially from those presently anticipated or projected. The Company wishes to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. The Company wishes to advise
readers that the factors listed above could affect the Company's financial
performance and could cause the actual results for future periods to differ
materially from any opinions or statements expressed with respect to future
periods in any current statements.
The Company does not undertake--and specifically declines any
obligation--to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.
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BUSINESS
GENERAL
The Company has developed its own patented french fries vending machine
(the "Machine") and the related proprietary potato powder mix for the production
of french fries in the Machine (the "Potato Product") for marketing on a
worldwide basis. The Company had previously received a federally registered
trademark for its former name and logo,"Adelaide". The Company has subsequently
federally registered its name and logo, "Tasty Fries", as a federal trademark on
the Supplemental Register and has been marketing the Machine and its Products
under that name. See "PATENTS AND PROPRIETARY RIGHTS" herein. The Company's
early plans were to principally market its Products through an exclusive
distributorship network which then current management believed would offer
uniform and consistent Products to consumers worldwide. In furtherance of this
plan, the Company sold distributorships for different markets throughout the
United States and foreign countries. In 1995, under current management, the
Company redirected its marketing focus by commencing to reacquire and negotiate
the reacquisition of certain distributorships. It may, however, on a more
limited basis, market and sell distributorships in certain locations to larger
distributors with significant experience in the vending business where it is not
deemed feasible by management to be operated directly by the Company. The
Machines are expected to be located in high traffic locations such as airports,
bus and train stations, universities, schools, military bases, theaters, work
areas and recreational venues.
The Company completed the final stages of beta testing of its Machines
in the last quarter of the fiscal year ended January 31, 1996 and has completed
certain modifications to and enhancements of the Machine based upon such tests.
Further, the development of the Potato Product has been completed. Management
originally anticipated that the beta site testing and development would be
completed and Machines would be delivered by the end of the 1994 calendar year
and then possibly by the end of the 1995 calendar year. This did not occur
because (i) of the unanticipated amount of additional time necessary to
completely design, develop and test a totally new Machine, (ii) the continuous
lack of working capital available to fund the testing of the Machine and its
commercial production, and (iii) the substantial time and funds necessary to
satisfy the arbitration award in favor of California Food & Vending, Inc.
("CFV"). See "LITIGATION" herein.
Further, beta site testing did not commence until early December 1995
which was longer than originally anticipated and therefore delayed even further
the commercial production of Machines. See "MARKETING THROUGH DISTRIBUTORSHIPS"
herein, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION - PLAN OF OPERATION" and "FINANCIAL STATEMENTS".
HISTORY
The Company, in 1991, acquired the exclusive United States license from
a California-based entity to manufacture and market a device for the vending of
fresh french fried potatoes.
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<PAGE>
Persons associated with the Company also filed a U.S. patent application in 1992
with respect to such a device which was assigned to the Company on October 9,
1992. Substantial testing and test-marketing of the device resulted in the
device failing to perform as anticipated and significant and numerous mechanical
and design imperfections were encountered. Then current management of the
Company decided to abandon the original device and retained the services of an
expert engineer through Premier, Edward C. Kelly, to design and develop a
completely new machine with totally different technology. At the time, Mr. Kelly
had no affiliation with the Company. Production of such a device did not proceed
as originally scheduled due to the unanticipated significant amount of time
needed to design, engineer and test the new Machine and the continual lack of
working capital to adequately fund the process. See "LITIGATION" herein,
"MANAGEMENT" and "FINANCIAL STATEMENTS."
DESIGN AND MANUFACTURING
In January 1993, the Company entered into the Premier Agreement with
Premier, a manufacturer based in Warminster, Pennsylvania which was formed by
Harry Schmidt and Edward C. Kelly, for the purpose of designing and
manufacturing a completely new french fries vending machine in a joint venture
with the Company. The President of Premier is Harry Schmidt who subsequently was
appointed to the Company's Board of Directors in May 1993 but did not stand for
re-election to the Board in September 1995. Edward C. Kelly, an owner of Premier
but not an officer or director of the Company at that time, was subsequently
appointed by the Company as Executive Vice President from January 1994 to June
1994, President and Treasurer in June 1994, and has been a member of its Board
of Directors since February 1994 and its Chairman since June 1996. See
"MANAGEMENT."
The Premier Agreement provided that the manufacturer, Premier, would
refine and manufacture the Machine which dispenses hot french fried potatoes;
however, due to the substantial design and engineering flaws in the original
licensed device, Premier, through Edward C. Kelly, in February 1993, recommended
that the Company abandon said device and undertake the design and engineering of
a totally new Machine. The Company and Premier then agreed to equally share the
first $150,000 of development costs, which such costs included design,
engineering and initial manufacturing costs projected over the initial 500
production machines or a lesser number as would be jointly determined by Premier
and the Company. Development costs, if any, in excess of $150,000 would be
advanced by Premier and reimbursed on the basis of $500 per Machine up to the
first 200 Machines produced or $100,000, whichever was less. The first 500
Machines were to be priced at a cost to the Company not to exceed $7,000 plus
$500 reimbursement for excess development costs, if any, with a goal of reducing
the cost of the Machine in the future as feasible. After the first 500 Machines,
the Premier Agreement required that the Company purchase the Machines from
Premier based on manufacturing cost plus 20%. The Premier Agreement could not be
terminated by either party so long as Premier provided the Machines as required
by the Company. Pursuant to the terms of the Premier Agreement, the first
initial production of Machines was to be delivered by June 15, 1993, but due to
the unanticipated amount of additional time necessary to completely design,
develop and test a totally new Machine, the Machines were not delivered as
planned. See
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"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION - PLAN OF OPERATION," "MANAGEMENT" and "CERTAIN TRANSACTIONS."
On December 30, 1994, the Company and Premier amended the Premier
Agreement (the "Premier Amendment") to provide that Premier supply the Company
with ten pre-production Machines to be used at beta test sites for testing by
Premier at a total cost of $35,000 per Machine for an aggregate purchase price
of $350,000 to be paid by the Company. This amount was to be offset by the
$125,000 advanced by the Company in April 1994 which amount was originally
intended to be for development costs. In addition, Premier agreed to field test
the Machines and, upon the Company receiving satisfactory results, agreed to
manufacture the Machines exclusively for the Company. The Premier Amendment
further provides, among other things, that (i) the first 500 Machines
manufactured for distributors after the pre-production Machines, will be sold to
the Company for $7,000 each, after which the price per Machine will be
manufacturer's cost plus 20%, (ii) delivery of the Machines will take place
within 180 days after receipt of a purchase order from the Company, (iii) any
foreign or U.S. patents issued on the Machine or any aspects thereof shall be
jointly owned by the Company and Premier upon delivery to the Company of an
audited accounting of development costs from Premier and tender by the Company
to Premier of 25% of such costs, with an additional 25% payable to Premier
within 12 months thereof, (iv) Premier and the Company will seek independent
bids on the manufacturing costs of the Machine from independent manufacturers,
and if the parties agree to the terms (a lower manufacturing cost), Premier will
purchase Machines from such manufacturer at the lower cost and be permitted to
add its 20% mark-up to such price, and (v) the Company cannot license any party
to manufacture the Machine without written consent from Premier.
The Company, through Mr. Kelly as inventor, in good faith assigned the
patent rights for the Machine to Premier solely in consideration for and
reliance upon Premier's specific representations in the Premier Amendment, with
the express understanding that Premier would immediately assign to the Company
its one-half interest in the patent upon delivery to the Company of the audited
accounting of development costs to be provided by Premier and payment by the
Company thereof in accordance with the terms of the Premier Amendment. Premier
did not provide the Company with an audited accounting as required by the
Premier Amendment but with a spread sheet of costs. Further, Premier did not
conduct the beta testing of the pre-production Machines as required by the
Premier Amendment and the Company incurred the additional costs of such testing.
Because no audited accounting of development costs was provided by Premier to
the Company as required, the Company retained its independent auditors to audit
the spreadsheet of development costs received from Premier. Based upon such
audit, the Company estimated that its share of the development costs was
approximately $417,500 after adjustment for certain charges which were applied
to the development costs by Premier but were unrelated to the development of the
Machine and other duplicative billing, but not including the beta testing costs.
After payment of $350,000 for the ten pre-production beta test Machines and
other payments made, the Company's independent auditors estimated that the
Company paid virtually all of its share of the development costs. Subsequently,
after several months of
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discussion with Premier, the Company and Premier verbally agreed that the
Company will pay an aggregate of $650,000 to Premier as its one-half share of
all development costs of which $100,000 has been paid to date. Premier will also
receive $250 per Machine manufactured by a third party. Management and the Board
of Directors agreed to these terms based upon the potentially prohibitive costs
to the Company resulting from protracted litigation (monetary and otherwise),
additional delays in the commercial production of the Machine and the agreement
of Premier to waive any rights it may have to manufacture the Machine. Upon
payment of an additional $225,000 to Premier (representing payment of an
aggregate of 50% of the Company's total share of development costs as required
by the Premier Amendment), Premier will assign a one-half interest in the patent
for the Machine to the Company in accordance with the terms of the Premier
Amendment. See "RISK FACTORS - PATENT PROTECTION AND PROPRIETARY RIGHTS" AND
"PATENTS AND PROPRIETARY RIGHTS" herein.
As commencement of commercial production is a Company priority and
Premier cannot manufacture the Machine pursuant to the terms of the Premier
Amendment, on June 17, 1996, the Company announced its intention to award the
manufacturing contract for the Machine to S&H Electronics of Robesonia,
Pennsylvania ("S&H"), an unaffiliated third party, and subsequently entered into
manufacturing agreement with S&H for such purpose. S&H is a contract
manufacturer which specializes in the assembly and testing of electro-mechanical
assemblies and equipment. The Company's central procurement station is expected
to be located within the manufacturing site with initial manufacturing
procedures to be supervised by Company personnel to insure strict compliance
with NAMA (as defined herein) and U.S. Food & Drug Administration (FDA)
regulations. The Company is also considering another overseas manufacturer with
an international reputation to manufacture Machines for the European, Middle
Eastern and Asian markets. No agreement has been reached and no assurances are
given that this will occur. See "RISK FACTORS - NO MANUFACTURING FACILITIES;
COMPLETION OF TOOLING".
Although the Premier Amendment provides for delivery of the
pre-production Machines within 180 days of a purchase order from the Company,
Premier agreed to use its best efforts to complete these pre-production Machines
on or before July 14, 1995 although no assurances were given. In connection
therewith, the Company and Premier entered into an Escrow Agreement through
which Premier was paid the balance of $175,000 for the ten pre-production
Machines (after deduction of the $50,000 down payment made on May 5, 1995), in
weekly increments of $17,500 over a ten week period ending July 14, 1995,
provided that Premier meet certain pre-production schedule benchmarks during
such time period. The pre-production Machines were not completed by Premier
within the intended time period and were not delivered to the Company until
mid-November 1995. As a result, beta testing did not begin until early December
1995 which further delayed the opportunity for the commercial production of the
Machine. See "CERTAIN TRANSACTIONS."
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THE MACHINE
The Machine is designed to produce quality fresh french fried potatoes
utilizing a unique method that automatically converts a specifically formulated
dehydrated Potato Product, with approximately an 18 month shelf life, into
rehydrated potato mix, delivers this mix into a proprietary forming and cooking
cycle, and finally into complete high-quality freshly made french fried
potatoes. The french fried potatoes are delivered to the consumer in a 10 ounce
cup of 32 french fries. This is accomplished from the dehydrated mix to a
completed order of quality fresh french fried potatoes in approximately 90
seconds. The utilization of a state-of-the-art combination of computer driven
mechanics makes this possible. Also attached to the bottom of the vended cup are
individually prepackaged portions of ketchup and salt. The attachment device
currently has a patent pending before the U.S. Patent and Trademark office. See
"PATENTS AND PROPRIETARY RIGHTS" herein.
The design of the Machine permits the use of a vegetable oil so that it
delivers a cholesterol-free product. Each vend contains french fries which are
crisp and golden. The quality of the product is consistently uniform in each
vend.
The Machine has the capacity to produce 500 vends before any refill is
required. The Machine is computer controlled and communicates with the consumer
from the time the money is deposited into it until the time the vended cup of
fresh french fried potatoes is delivered. The Machine can accept dollar bills,
coins or any combination thereof, depending on the vend charge, which can be
changed at anytime by simply reprogramming the dollar bill/coin component.
The Machine is equipped with up-to-date computer technology, thus
making it possible to continuously monitor all vending parts and report any
potential problems. The Machine can report to a central data base, if required,
to make this information available to the service company/refill operator. The
Machine monitors the amount of vends, and simultaneously provides cash reports.
The Machine requires a 220 volt electrical connection through a
standard 220 volt outlet and does not require any plumbing or water connections
or any refrigeration device.
MARKETING THROUGH DISTRIBUTORSHIPS
The Company had, until late 1995, exclusively marketed the Machines and
the Products through exclusive territorial distributorships. Although it has
continued to market on a very limited basis through distributorships, current
management has shifted its marketing focus to ultimately place primarily
Company-owned Machines in locations not covered by distributorship agreements
and re-acquire certain existing distributorships, although no assurances are
given that this marketing plan will be followed or not be revised in some
manner. In this regard, the Company entered into the Vendor Agreement with
Forrest Financial Corp. to provide lease financing to the Company's distributors
and others who may wish to lease Machines rather than
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purchase. The Vendor Agreement provides that up to approximately $15,000,000
will be available to qualified lessees for this purpose. Management anticipates,
but cannot assure, that new distributors, if any, will be larger and more
experienced distributors in the vending business with significant financial
resources.
Existing distributorship agreements vary from territory to territory,
but essentially require a non-refundable down payment and minimum annual
payments usually over a five to ten year period. Most distributors must also pay
$200 to $500 per Machine purchased as a credit toward the minimum annual
payments. Most distributorship agreements require a minimum number of Machines
to be purchased per year. The total price of the distributorship will vary
substantially based on the estimated market potential of the particular
territory which is usually based upon population and other relevant criteria.
Management has been reviewing its form of distributorship agreement and may
determine to revise the form to conform with its evolving marketing focus.
The Company has, to date, sold or granted 15 territorial
distributorships, one of which has been reacquired by the Company and some of
which have been terminated by the Company for breach of the terms of the
distributorship agreement. The distributor's obligations to make further
payments, after tendering the initial deposit required upon execution of the
distributorship agreement, are conditioned on the Company's ability to ship its
Machines and related Products.
The 15 territories are listed as follows:
MINIMUM
DEPOSIT YEARLY
TERRITORY TOTAL PRICE RECEIVED PURCHASE
--------------------------------------------------------------
1.(a) New Jersey $ 773,600 $ 35,000 200 machines
2.(b) DE, D.C., $ 750,000 $ 50,000 100 machines
MD & VA
3.(c) CT, ME, MA, $1,250,000 $ 30,000 100 machines
NH, NY, RI & VT
4.(d) Georgia $ 550,000 $ 5,000 150 machines
5. Texas $ 750,000 $ 25,000 200 machines
6.(e) Israel $ 200,000 $ 40,000 100 machines
7.(f) Canada $1,000,000 $ 50,000 200-325
machines
8. Pennsylvania $ 750,000 $ -0- 200 machines
9.(g) United Kingdom $1,000,000 $ 50,000 200-325
machines
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10. AR, AZ, CO $1,500,000 $ 65,000 300 machines
KS, LA, MI,
MN, MS, MO,
MT, NE, NV,
NM, ND, OK,
OR, UT, WA,
WI & WY
11. Austria, $1,550,000 $ 60,000 500 machines
Germany,
Switzerland,
Luxembourg,
Belgium,
Holland &
Lichenstein
12.(h) Bulgaria, $4,000,000 $175,000 400 machines
Czechoslovakia, (year one)
(former), Denmark,
Finland, France, 800 machines
Greece, Italy, (years 2-9)
Norway, Poland,
Portugal, Romania, 850 machines
Spain, Sweden, (year 10)
Turkey
13. Dade, Broward, $ 250,000 $1,000 down 150 machines
Monroe & Palm & $4,000 upon
Beach County, delivery of
Florida first machine
14. Brazil $ 250,000 $100,000 250 machines
15.(i) California - - -
- ----------
(a) Terminated for non-performance in December 1993.
(b) Assigned to a group which includes Harry Schmidt, a former director of
the Company and President of Premier. See "CERTAIN TRANSACTIONS."
(c) Terminated a prior September 1992 letter of intent for Maine, New
Hampshire and Vermont with an unrelated distributor and returned a
$10,000 deposit in January 1993.
(d) Deposit forfeited in September 1993 for non-performance.
(e) Deposit forfeited in August 1994 for non-performance and a new
distributor paid an aggregate deposit of $40,000 for this territory.
(f) Reacquired by the Company in September 1995 from Adelaide Vending
(Canada) Ltd. which is controlled by Jurgen A. Wolf, subsequently
elected a director of the Company by the shareholders at their annual
meeting on September 18, 1995, for the original price of approximately
$100,000 including costs and expenses paid, for 1,000,000 shares of
Common Stock of the Company and an option to purchase an additional
1,000,000 shares for two years at a $.25 (USD) per share, all pursuant
to Regulation S. See
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"MANAGEMENT", "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF
MANAGEMENT", and "SELLING SECURITYHOLDERS".
(g) Terminated in April 1995 for non-payment of the full deposit. See
"MANAGEMENT", "SELLING SECURITYHOLDERS" and "FINANCIAL STATEMENTS".
(h) Granted to International Tasty Fries, Inc., a publicly traded Nevada
corporation. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION," "PRINCIPAL
SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT", "SELLING
SECURITYHOLDERS" and "FINANCIAL STATEMENTS".
(i) Granted to CFV by agreement and confirmed by the award of the
arbitrator and subsequent Court Order. See "LITIGATION" herein.
The exclusive territorial distributorship agreements generally have a
term of five to ten years, require the distributor to purchase all supplies for
the Machines directly from the Company, and set forth uniform standards of
operation. The agreements are transferable under certain conditions as uniformly
established in the agreement and require the prior approval of the Company for
sub-licensing and for sub-distributors. The majority of the agreements can be
terminated by 30 day written notice from the Company in the event of default. In
September 1993, December 1993, August 1994 and April 1995 the Company terminated
distribution rights for Georgia, New Jersey, Israel and the United Kingdom,
respectively, due to a failure to fulfill certain contractual obligations
pursuant to the terms of the distributorship agreements and the respective
deposits were forfeited. In September 1995 the Company repurchased the Canadian
distributorship from Adelaide Vending (Canada) Ltd. for the original purchase
price plus costs aggregating $100,000 (USD) for 1,000,000 shares of Common Stock
at its then current market value and an option to acquire 1,000,000 shares of
Common Stock for two years at $.25 (USD) per share, all pursuant to Regulation
S. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION - PLAN OF OPERATION", "PRINCIPAL SECURITYHOLDERS - SECURITY
OWNERSHIP OF MANAGEMENT" and "CERTAIN TRANSACTIONS."
COMPETITION
The Company faces competition from other suppliers of french fries,
including fast food outlets. The Company is aware of other companies which have
test marketed french fry vending machines or are in the process of developing
such machines. Certain of the companies which are viewed as competitors or which
may become competitors in the future, have more capital and greater resources
than the Company. Currently, the Company is aware of only one competitor which
is Ore-Ida, a major manufacturer and distributor of frozen potato products. The
Ore-Ida vending machine is not comparable to the Company's Machine for many
reasons, including that it only cooks frozen french fries as contrasted to the
Company's Machine which cooks only freshly made french fries.
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Management believes, although no assurances are given, that due to
current consumer demand for french fried potatoes, it is anticipated that there
will be strong competition in the future in the area of french fry vending once
technological problems have been solved. See "RISK FACTORS - COMPETITION".
AVAILABILITY OF RAW MATERIALS AND PRINCIPAL SUPPLIERS
The Machine was initially intended to be manufactured by Premier
pursuant to the Premier Agreement and the Amendment; however, Premier is not
able to manufacture the Machine at a competitive price or even the first 500
Machines at $7,000 as required by the Amendment. See "DESIGN AND MANUFACTURING"
herein. Certain individual components of the Machine are in the process of being
tooled from custom made molds owned by the Company and produced by independent
manufacturers or suppliers together with other parts including those which are
custom designed. Management believes there are several alternative sources of
supplies and manufacturers for such items and that the loss of any one supplier
would have no material adverse effect upon the Company, although no assurance
can be given. If substantial demand for the Machines develops then management
believes, although no assurance is given, that it has or can readily locate and
secure sources for subcontract manufacturing. See "RISK FACTORS - NO
MANUFACTURING FACILITIES; COMPLETION OF TOOLING".
Management believes that the Company's consumable Products used in the
dispensing of french fries are widely available from numerous suppliers. The
Company has located and secured one alternative source for the potatoes which
are compatible for use in the Machine from a major supplier and is aware of at
least one other supplier of potatoes that can be used in the Machine. Until the
Company determines to establish a manufacturing line to produce its Potato
Product, as to which no assurance is given, it will purchase potatoes from this
supplier. Management believes that other sources for the manufacture and/or
supply of potatoes are available, although no assurances can be given.
PATENTS AND PROPRIETARY RIGHTS
The Machines inventor, Edward C. Kelly, President and Chief Executive
Officer of the Company, was issued a patent by the U.S. Patent and Trademark
office in July 1996. That patent is assigned to Premier as required by the
Amendment in consideration for and with the express requirement, agreement and
understanding that upon payment by the Company of its proportionate share of the
Machine's audited development costs as required by the Amendment, the patent
will be jointly owned by the Company and Premier. See "DESIGN AND MANUFACTURING"
herein. The Company currently has applied for a patent for the attachment to the
bottom of the vend cup with the United States Patent and Trademark Office. In
addition, the Company is seeking patent protection in Japan and has received
patent protection in those countries which are parties to the Patent Cooperation
Treaty (PCT). It also has obtained a federally registered trademark on the
Supplemental Register for its name and logo, "Tasty Fries."
Management intends to seek patent, trademark and related legal
protection in the future where it deems the same to be beneficial. No assurances
can be given that the Company will ultimately receive a patent on the vend cup
attachment in the United States or elsewhere. In addition, such legal
protections and precautions do not prevent third party development of
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<PAGE>
competitive products or technologies. There can be no assurance; however, that
the legal precautions and other measures taken by the Company will be adequate
to prevent misappropriation of the Company's proprietary technology.
Notwithstanding the foregoing, the Company does not intend to be solely
dependent upon patent protection for any competitive advantage. The Company
expects to rely on its technological expertise and early entry into the
marketplace with respect to its Products. See "RISK FACTORS - PATENT PROTECTION
AND PROPRIETARY RIGHTS."
GOVERNMENTAL APPROVALS AND REGULATIONS
The Machine was designed and developed in consideration of applicable
governmental and industry rules and regulations. Management believes that the
Machine complies with National Food Sanitation guidelines as well as
Underwriter's Laboratory ("U.L.") procedures. The Machine must receive U.L. and
National Food Standards (N.F.S.) approvals prior to sale and installation. The
Company has requested that the Machine be inspected and expects to have the
Machine inspected by various regulatory agencies during the production process
but prior to sale and installation. In this regard, management has forwarded to
U.L. a listing of all individually numbered parts used in the Machine. The
Company is also seeking certification from the National Automatic Merchandising
Association (NAMA). NAMA has previously informally inspected the Machine, the
result of which was the subsequent installation of a sanitation cycle.
Management has been advised that all certifications and approvals should be
applied for upon commercial production and would not issue until such time.
Management believes, although no assurance is given, that the required approvals
from U.L., NAMA and the various regulatory agencies are obtainable and is not
currently aware of anything that will delay the necessary approvals.
Management is not aware of and does not believe that there are any
specifically applicable compliance requirements under state or federal
environmental or related laws relating to the manufacture and operation of the
Machine.
LITIGATION
In March 1993, CFV filed a suit against the Company, its then-serving
management (not including Edward C. Kelly and Leonard J. Klarich or any other
current members of the Board of Directors) and others, in federal court in
California alleging: a) breach of contract, b) fraud, c) securities fraud, d)
constructive trust, and seeking an accounting and declaratory relief. CFV sought
to prove its damages at trial, obtain an accounting and a declaration that it
was entitled to all inventions, processes and improvements relating to any
french fry machine developed by the Company. The lawsuit was stayed on July 6,
1993 pending the outcome of arbitration regarding the matter because the
original agreement among the parties provided that the exclusive resolution of
disputes among the parties was to be determined by binding arbitration.
Arbitration of this matter took place in September 1994. On October 25, 1994 an
award (the "Award") was rendered against the Company in the aggregate amount of
$279,500 for domestic and international distribution fees owed to CFV pursuant
to a March 17, 1992 Memorandum of
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<PAGE>
Understanding (the "Memorandum") and a May 14, 1991 international joint venture
agreement between the Company and CFV (the "Joint Venture Agreement"), and an
additional $249,500 in compensatory damages, jointly and severally, as among the
Company and Edward Abramson and Martin Balan, two former officers and directors
of the Company. The award and compensatory damages totaling $529,000 were
recorded in the Company's financial statements as of October 31, 1994.
The Award also ordered (a) the enforcement of the terms of the
Memorandum and the Joint Venture Agreement which, generally, provided for the
payment by the Company of certain royalties, fees and profits to CFV in
connection with future sales by the Company of the Company's vending machines
and related products, and (b) the issuance by the Company to CFV of an option to
purchase 2,000,000 shares of the Company's restricted Common Stock at an
exercise price of $2.00 per share through March 17, 1997.
In connection with the foregoing, an award was also entered in favor of
the cross-claimant, Samuel Balan who is the brother of Martin Balan, one of the
former officers and directors of the Company. It requires, among other things,
that the Company issue Samuel Balan 1,000,000 shares of unrestricted Common
Stock. The financial statements do not reflect the issuance of these shares for
the fiscal year ended January 31, 1996. Such shares, with restriction, were
issued to him in June 1996. These previously issued 1,000,000 shares are
included for registration in the Registration Statement of which this Prospectus
is a part as further discussed below.
On December 23, 1994, a Supplemental Award of Arbitrator ("Supplemental
Award") was issued in connection with certain motions, oppositions, requests and
replies. In connection therewith, CFV was awarded (i) attorneys' fees of
$94,962.50 against the Company and (ii) costs of $29,896.43 against the Company
and Edward Abramson and Martin Balan, its two former officers and directors,
jointly and severally. In addition, the cross-claimant, Samuel Balan, was
awarded $4,099.34 for certain specific costs against the Company. The Company's
Request for Clarification Re Fraud Damages was reviewed by the Arbitrator and
denied.
In February 1995, the Company, through the efforts of Mr. Kelly,
President of the Company at the time, and CFV entered into a Settlement
Agreement which supersedes the Award and Supplemental Award. The Settlement
Agreement, which was subsequently amended on February 22, 1995 and February 23,
1995 (collectively the "Settlement Agreement"), provides, in pertinent part,
among other things that (i) the Company shall pay to CFV the sum of $25,000 on
or before February 28, 1995 and an additional $175,000 to be applied against the
Supplemental Award as partial payment for past due royalties (which was paid),
the balance payable over three (3) years commencing six (6) months after
February 1, 1995 and shall bear interest at 10% per annum. The payment of the
$175,000 originally due by March 10, 1995 was extended by agreement between the
Company and CFV to March 15, 1995 and was paid by the Company, (ii) a royalty to
CFV of $350 per machine for the first 500 Machines and thereafter a royalty
equal to 35% of the difference between the price paid to the manufacturer and/or
the wholesale price to the purchaser, domestic or international, of a minimum of
$350
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up to a maximum of $500 per Machine (the Award provides for $500 for every
Machine and a 50% joint venture interest); (iii) $.25 per pound of all Potato
Product sold, commercially used or distributed (the Award provides for 25%
profit of all domestically related sales and 50% of all internationally related
sales of all Products). CFV expressly waives any and all rights to profit
participation in any other ancillary products of the Company upon timely payment
of the royalty by the Company; (iv) CFV shall receive $2,000,000 payable from
domestic and international gross distribution fees and utilization fees received
by the Company as consideration for the reduction by CFV of its international
distribution fee rights from 50% to 25% which shall be payable to CFV by receipt
by CFV of 50% of all such fees until paid in full; and (v) an option to purchase
2,000,000 shares of the Company's restricted Common Stock at $.10 per share
exercisable for four (4) years from February 1, 1995.
The aggregate amount of $200,000 to be paid by the Company to CFV was
paid in February and March 1995 as agreed. An additional payment of $80,000 was
made in August 1995. The Company thereafter defaulted in the payment of
$84,745.75 due February 1, 1996. As a result, CFV filed a Motion for a Temporary
Protective Order ("TPO") in February 1996 in the Federal District Court for the
Central District of California seeking an injunction freezing certain assets of
the Company until such time as CFV's Motion for Assignment of Benefits could be
heard by the Court on March 18, 1996. The TPO was issued by the Court on
February 21, 1996 and the Motion for Assignment of Benefits was granted by the
Court ex parte on March 15, 1996 (the "Court Order"). The Court Order provided,
among other things, that the Company assign any monies it had in its possession
at such time or received from third parties for investment, royalties,
distribution fees or other sources be kept in a segregated account for the
benefit of CFV and paid to CFV until the entire sum due, including accrued
interest from August 1995 and attorney's fees incurred in connection with
enforcement of the judgment, were paid in full. During April and May 1996, the
Company paid CFV an aggregate of approximately $452,000 representing payment in
full of all such amounts due and in satisfaction of the Court Order. CFV has
agreed to file a Partial Satisfaction of Judgment with the appropriate tribunals
but has not done so as of the date hereof.
In connection with the award to Samuel Balan, on June 24, 1994, a
lawsuit was instituted against the Company and a shareholder of the Company in
Circuit Court for the 11th Judicial Circuit in and for Dade County, Florida by
Samuel Balan, brother of Martin Balan, the former Chairman of the Board of the
Company, alleging breach of contract, quantum meruit and seeking a declaratory
judgment for entitlement to 1,100,000 shares of the Company's Common Stock and
in excess of $300,000 for past due wages and expenses. This action was heard by
the arbitrator as part of the arbitration between the Company and CFV. An award
was entered in Mr. Balan's (cross-claimant's) favor. The Company paid the award
in May 1996 and issued to him 1,000,000 restricted shares of Common Stock in
June 1996. Such shares are included in the Registration Statement of which this
Prospectus is a part. Counsel to Mr. Balan filed a motion with the Federal
District Court for the Southern District of Florida on July 1, 1996 requesting
that the Court convert the award of stock into a cash award. The Motion was
heard on August 13, 1996 and on August 19, 1996, the Magistrate issued his
report recommending dismissal of the Motion (without prejudice) for lack of
jurisdiction. Mr. Balan filed a Motion
35
<PAGE>
to Show Cause in the Federal District Court for the Central District of
California and the Court has stated that it will issue an Order to Show Cause
Why the Company Should Not Be Held in Contempt for its alleged failure to abide
by the judgment. Mr. Balan alleges that the Company's alleged failure to issue
unrestricted Common Stock has caused him to suffer financial harm. The matter
has not yet been set for hearing by the Court. See "SELLING SECURITYHOLDERS".
On May 23, 1995, a lawsuit was instituted against the Company and Mr.
Gary Arzt, former President, Secretary and Chairman of the Board of the Company,
individually, by an alleged former agent of the Company in the Circuit Court in
the Ninth Judicial Circuit in and for Orange County, Florida alleging (i) breach
of contract, (ii) quantum meruit, (iii) breach of verbal contract, and (iv)
requesting an accounting and seeking damages in excess of $15,000 for alleged
commissions due on the sale of certain distributorships that he allegedly sold.
The Company's and Mr. Arzt's answer denying the allegations and affirmative
defenses to the complaint were filed on September 29, 1995. To date, preliminary
discovery has been exchanged but the matter has not been set for trial.
Management intends to vigorously defend this matter and believes, based upon the
allegations in the complaint, that it will ultimately prevail; however, no
assurances can be given at this time that this will be the result.
On January 15, 1996, a lawsuit was instituted in New Jersey against the
Company, Edward C. Kelly and Michelle Kramish Kain, individually, who is a
shareholder of the law firm of Kipnis Tescher Lippman Valinsky & Kain, counsel
to the Company, by a former consultant and current shareholder and his related
companies alleging among other things: 1) breach of contract, 2) fraudulent
inducement and misrepresentation and 3) violation of a New Jersey law relating
to consumer contracts. The action related to an agreement entered into by the
Company and to the individual plaintiff to file a registration statement with
the Commission in October 1995 to register certain securities of the plaintiff.
The Company and Kelly, through their independent counsel, answered the complaint
and filed separate defenses. Thereafter, they filed a Motion for Partial Summary
Judgment to dismiss the consumer fraud claims as a matter of law and sought
leave to amend the answer to assert counterclaims, both of which were granted on
May 20, 1996. Defendant Kain, through her counsel, answered the complaint by
general denial and filed a Motion to vacate the service of summons and complaint
and dismiss the complaint for lack of in personam jurisdiction. A hearing on the
Motion was heard on May 10, 1996 and the Court entered an order on May 20, 1996
dismissing the action against Ms. Kain for lack of personal jurisdiction. This
suit was settled in July 1996 and releases were executed. Pursuant to the
settlement agreement, the Company is registering hereby the plaintiff's shares
of the Company's Common Stock. See "SELLING SECURITYHOLDERS."
On August 28, 1996, the Company and Edward C. Kelly, its President,
Chief Executive Officer and Chairman of the Board were added as defendants to a
Second Amended Complaint in litigation pending in the Riverside County Branch of
the Superior Court of the State of California, between Prize Frize, Inc.,
William Bartfield and Larry Wirth, Plaintiffs, and Matrix (U.S.), Inc; Matrix,
Inc.; Peter Fisher; International Tasty Fries, Inc.; Fry Factor, Inc.; Edward
Trent; Xavier Castro; Marcellino Menendez; MXI, Inc.; Inter Trade Exchange Co.;
Baltkor International; Sanad Company; Michael Krakow; Andrei Lutikov; Griffin
Financial Management
36
<PAGE>
Corporation, Inc.; EZ Fries, Inc.; Samuel Hepburn; Dudley Muth; Richard O.
Wahlgren; Gene Fruhling; Eurofrize, Inc.; Laszlo Kovacs; Seek, Inc.; Fresh Fries
UK Ltd; Tega, S.A.; Tasty Fries, Inc; Premier Design, Ltd.; H&R Industries; and
Edward C. Kelly as defendants. The causes of action alleged against the Company
and Mr. Kelly include misappropriation of trade secrets, unfair competition,
conversion and conspiracy. The Second Amended Complaint sought damages against
the Company and Mr. Kelly in an unspecified amount for compensatory and punitive
damages, according to proof at trial. The Company has filed a Motion to Quash
for lack of personal jurisdiction over Mr. Kelly which is to be heard by the
Court on January 8, 1997. Counsel for the Company expects that a Third Amended
Complaint will be filed as a result of a Motion to Dismiss filed by other
defendants.
On September 25, 1996, a lawsuit was instituted by Mr. Arzt against the
Company in the Circuit Court of the 11th Judicial Circuit in and for Dade
County, Florida for breach of a promissory note and reimbursement of certain
alleged expenses incurred by Mr. Arzt as former Chairman of the Board of the
Company. Mr. Arzt is seeking approximately $64,000. The Company has filed a
Motion to Dismiss the complaint which is currently pending.
See "MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION - PLAN OF OPERATION" for information regarding the
Company's lawsuit against the Trustee of Acumen, which information regarding
this lawsuit is hereby incorporated by reference.
EMPLOYEES
As of December 1, 1996, the Company had six full-time employees located
at its executive office in Blue Bell, Pennsylvania including Edward C. Kelly,
President and Chief Executive Officer of the Company, Irene Kelly, his wife, who
manages the Company's executive office, and Leonard J. Klarich who serves as
Executive Vice President. Mr Klarich is also a director on the Company's Board
of Directors. The Company expects to hire additional new employees during the
next 12 months. Any other new employees would be hired upon commercial
production and delivery of Machines, as to which no assurances can be given at
this time. See "MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATION - PLAN OF OPERATION" and "MANAGEMENT."
None of the Company's employees are covered under a collective
bargaining agreement.
PROPERTIES
The Company owns no significant properties. Since June 1994 it has
leased executive office space at the premises located at 650 Sentry Parkway,
Suite One, Blue Bell, Pennsylvania 19422. The lease, renewed for an additional
24 months commencing in June 1995, is for 1,020 square feet at a monthly rental
of $1,650 plus additional base rent of $175. At the present time, management
believes that this office space is sufficient but may require additional space
if additional administrative personnel are hired during the next 12 months.
37
<PAGE>
In April 1996, the Company leased approximately 468 square feet of
working space and 400 square feet of storage space located at 320 Elm Avenue,
North Wales, Pennsylvania at $600 per month on a month to month basis for
technical support purposes and storage of Machines. The lease may be terminated
any time after January 1, 1997 on 60 days prior notice by the lessor and 30 days
prior notice by the Company.
MARKET FOR COMMON EQUITY
The Common Stock of the Company is quoted on the OTC Bulletin Board
owned by NASDAQ/Registered trademark/ Stock Market, Inc. under the symbol
"TFRY". The following table sets forth the highest and lowest bid prices for the
Common Stock for each calendar quarter during the last two years and subsequent
interim periods as reported by the National Quotation Bureau. The prices set
forth below represent interdealer quotations, without retail markup, markdown or
commission and may not be reflective of actual transactions.
FISCAL 1994 HIGH BID LOW BID
----------- -------- -------
First Quarter .66 .31
Second Quarter .50 .19
Third Quarter .41 .27
Fourth Quarter .28 .11
FISCAL 1995
First Quarter .44 .14
Second Quarter .21 .10
Third Quarter .21 .10
Fourth Quarter .17 .05
FISCAL 1996
First Quarter .52 .04
Second Quarter .41 .10
Third Quarter .27 .17
Fourth Quarter through December 18 .18 .11
38
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors of the Company will serve until the next annual
(or special in lieu of annual) meeting of shareholders at which directors are
elected and qualified. Names, age, period served and positions held with the
Company are as follows:
POSITIONS
NAME AGE WITH COMPANY
---- --- ------------
Edward C. Kelly 61 President, Chief Executive
Officer, Treasurer and
Chairman of the Board*
Leonard J. Klarich 61 Executive Vice President,
Secretary and Director**
Jurgen A. Wolf 61 Director**
Ian D. Lambert 51 Director
Kurt R. Ziemer 41 Director
- ------------------------------------------------------------------
* Mr. Gary J. Arzt was removed as Chairman of the Board of Directors on
June 1, 1996 by consent of two-thirds of the shares entitled to vote in
accordance with Nevada law and was removed as Secretary by the Board of
Directors on June 3, 1996. Mr. Kelly was appointed Chairman of the
Board by the Board of Directors on June 3, 1996. Mr. Kelly also serves
on the Executive Committee of the Board of Directors.
** Member of the Executive Committee of the Board of Directors. Mr.
Klarich was also appointed Secretary by the Board of Directors on
June 3, 1996.
EDWARD C. KELLY, Blue Bell, Pennsylvania. Mr. Kelly has been President
of the Company since June 10, 1994, and a director since April 1994. He was
appointed a member of the Executive Committee on September 18, 1995, and
Chairman of the Board of Directors after the removal of Mr. Arzt in June 1996.
From January 1994 until June 10, 1994 he was Executive Vice President of the
Company. Mr. Kelly was President and a Director of Mega Manufacturing Co., Inc.,
a private manufacturing company from 1980 to 1994. Mega Manufacturing filed for
bankruptcy under Chapter 7 of the U.S. Bankruptcy Code on November 19, 1993. Mr.
Kelly has been involved in the engineering and design of the Machine and is part
owner of Premier Design, Ltd. Mr. Kelly received a degree in Mechanical
Engineering from Penn State University and is a member of the American
Association of Professional Engineers and the American Federation of Engineers.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION - PLAN OF OPERATION", "BUSINESS - DESIGN AND MANUFACTURING," "CERTAIN
TRANSACTIONS", "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT"
and "SELLING SECURITYHOLDERS".
39
<PAGE>
LEONARD J. KLARICH, Knoxville, Tennessee. Since September 1995, Mr.
Klarich has been a director of the Company and also was a consultant to
management from March through May 1996. Mr. Klarich was retained as Executive
Vice President of the Company in June 1996 to assist in the day to day
operations of the Company, with specific emphasis on distribution networks,
distributors and marketing. He was also appointed Secretary in June 1996. Mr.
Klarich was Chairman of the Board of K & D, a high-tech graphic design company
located in Woodland Hills, California until early 1996. From 1976 to 1989 he
owned and operated Avecor, Inc., a color for plastics manufacturing company with
yearly sales in 1976 of $3,000,000. He sold Avecor in 1989 when its sales
exceeded $40,000,000. Prior thereto, he spent a number of years as a chief
operating officer of companies in need of turnaround due to financial concerns.
He received a Bachelor of Arts from Hofstra University in 1967 and a Masters
Degree in Marketing Research from the City College of New York. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION - PLAN OF OPERATION", "BUSINESS - EMPLOYEES" and PRINCIPAL
SECURITYHOLDERS - SECURITY OF OWNERSHIP OF MANAGEMENT".
JURGEN A. WOLF, Vancouver, British Columbia, Canada. Mr. Wolf has been
a director of the Company and a member of the Executive Committee of the Board
of Directors since September 18, 1995. Since 1983, he has been President of J.A.
Wolf Projects Ltd., a private Vancouver company engaged in commercial and
industrial contracting. He was a director of Yukon Spirit Mines and is a
director and the controlling stockholder of Adelaide Vending (Canada) Ltd., both
of which are and were distributors, respectively, of the Company's Machine. He
also was a co-distributor of the Machine in the United Kingdom but those rights
were terminated in April 1995 for non-payment of part of the distribution
deposit by his co-distributor. Mr. Wolf also serves on the Board of Directors as
a director of five (5) Canadian public companies, which include OJ Oil and Gas
Corporation, Gulfside Industries, Ltd., Shoreham Resources, Ltd., Zeus Oil and
Gas Corporation and Key Capital Group, Inc. See "BUSINESS - MARKETING THROUGH
DISTRIBUTORSHIPS", "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF
MANAGEMENT", and "CERTAIN TRANSACTIONS".
IAN D. LAMBERT, North Vancouver, British Columbia, Canada. Mr. Lambert
was appointed as a director of the Company in July 1995 and was re-elected to
the Board in September 1995. He is the President of International Tasty Fries,
Inc. ("ITF"), a major stockholder in the Company whose shares are being
registered hereby, and, until November 1996, was President of Yukon Spirit Mines
Ltd., both of which are affiliates of the other and each of which have
distributorship agreements with the Company for territories in North America and
Europe. Mr. Lambert has been involved with the financing and management of
numerous resource and industrial based public companies, both in Canada and the
U.S., since the early 1980's, and currently is on the Board of Directors of six
(6) publicly-traded companies of which only the Company is a reporting company.
Prior to that time, he was an Information Systems executive with MacMillan
Bloedel Ltd. and also the Manager, Systems Consulting for the Vancouver office
of Deloitte Haskins & Sells. Mr. Lambert received a Bachelor of Commerce and
Quantitative Analysis from the University of Saskatchewan in Canada in 1970. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION - PLAN OF OPERATION", "BUSINESS - MARKETING THROUGH DISTRIBUTORSHIPS",
"PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT" and "SELLING
SECURITYHOLDERS".
40
<PAGE>
KURT R. ZIEMER, New Holland, Pennsylvania. Mr. Ziemer was appointed to
the Board of Directors on October 4, 1996 as the board designee of Whetstone
Ventures Corporation, Inc. pursuant to the April 30, 1996 Stock Purchase
Agreement with the Company. Since 1989 he has owned and operated Ziemer
Buick-Pontiac-GMC Truck, Inc. located in New Holland, Pennsylvania. From 1977
until 1989, he served in several capacities for the auto dealership. Mr. Ziemer
graduated from Penn State University in 1977 with a business degree in marketing
and management. See "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF
MANAGEMENT" AND "SELLING SECURITYHOLDERS".
[THIS SPACE INTENTIONALLY LEFT BLANK]
41
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
NAME FISCAL OTHER ALL
AND YEAR ANNUAL RESTD. OTHER
PRINCIPAL ENDED COMPEN- STOCK LTIP COMPEN-
POSITION JANUARY 31 SALARY BONUS SATION AWARDS OPTIONS PAYOUTS SATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Edward C. 1996 (1) 0.00 0 None (1) None (1)
Kelly(3) 1995 (1) 0.00 0 None (1) None (1)
President 1994 (1) 0.00 0 None (1) None (1)
and Chief
Executive
Officer
<FN>
- -----------------------------
(1) Mr. Kelly has served as President and Treasurer of the Company since
June 10, 1994, a director since April 1994, Chairman of the Board since
June 3, 1996, and was Executive Vice President from January 1994 to
June 10, 1994. Mr. Kelly received $20,000 on February 1, 1994 for
services rendered to the Company since October 1993. He was granted an
option in April 1994 for 250,000 shares of restricted Common Stock
exercisable at $.50 per share which was subsequently rescinded on July
8, 1994 by the Board and granted an option for 1,000,000 shares of
restricted Common Stock exercisable at $.10 per share at any time until
March 15, 1997. Pursuant to the terms of his October 1, 1994 employment
agreement, Mr. Kelly received 960,000 shares of Common Stock issued
pursuant to a registration statement on Form S-8 filed with the
Commission in November 1994 for services rendered to the Company from
February 1994 to June 1994. For the fiscal year ended January 31, 1995,
Mr. Kelly received an aggregate of $49,000 in cash payments and Mr.
Kelly or his assigns received an aggregate of 75,000 shares of
restricted Common Stock in accordance with the terms of his employment
agreement. For the fiscal year ended January 31, 1996, Mr. Kelly
received an aggregate salary of $180,000, consisting of $160,000 in
cash and 2,184,127 shares of restricted Common Stock pursuant to the
terms of his employment agreement which was amended effective as of May
1, 1995 and provides (i) for salary of $20,000 per month of which
$10,000 accrues until the Company is financially able to pay the
accrued amount or Mr. Kelly elects to convert all or part of such
accrued amount into restricted Common Stock at a conversion price of
$.20 per share, (ii) an annual bonus or bonuses, if any, in an amount
to be determined by the Board of Directors in its sole discretion,
(iii) 2,000,000 shares of Common Stock as additional compensation for
all services provided to the Company from June 4, 1994 through April
30, 1995 to be registered on Form S-8. He received the 2,000,000 shares
of Common Stock issued pursuant to a registration statement on Form S-8
filed with the Commission on September 28, 1995 for services rendered
to the Company from June 4, 1994 through April 30, 1995. This table
does not include (i) $10,000 paid each month by H&R Industries, Inc.,
an affiliate of Premier pursuant to the Premier Agreement, from January
1994 through September 1995, which amount is included in the total
development costs of the Machine, (ii) accrued director compensation of
approximately $833.33 per month since September 1995, (iii) 1,500,000
post-reverse split shares and 550,250 Warrant Shares are to be issued
to Mr. Kelly upon exercise of the Warrant to be issued to Mr. Kelly
pursuant to the Stock Purchase Agreement with Whetstone Ventures
Corporation, Inc., all of which are being registered hereby, and (iv)
options granted to each of Messrs. Kelly, Klarich, Wolf and Lambert in
October 1996 by the Board of Directors for 50,000 post-reverse split
shares of restricted Common Stock exercisable for three years at $4.00
per share which are being registered hereby. See "BUSINESS - DESIGN AND
MANUFACTURING", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION," "MANAGEMENT",
"PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT" and
"CERTAIN TRANSACTIONS."
</FN>
</TABLE>
42
<PAGE>
OPTION GRANTS IN THE FISCAL YEAR ENDED JANUARY 31, 1996
There were no options granted in the fiscal year ended January 31, 1996
to any executive officer. See "EXECUTIVE COMPENSATION." Pursuant to the 1995
Stock Option Plan adopted by the Board of Directors on July 1, 1995 and approved
by the stockholders on September 18, 1995, non-employee directors receive
options under a formula set forth in such Stock Option Plan determined by
dividing the annual director's fee paid or accrued (accrued approximately
$2,500.00 on a pro rata basis from September 18, 1995 through December 15, 1995)
by the fair market value per share of Common Stock on the date of the grant
($.12 at December 15, 1995). Each of Messrs. Arzt, Klarich, Wolf and Lambert
received an option to purchase 20,833 pre-reverse split shares of Common Stock
under the 1995 Stock Option Plan at an exercise price of $.12 per share
(representing fair market value per share as of December 15, 1995), which
options expire December 15, 2005.
COMPENSATION OF DIRECTORS
The Directors were not entitled to compensation for their services
prior to September 18, 1995. At the Board of Directors meeting held on September
18, 1995, the Board voted to approve payment of annual directors' fees of
$10,000 per director plus reasonable expenses commencing as of such date.
Payments for the fiscal year ending January 31, 1996 were accrued on a pro rata
basis for the year and are being accrued for the fiscal year ending January 31,
1997. These accrued fees will be paid when the Company is financially able to do
so. All such accrued compensation for Messrs. Arzt (up to June 1996 when he was
removed from the Board), Kelly, Wolf, Lambert and Klarich has been included in
the audited financial statements for the fiscal year ended January 31, 1996. See
"OPTION GRANTS IN THE FISCAL YEAR ENDED JANUARY 31, 1996" herein and "FINANCIAL
STATEMENTS".
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
On October 1, 1994 the Company entered into an employment agreement
with Edward C. Kelly, its then President and Treasurer. The employment agreement
was for a three year term commencing retroactively to October 1, 1993 (the date
on which Mr. Kelly began providing design, engineering and consulting services
to the Company) and was automatically renewable for additional one year terms
after expiration on September 30, 1996. Compensation was $10,000 per month
commencing on October 1, 1994, of which $4,000 was payable in cash and the
balance of $6,000 accrued until the Company was financially able to pay the
balance or Mr. Kelly converted the unpaid amount into restricted Common Stock at
a conversion price of $.20 per share. Mr. Kelly received additional compensation
of $10,000 per month paid by H&R Industries, Inc., a company owned by Harry
Schmidt, a former director of the Company, which such payments were included in
the development costs of the Machine. See "BUSINESS - DESIGN AND MANUFACTURING",
"EXECUTIVE COMPENSATION" and "CERTAIN TRANSACTIONS".
In addition, Mr. Kelly received 960,000 shares of Common Stock registered on a
Form S-8 registration statement filed with the Commission in November 1994 for
services provided to the Company from October 1, 1993 through February 28, 1994
and 2,000,000 shares of Common Stock registered on a Form S-8 registration
statement filed with the Commission on September
43
<PAGE>
28, 1995. The employment agreement was subsequently amended but effective as of
May 1, 1995 to provide the following changes: (i) salary of $20,000 (replacing
$10,000 per month no longer being paid by H&R Industries, Inc.) per month
payable $10,000 in cash with $10,000 accruing until the Company is financially
able to pay such amount or Mr. Kelly elects to convert all or any part of such
amount into restricted Common Stock based on a conversion ratio of $.20 per
share; (ii) an employment term until April 30, 2001; (iii) an annual bonus or
bonuses, if any, in an amount to be determined by the Board of Directors in its
sole discretion; (iv) 2,000,000 shares of Common Stock registered on a Form S-8
registration statement as additional compensation for all services provided by
Mr. Kelly to the Company from June 4, 1995 to April 30, 1995. All other terms
and conditions of the October 1, 1994 employment agreement remain in full force
and effect. The employment agreement, as amended, is automatically renewable for
additional one (1) year terms without any further action by the Company or Mr.
Kelly. The employment agreement, as amended, may be terminated by the Company
for certain enumerated causes or upon written notice of the Company to Mr. Kelly
60 days prior to the end of any term or renewal thereof. See "EXECUTIVE
COMPENSATION".
The Company has from time to time entered into consulting agreements
with outside consultants relating to different aspects of its business; however,
it did not enter into any such agreements with current or former employees,
officers or directors during the fiscal year ended January 31, 1996. Commencing
in March 1996, Leonard Klarich, a director of the Company since September 1995,
provided consulting services to the Company through May 31, 1996 and received as
compensation for such services in June 1996 an option for 1,000,000 shares of
Common Stock, immediately exercisable at an exercise price of $.05 per share for
an aggregate of $50,000 paid by Mr. Klarich to the Company in August 1996. The
option was exercised and the shares were registered in and issued pursuant to a
registration statement on Form S-8 filed with the Commission in July 1996. See
"PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT".
44
<PAGE>
PRINCIPAL SECURITYHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of December 6, 1996, the ownership
of Common Stock by persons known to the Company who own beneficially more than
5% of the outstanding shares of Common Stock, as adjusted to give effect to the
1 for 20 reverse stock split effective on December 23, 1996:
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ---------------- -------------------- --------
International Tasty 515,000(1) 11.0%
Fries, Inc.
Suite 602
595 Howe Street
Vancouver, B.C. V6C 2T5(1)
Whetstone Ventures 2,050,750 32.0%
Corporation, Inc.
11 Waterfront Estates
Estates Drive
Lancaster, PA 17602(2)
- --------------------------------------
(1) All of these shares are shown of record as of December 6, 1996,
pursuant to the Company's stock transfer records, all of which are
being registered hereby.
(2) Includes (i) all 351,000 of the original 1,250,000 shares sold to
Whetstone Ventures Corporation, Inc., the balance of which were
transferred to others listed herein as Selling Securityholders, (ii)
250,000 additional post-reverse split shares, and (iii) 1,449,750
Warrant Shares underlying the Warrant to be issued to Whetstone
Ventures Corporation, Inc., all of which are being registered hereby.
Does not include 250,000 shares of Common Stock to be issued to
Whetstone Ventures Corporation, Inc. for consulting services pursuant
to its April 30, 1996 Agreement with the Company, and to receive an
additional 37,500 shares to be issued each year for five years
commencing upon the effective date of the Registration Statement
registering those securities described in the Stock Purchase Agreement.
45
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of December 6, 1996, the beneficial
Common Stock ownership of all directors, executive officers, and of all
directors and officers as group, as adjusted to give effect to the 1 for 20
reverse stock split effected on December 23, 1996:
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ---------------- -------------------- --------
Edward C. Kelly 1,807,950 28.7%
650 Sentry Parkway
Suite One
Blue Bell, PA 19472(1)
Jurgen A. Wolf 151,042 3.2%
1285 West Pender Street
Vancouver, B.C. Canada(2)
Leonard J. Klarich 51,042 1.1%
839 Claybrook Court
Knoxville, TN 37923(3)
Ian D. Lambert 601,042 12.8%
1220 Eastview Road
North Vancouver, B.C.
(Canada) V7J1L6(4)
Kurt R. Ziemer 50,000 1.1%
599 Valley View Drive
New Holland, PA 17557(5)
All Officers and Directors 2,661,984 46.9%
as a group (5 persons)
- ----------------------------------
(1) Includes (i) an option for 50,000 shares of restricted Common Stock
presently exercisable at $2.00 per share until March 15, 1997, (ii)
57,450 shares of Common Stock held by Irene Kelly, his wife, as to
which Mr. Kelly claims beneficial ownership, (iii) an option for 50,000
shares of Common Stock granted by the Board of Directors in October
1996 exercisable until October 1999 at for $4.00 per share, the shares
underlying which are being registered hereby; and (iv) 1,500,000
post-reverse split shares to be issued promptly after the effective
date of the reverse stock split of the outstanding Common Stock which
was approved by the stockholders pursuant to the terms of the April 30,
1996 Stock Purchase Agreement on December 16, 1996, as calculated in
accordance with Rule 13d-3. Does not include the 550,250 Warrant
Shares. The 1,500,000 Shares and the 550,250 Warrant Shares are being
registered hereby.
(2) Includes (i) an option to purchase 1,042 shares of Common Stock
exercisable at $2.40 per share until December 15, 2005, granted to each
non-employee director under the 1995 Stock Option Plan on December 15,
1995, (ii)
46
<PAGE>
an option to purchase 50,000 shares of Common Stock granted by the
Board of Directors in October 1996 exercisable at $4.00 per share until
October 1999, (iii) 50,000 shares of Common Stock issued to Adelaide
Vending (Canada) Ltd. for the reacquisition by the Company of the
Canadian distributorship and an option granted to Adelaide Vending for
50,000 shares of Common Stock exercisable at $5.00 per share until
September 1, 1997, all as calculated in accordance with Rule 13d-3. Mr.
Wolf is a director and the controlling stockholder of Adelaide Vending
(Canada), Ltd.. See "BUSINESS - MARKETING THROUGH DISTRIBUTORSHIPS",
"MANAGEMENT" and "SELLING SECURITYHOLDERS".
(3) Includes (i) an option to purchase 1,042 shares of Common Stock
exercisable at $2.40 per share until December 15, 2005, granted to each
non-employee director under the 1995 Stock Option Plan on December 15,
1995, and (ii) an option for 50,000 shares of Common Stock granted by
the Board of Directors in October 1996 exercisable for $4.00 per share
until October 1999, as calculated in accordance with Rule 13d-3, the
shares underlying which are being registered hereby.
(4) Includes (i) 515,000 shares issued to International Tasty Fries, Inc.
in 1995 for an aggregate of $800,000 including a $175,000 loan
converted into equity, (ii) an option to purchase 1,042 of Common Stock
exercisable at $2.40 per share until December 15, 2005 granted to each
non-employee director under the 1995 Stock Option Plan on December 15,
1995 and (iii) an option for 50,000 shares of Common Stock granted by
the Board of Directors in October 1996 exercisable at $4.00 per share
until October 1999, as calculated in accordance with Rule 13d-3, which
shares underlying such option are being registered hereby. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION - PLAN OF OPERATION", "MANAGEMENT", "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" HEREIN, AND "SELLING
SECURITYHOLDERS".
(5) These Shares are being registered hereby.
CERTAIN TRANSACTIONS
In April 1993, the Company issued a promissory note to Mr. Gary Arzt,
then President, Secretary and Chairman of the Board of the Company, for up to
$300,000 in funds which may be advanced to the Company. Such note was superseded
on October 31, 1993 by a new promissory note in the amount of $129,946.55 (the
"Note"). The Note, which bears interest at 8% per annum payable in quarterly
installments, was due on or before November 1, 1994. In April 1995, the Note was
partially repaid in the amount of $79,947. As of December 1, 1996 there is a
principal balance of $50,000 plus accrued interest of approximately $7,562
accruing at 8% per annum. The Note was extended,but required to be paid by the
Company, when funds became reasonably available to do so, by August 1, 1995. See
"FINANCIAL STATEMENTS". Mr. Arzt has filed a lawsuit against the Company for
payment of the Note and other alleged expenses. See "BUSINESS - LITIGATION".
In January 1993 the Company entered into the Premier Agreement which
was subsequently amended in December 1994. Premier is owned by Edward Kelly,
President, Chief Executive Officer and Chairman of the Board of Directors of the
Company, and Harry Schmidt, a former director of the Company.
At the time of the Premier Agreement, neither Mr. Kelly nor Mr. Schmidt
were affiliated with the Company. At the time of the Premier Amendment, Mr.
Kelly was President of the Company and both were serving on the Board of
Directors. See "RISK FACTORS - NO MANUFACTURING FACILITIES; COMPLETION OF
TOOLING, PATENT PROTECTION, AND PROPRIETARY
47
<PAGE>
RIGHTS", "BUSINESS - DESIGN AND MANUFACTURING", "MANAGEMENT", "EXECUTIVE
COMPENSATION", and "SELLING SECURITYHOLDERS".
In September 1995 the Company reacquired the Canadian distribution
rights from Adelaide Vending (Canada) Ltd. for 1,000,000 shares of Common Stock
(pre-split) and an option to purchase 1,000,000 (pre-split) shares of Common
Stock at $.25 (USD-pre-split) for two years. Mr. Wolf, a member of the Company's
Board of Directors since September 18, 1995, is a major stockholder of Adelaide
Vending (Canada) Ltd. See "PRINCIPAL SECURITYHOLDERS" and "SELLING
SECURITYHOLDERS".
In May 1995, the Company loaned Mr. Kelly $50,000 at 10% interest per
annum. As of December 1, 1996, Mr. Kelly owed the Company $50,000 plus accrued
interest of $7,917. This loan will be repaid in accordance with a payment plan
over the next 12 months commencing in December 1996.
In April 1996, the Company, Edward Kelly and Whetstone Ventures
Corporation, Inc. entered into the Stock Purchase Agreement. Pursuant to the
terms thereof, Mr. Kelly will receive a substantial number of Shares and Warrant
Shares to ensure his ownership of no less than 25% of the outstanding Common
Stock of the Company until May 1999. See "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF OPERATION", "PRINCIPAL
SECURITYHOLDERS" and "SELLING SECURITYHOLDERS".
48
<PAGE>
SELLING SECURITYHOLDERS
The following tables provide the names of and the number of Shares and
Warrant Shares offered for sale by each Selling Securityholder in the offering.
After giving effect to the 1 to 20 reverse stock split approved by the written
consent of the holders of a majority of the Company's outstanding Common Stock
effective on December 23, 1996. Since the Selling Securityholders may sell all,
some or none of their Shares or Warrant Shares, no estimate can be made of the
number or percentage of Shares or Warrant Shares that each Selling
Securityholder will own upon completion of the offering. Assuming that all of
the Shares and Warrant Shares offered hereby are sold, no Selling Securityholder
would own more than 1% of any outstanding class of stock unless otherwise
indicated. See "PRINCIPAL SECURITYHOLDERS."
The Shares offered by this Prospectus may be offered from time to time
by the Selling Securityholders named below. Unless otherwise noted, no Selling
Securityholder is an executive officer of the Company, or has had any material
relationship with the Company or any of its affiliates within the past three
years.
SHARES OWNED
SHARES AFTER OFFERING
OWNED BEFORE SHARES IF ALL SHARES
NAME OF SECURITYHOLDER OFFERING OFFERED HEREBY SOLD (*)
- ---------------------- -------- -------------- --------
Elizabeth A. Adams 500 500 *
Richard Adeelar 7,500 7,500 *
Daniel Amar 10,500 10,500 *
Michel Amar 7,000 7,000 *
Don Arons 1,000 1,000 *
Samuel Balan(1) 50,000 50,000 *
Donna Baron 5,000 5,000 *
Kuldep Bhargava 25,000 25,000 *
Richard J. Brown 2,500 2,500 *
Marilyn J. Butzer 500 500 *
Joseph Ceasar 10,500 10,500 *
Eric Cohen 13,000 13,000 *
Robert Crowder 50,000 50,000 *
Yaacov Cynamon 7,500 7,500 *
Stacey Zoto Desmond 1,250 1,250 *
Jerry Dodd 5,000 5,000 *
Audrey A. Doerr 12,500 12,500 *
Debra A. Doerr 12,500 12,500 *
Danny Figa 12,500 12,500 *
Gary Fowler 20,000 20,000 *
Richard Frank 500 500 *
49
<PAGE>
David Gold 5,000 5,000 *
David Greenberg 5,000 5,000 *
Charlie Gregor 1,500 1,500 *
Jonathan Gross 7,500 7,500 *
Anne Guarra 5,000 5,000 *
Daryl Hagler 25,000 25,000 *
Scott Hess 500 500 *
International Tasty Fries,
Inc.(2) 515,000 515,000 *
Iris Trading Develp 50,000 50,000 *
Diane Johnson 5,000 5,000 *
Tony Jones 8,824 8,824 *
Elliot Kahan 10,000 10,000 *
Clifford Katz 10,000 10,000 *
Ron Katz 50,000 50,000 *
Edward C. Kelly(3) 2,300,750 2,100,250 200,500
Leonard Klarich(4) 51,042 50,000 *
Albert Kofsky 5,000 5,000 *
Ian D. Lambert(2) 10,351,042 50,000 301,042
Eli Lavi 12,500 12,500 *
Yossef Lavi 12,500 12,500 *
Richard MacHenry, Jr. 7,500 7,500 *
Yechiel Meiteles 10,000 10,000 *
Daniel O'Connor &
Juliana O'Connor JTTEN 5,000 5,000 *
PMGM, Inc. 50,000 50,000 *
Robert Portman(5) 33,334 33,334 *
Angela Poto 2,500 2,500 *
David E. Ranalli 7,500 7,500 *
J.A. Rizzo 12,500 12,500 *
Francesca Roda 2,500 50,000 *
Francesca M J Roda &
Darrell La Dow JTTEN 2,500 2,500 *
Joseph F. Roda 112,500 112,500 *
Melina Roda 5,000 5,000 *
Penelope Roda 112,500 112,500 *
Saverio B. Roda 7,500 7,500 *
Vitorio Roda 5,000 5,000 *
Harry Schmidt(6) 20,000 20,000 *
Amos Shamama 4,500 4,500 *
Dominic Spadea 5,000 5,000 *
Vincent Spadea 2,500 2,500 *
Jim Speilman, Jr.(7) 12,500 12,500 *
Jim & Janet Speilman, JTTEN 12,500 12,500 *
Richard L. Stone 5,000 5,000 *
50
<PAGE>
Al Thierman 5,000 5,000 *
Larry Usner 1,500 1,500 *
Usis International Capital Corp. 75,000 75,000 *
J. Charles Walter, Jr. 1,500 1,500 *
Philip J V Watts 6,500 6,500 *
Whetstone Ventures Corp.(8) 2,300,750 2,300,750 *
Charles L. Whetstone(8) 20,000 20,000 *
Jurgen A. Wolf(9) 151,042 50,000 101,042
Martin G. Young 12,500 12,500 *
Lewis Ziegler 17,500 17,500 *
Kurt R. Ziemer(10) 50,000 50,000 *
Mildred Ziemer 1,500 1,500 *
Richard D. Ziemer 9,000 9,000 *
Jody L. Zoto 1,250 1,250 *
Louis Zoto 5,000 5,000 *
Thomas M. Zoto 3,750 3,750 *
- -------------------------------------------------------------
* Assumes (i) no sales are effected by the Selling Securityholders during
the offering period other than pursuant to this Registration Statement,
(ii) ownership of less than one percent, and (iii) for purposes of this
table, ownership with respect to a Securityholder does not include
shares beneficially owned but held by other persons. For such
information relating to directors and officers of the Company, see
"PRINCIPAL SECURITYHOLDERS."
(1) See "BUSINESS - LITIGATION".
(2) Ian D. Lambert, President of International Tasty Fries, Inc., is a
member of the Company's Board of Directors. The Shares listed for Mr.
Lambert are (i) 10,300,000 Shares owned by International Tasty Fries,
Inc. being registered hereby, of which Mr. Lambert is President, and
(ii) 50,000 shares of Common Stock issuable upon exercise of an Option
granted in October 1996 exercisable at $4.00 per share until October
1999, as calculated in accordance with Rules 13d-3. See "MANAGEMENT"
and "PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT".
(3) Mr. Kelly is the current President, Treasurer, Chief Executive Officer
and Chairman of the Board of the Company. The Shares being registered
hereby include (i) 1,500,000 post-reverse split shares issued to Mr.
Kelly and 550,250 Warrant Shares to be issued upon exercise of the
Warrant to be issued to Mr. Kelly, all pursuant to the Stock Purchase
Agreement between the Company and Whetstone Ventures Corporation, Inc.,
and (ii) 50,000 shares of Common Stock issuable upon exercise of an
option granted in October 1996 exercisable at $4.00 per share until
October 1999, as calculated in accordance with Rule 13d-3. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION - PLAN OF OPERATION", "BUSINESS", "MANAGEMENT" and
"PRINCIPAL SECURITYHOLDERS - SECURITY OWNERSHIP OF MANAGEMENT".
(4) Includes 50,000 shares of Common Stock issuable upon exercise of an
option granted in October 1996 at $4.00 per share until October 1999,
as calculated in accordance with Rule 13d-3.
(5) These Shares were issued for marketing consulting services provided by
C&M Advertising, Inc. of which Mr. Portman, the spouse of the listed
Securityholder, is president and has voting and dispositive power over
such Shares. See "BUSINESS - LITIGATION".
51
<PAGE>
(6) Mr. Schmidt is a former director of the Company who did not stand for
reelection in September 1995. He is the President and part owner of
Premier together with Mr. Kelly. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION - PLAN OF
OPERATION," "BUSINESS - DESIGN AND MANUFACTURING" and "CERTAIN
TRANSACTIONS".
(7) Mr. Speilman is an employee of the Company.
(8) Includes (i) 351,000 Shares owned by Whetstone Ventures Corporation,
Inc., (ii) 250,000 post-reverse split shares to be issued to Whetstone
Ventures Corporation, Inc., (iii) 250,000 Shares issuable pursuant to
an agreement with the Company dated April 30, 1996 to provide
consulting services, and (iv) 1,449,720 Warrant Shares to be issued
upon exercise of the Warrant to be issued to Whetstone Ventures
Corporation, Inc., all pursuant to the terms of the Stock Purchase
Agreement between the Company and Whetstone Ventures Corporation, Inc.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION - PLAN OF OPERATION", "BUSINESS" and "PRINCIPAL
SECURITYHOLDERS - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS".
(9) Includes (i) 50,000 shares of Common Stock listed in the name of
Adelaide Vending (Canada), Ltd. of which Mr. Wolf is a major
stockholder, (ii) 50,000 shares of Common Stock issuable upon exercise
of an option granted in October 1996 at $4.00 per share until October
1999, and (iii) 50,000 shares of Common Stock issuable upon exercise of
an option in the name of Adelaide Vending (Canada) Ltd., at $5.00 per
share until September 1, 1997, as calculated in accordance with Rule
13d-3.
(10) Mr. Ziemer is a director of the Company. See "MANAGEMENT".
52
<PAGE>
DESCRIPTION OF SECURITIES
THE COMPANY
The authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, $.001 par value, of which 4,700,025 shares are issued
and outstanding as of the date hereof. The Company has also authorized for
issuance 5,000,000 shares of preferred stock, $.001 par value (the "Preferred
Stock"), of which no shares are issued and outstanding as of the date hereof.
COMMON STOCK
Each outstanding share of Common Stock is fully paid and nonassessable.
Holders of the Common Stock are entitled to one vote per share on each matter
submitted to a vote at any meeting of stockholders or consent in lieu thereof
under Nevada General Corporation Law. The Common Stock does not carry any
cumulative voting rights and, therefore, a majority of the outstanding Common
Stock will be able to elect the entire Board of Directors and, if they do so,
minority stockholders would not be able to elect any members to the Board of
Directors.
The Common Stock is not subject to redemption and carries no
preemptive, subscription or conversion rights. In the event of liquidation of
the Company, the shares of Common Stock are entitled to share equally in
corporate assets after satisfaction of all liabilities. There are no outstanding
options, warrants or rights to purchase shares of the Company's Common Stock
other than as offered hereby and/or as referred to herein.
PREFERRED STOCK
There are no plans to issue any shares of Preferred Stock at the
present time. The relative rights, preferences, designations, rates, conditions,
privileges, limitations, dividend rates, conversion rights, preemptive rights
and terms of redemption, liquidation preferences and sinking terms thereof are
to be determined by the Board of Directors, without any further vote or action
by stockholders. The Board of Directors, without stockholder approval, may issue
Preferred Stock in such series as it determines, with dividend rights,
liquidation preferences or other rights that are superior to the rights of
holders of Common Stock. The issuance of one or more series of Preferred Stock
could adversely affect the voting power of the holders of the Common Stock and
could have the effect of discouraging or making more difficult any attempt by a
person or a group to attain control of the Company. See "RISK FACTORS -
PREFERRED STOCK AUTHORIZED FOR ISSUANCE".
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have 5,700,025 shares
of Common Stock outstanding if 50% of the Warrants are exercised and 6,700,025
shares of Common Stock outstanding if 100% of the Warrants are exercised without
giving effect to the possible exercise
53
<PAGE>
of other outstanding options or warrants disclosed in this Prospectus. The
2,000,000 Warrant Shares, issuable upon the exercise of the Warrants to be
issued, will be freely tradeable without restriction or further registration
under the Act.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has satisfied a two (2) year holding period may sell in ordinary
market transactions through a broker or with a market maker, within any three
(3) month period, a number of shares which does not exceed the greater of one
percent (1%) of the number of outstanding shares of Common Stock or the average
of the weekly trading volume of the Common Stock during the four (4) calendar
weeks prior to such sale. Sales under Rule 144 require the filing of Form 144
with the Commission. If the shares of Common Stock have been held for more than
three (3) years by a person who is not an affiliate, there is no limitation on
the manner of sale or the volume of shares that may be sold and no Form 144 is
required. An "affiliate" of the Company is any person who directly or indirectly
controls, is controlled by or is under common control with, the Company.
Affiliates of the Company may include its directors, executive officers and
persons, directly or indirectly owning 10% or more of the outstanding Common
Stock. No prediction can be made as to the effect, if any, that sales of shares
of Common Stock or the availability of such shares for sale will have on the
market prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market would
likely have a material adverse effect on prevailing market prices for the Common
Stock and could impair the Company's ability to raise capital through the sale
of its equity securities. See "RISK FACTORS - SHARES ELIGIBLE FOR FUTURE SALE"
and "PLAN OF DISTRIBUTION".
TRANSFER AGENT
The Company's transfer agent for the Common Stock is StockTrans, Inc.
located at 7 East Lancaster Avenue, Ardmore, Pennsylvania 19003-2318; telephone
number (610) 649-7300.
54
<PAGE>
PLAN OF DISTRIBUTION
The Shares and Warrant Shares offered hereby may be sold from time to
time by the Selling Securityholders on the OTC Bulletin Board on terms to be
determined at the times of such sales. The Selling Securityholders may also make
private sales directly or through a broker or brokers. Alternatively, the
Selling Securityholders may from time to time offer Shares and Warrant Shares
offered hereby to or through underwriters, dealers or agents, who may receive
consideration in the form of discounts and commissions. Such compensation, which
may be in excess of ordinary brokerage commissions, may be paid by the Selling
Securityholders and/or the purchasers of the Shares or Warrant Shares offered
hereby for whom such underwriters, dealers or agents may act. The Selling
Securityholders and any dealers or agents that participate in the distribution
of the Shares or Warrant Shares offered hereby may be deemed to be
"underwriters" as defined in the Act and any profits on the sale of such Shares
or Warrant Shares offered hereby by them may be deemed discounts and commissions
under the Act. The aggregate proceeds to the Selling Securityholders from sales
of the Shares or Warrant Shares offered by Selling Securityholders will be the
purchase price of such Shares or Warrant Shares less any broker's commissions.
To the extent required, the specific Shares or Warrant Shares to be
sold, the names of the Selling Securityholders, the respective purchase prices
and public offering prices, the names of any such agent, dealer or underwriter,
and any applicable commissions or discounts with respect to a particular offer
will be set forth in an accompanying Prospectus Supplement or, if appropriate, a
post-effective amendment to the Registration Statement of which this Prospectus
is a part.
In order to comply with the securities laws of certain states, if
applicable, the Shares and Warrant Shares offered hereby will be sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states Shares or Warrant Shares may not be sold unless they
have been registered or qualified for sale in the applicable state or an
exemption from the registration or qualification requirements is available and
is complied with.
Under applicable rules and regulations under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), any person engaged in the
distribution of the Shares or Warrant Shares offered hereby may not
simultaneously engage in market making activities with respect to the Shares or
Warrant Shares for a period of two business days prior to the commencement of
such distribution. In addition, and without limiting the foregoing, the Selling
Securityholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Rules
10b-2, 10b-6 and 10b-7, which provisions may limit the timing of purchases and
sales of Shares or Warrant Shares by the Selling Securityholders.
55
<PAGE>
The Company will pay substantially all the expenses incurred by the
Selling Securityholders and the Company incident to the offering and sale of the
Shares and Warrant Shares offered hereby to the public, but excluding any
underwriting discounts, commissions or transfer taxes. These offering expenses
are estimated to be approximately $64,000.
The Company has agreed to indemnify the Selling Securityholders against
certain liabilities, including liabilities under the Act.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Kipnis
Tescher Lippman Valinsky & Kain, Attorneys at Law, Fort Lauderdale, Florida.
EXPERTS
The financial statements of Tasty Fries, Inc. as of January 31, 1996
and 1995, and for each of the years in the two-year period ended January 31,
1996 have been included herein and in the Registration Statement in reliance
upon the report of Schiffman Hughes Brown, independent public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. The January 31, 1996 and 1995 financial statements of
Tasty Fries, Inc. included in this Prospectus have been certified by Schiffman
Hughes Brown, independent public accountants, upon the authority of said firm as
experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Act with respect
to the Shares and Warrant Shares offered hereby. This Prospectus, which
constitutes part of the Registration Statement, does not contain all the
information contained in the Registration Statement and the exhibits thereto on
file with Commission pursuant to the Act and the rules and regulations of the
Commission thereunder. For further information with respect to the Company and
the Shares and Warrant Shares offered hereby, reference is made to the
Registration Statement and such exhibits. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the company
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by reference to
the full text of such contract or document.
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports and other information
with the Commission. Such reports, other information and the Registration
Statement, including exhibits thereto, may be inspected and copied at the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's Regional Offices at 7 World Trade Center, 13th
Floor, New York, New York 10048, and Northwestern Atrium Center, 500 W. Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials can
be obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates.
56
<PAGE>
INDEX TO FINANCIAL STATEMENTS
For the years ended January 31, 1996 and 1995 Page
and for the period October 18, 1985 (inception) ----
to January 31, 1996
Report of Independent Auditors..................................F-1
Consolidated Balance Sheets.....................................F-2
Consolidated Statements of Operations...........................F-3
Statements of Changes in Stockholders' Equity...................F-4
Consolidated Statements of Cash Flows...........................F-5
Notes to Consolidated Financial Statements...............F-6 - F-10
For the three and nine months ended October 31, 1996 and 1995
Consolidated Balance Sheets....................................F-11
Consolidated Statements of Operations..........................F-12
Consolidated Statements of Cash Flows..........................F-13
Notes to Consolidated Financial Statements..............F-14 - F-16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Tasty Fries, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Tasty Fries,
Inc. (formerly Adelaide Holdings, Inc.) and Subsidiary (a development stage
company) as of January 31, 1996 and 1995, and the related consolidated
statements of operations, stockholder's equity (deficiency), and cash flows for
the years then ended and for the period from October 18, 1985 (inception) to
January 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tasty Fries, Inc. and
Subsidiary as of January 31, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended and from October 18, 1985
(inception) to January 31, 1996, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has incurred net losses since its inception and has experienced
liquidity problems. Unless the Company can continue to obtain financing from the
issuance of common stock and/or through loans, substantial doubt arises about
the Company's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
June 10, 1996
F-1
<PAGE>
TASTY FRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS AS OF JANUARY 31, 1996 AND 1995
ASSETS
1996 1995
---- ----
Current assets:
Cash $ 5,273 $ 305
Vending machines 70,000 200,000
Subscriptions receivable 2,092,000
Loan receivable, officer (Note 2) 50,000
---------- ----------
Total current assets 2,217,273 200,305
Property and equipment, net of
accumulated depreciation of
$16,834 in 1996 and $10,280 in 1995 30,515 28,765
---------- ----------
$2,247,788 $ 229,070
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Note payable (Note 3) $ 25,000 $ 50,000
Note payable, shareholder/officer (Note 4) 50,000 129,947
Accounts payable and accrued expenses 549,283 794,845
Unearned revenue (Note 5) 356,000 436,000
---------- ----------
Total current liabilities 980,283 1,410,792
---------- ----------
Commitments and contingencies (Note 7)
Stockholders' equity (deficiency):
Common stock, $.01 par value;
authorized 100,000,000 shares;
issued and outstanding 76,000,495
shares at January 31, 1996 and
31,226,993 at January 31, 1995 760,005 312,270
Additional paid-in capital 5,129,270 1,613,290
Deficit accumulated in development stage (4,621,770) (3,107,282)
---------- ----------
1,267,505 (1,181,722)
---------- ----------
$2,247,788 $ 229,070
========== ==========
See independent auditor's report and notes to financial statements
F-2
<PAGE>
TASTY FRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 31, 1996 AND 1995
AND FOR THE PERIOD OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 1996
CUMULATIVE
SINCE
INCEPTION 1996 1995
---------- ---- ----
Revenues $ 618 $ 618 $ 0
----------- ----------- -----------
Costs and expenses:
Machine and product development 759,104 402,615 47,400
Selling, general and administrative 3,822,585 1,086,033 1,426,638
----------- ----------- -----------
4,581,689 1,488,648 1,474,038
----------- ----------- -----------
Net loss before interest and
other income (4,581,071) (1,488,030) (1,474,038)
Other income (expense):
Other income 15,000 10,000
Interest expense (55,699) (26,458) (14,895)
----------- ----------- -----------
(40,699) (26,458) (4,895)
----------- ----------- -----------
Net loss $(4,621,770) $(1,514,488) $(1,478,933)
=========== =========== ===========
Net loss per share of common stock ($.06) ($.03) ($.05)
===== ===== =====
Weighted average shares outstanding 46,498,559 27,401,329
========== ==========
See independent auditor's report and notes to financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
TASTY FRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD FEBRUARY 1, 1993 TO JANUARY 31, 1996
PAID TOTAL
COMMON IN RETAINED STOCKHOLDER
STOCK CAPITAL EARNINGS EQUITY
-------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, February 1, 1993 $212,704 $ 450,796 $ (971,729) $ (308,229)
Issued 7,600,000 shares 76,000 464,000 540,000
Issued 220,000 shares for services 2,200 (2,200)
Redeemed 3,145,000 shares (31,450) 31,450
Net loss for the year ended
January 31, 1994 (656,620) (656,620)
-------- ---------- ----------- -----------
Balance, January 31, 1994 259,454 944,046 (1,628,349) (424,849)
Issued 3,129,999 shares 30,800 547,950 578,750
Issued 2,151,622 shares for services 22,016 121,294 143,310
Net loss for year ended
January 31, 1995 (1,478,933) (1,478,933)
-------- ---------- ----------- -----------
Balance, January 31, 1995 312,270 1,613,290 (3,107,282) (1,181,722)
Issued 36,415,000 shares 364,150 3,000,350 3,364,500
Issued 6,733,502 shares for services 67,335 381,880 449,215
Issued 625,000 shares for
loan conversion 6,250 43,750 50,000
Issued 1,000,000 shares for
repurchase of distributorship 10,000 90,000 100,000
Net loss for the year ended
January 31, 1996 (1,514,488) (1,514,488)
-------- ---------- ----------- -----------
Balance, January 31, 1996 $760,005 $5,129,270 $(4,621,770) $ 1,267,505
======== ========== =========== ===========
</TABLE>
See independent auditor's report and notes to financial statements
F-4
<PAGE>
TASTY FRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1996 AND 1995
AND FOR THE PERIOD OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 1996
CUMULATIVE
SINCE
INCEPTION 1996 1995
---------- ---- ----
Cash flows from operating activities:
Net loss $(4,621,770) $(1,514,488) $(1,478,933)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation 16,834 6,554 4,500
Subscriptions receivable (2,092,000) (2,092,000)
Other assets (70,000) 130,000 (125,000)
Accounts payable and accrued expenses 549,284 (245,562) 682,889
Unearned revenue 356,000 (80,000) 80,000
----------- ----------- -----------
Net cash used by operating activities (5,861,652) (3,795,496) (836,544)
----------- ----------- -----------
Net cash flows used in investing
activities:
Purchase of property and equipment (47,350) (8,304) (14,544)
----------- ----------- -----------
Cash flows from financing activities:
Issuance of common stock 5,184,250 3,564,500 578,750
Issuance of common stock for services 630,025 449,215 143,310
Conversion of note payable into
common stock 75,000 (50,000)
Loan receivable, officer (50,000) (50,000)
Note payable, current 25,000 (25,000)
Shareholder note 50,000 (79,947)
----------- ----------- -----------
Net cash provided by financing
activities 5,914,275 3,808,768 722,060
----------- ----------- -----------
Net increase (decrease) in cash 5,273 4,968 (129,028)
Cash, beginning balance 0 305 129,333
----------- ----------- -----------
Cash, ending balance $ 5,273 $ 5,273 $ 305
=========== =========== ===========
Supplemental disclosure of
cash flow information:
Cash paid for interest $ 35,351 $ 22,636 $ 11,620
=========== =========== ===========
Supplemental disclosure of non-cash
financing activities:
Issuance of common stock for
services $ 630,025 $ 449,215 $ 143,310
=========== =========== ===========
Issuance of common stock for
conversion of note payable $ 50,000 $ 50,000 $
=========== =========== ===========
See independent auditor's report and notes to financial statements
F-5
<PAGE>
TASTY FRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1996 AND 1995
1. Description of Business and Significant Accounting Policies:
On July 31, 1991 Metro Systems Inc., a Nevada Corporation, acquired 100%
of the outstanding stock of Adelaide Holdings, Inc., a Delaware
Corporation, for 13,500,000 shares of its common stock. The acquisition
has been accounted for as a recapitalization. Metro Systems Inc. had no
assets or liabilities at the time of the recapitalization and changed the
name of Metro Systems Inc. to Adelaide Holdings, Inc. Effective October
1, 1993 its name was changed to Tasty Fries, Inc.
The Company is a development stage company since it has not completed
designing, testing, and manufacturing its sole product, a vending machine
which will cook and dispense french fries. The Company has entered into a
manufacturing requirements agreement with a company which manufactures
and assembles a variety of high technology equipment. The Company has
received ten machines and it is anticipated that each machine can be sold
for approximately $7,000. The difference between the anticipated selling
price and the cost to obtain the machines has been charged to machine and
product development cost. The president of the manufacturing company is a
Director of Tasty Fries, Inc. and the president of Tasty Fries, Inc. owns
50% of the manufacturing company. From the corporation's date of
inception, October 18, 1985, to date it has engaged in various business
activities that were unprofitable. The Company had no revenues from
operations since inception and its ability to continue as a going concern
is dependent on the continuation of equity financing to fund the expenses
relating to successfully marketing the vending machine and resolving
existing litigation (Note 9).
All intercompany accounts and transactions have been eliminated.
2. Loan receivable, officer:
Represent monies borrowed from the Company by an officer in May, 1995.
The loan is due on demand, along with interest at 10% per annum.
3. Note Payable:
Represents a single unsecured note from a third party shareholder which
bears interest at the rate of 8% per annum. The note was due June 4, 1993
but has been extended indefinitely. The Company issued to the noteholder,
options for 400,000 shares of its common stock with an exercise price of
35 cents per share. The Company issued 180,000 and 90,000 shares of its
common stock on December 22, 1994 and May 4, 1995, respectively, to the
noteholder in addition to paying $30,600 on May 5, 1995.
See independent auditor's report and notes to financial statements
F-6
<PAGE>
TASTY FRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996 AND 1995
4. Note Payable, Shareholder/Officer:
The unsecured note from existing shareholder/officer of the Company which
bears interest at the rate of 8% per annum and is due and payable on
demand. The Company reduced this note with a payment of $79,947 on May 1,
1995 to $50,000.
5. Unearned Revenue:
This represents monies received for distribution rights of the vending
machines which the Company is still in the process of developing and
testing. During the year ended January 31, 1995, one distributor
forfeited its rights, and the Company recognized the $10,000 received
during 1994 as other income. The Company, on September 5, 1995, issued
1,000,000 shares of its common stock to repurchase the Canadian
distributorship rights which the Company has shown as unearned revenue in
the amount of $100,000.
6. Related Party Transactions:
The Company paid salary to Mr. Edward Kelly, the president and director,
during the fiscal year ending January 31, 1996 totaling $160,000. In
addition, the Company also issued an aggregate of 2,184,127 shares of
common stock to Mr. Edward Kelly representing salary payments in lieu of
cash compensation for services. During the year ending January 31, 1995,
the Company paid consulting fees to Mr. Edward Kelly of $49,000. The
Company also issued 960,000 and 500,000 shares of common stock to Mr.
Edward Kelly and Mr. Gary Arzt, respectively, for the services of Mr.
Edward Kelly prior to becoming president in June, 1994 and for the
services of Mr. Gary Arzt as president from September, 1992 to June,
1993. Mr. Gary Arzt was the Company's chairman of the board until June 1,
1996.
7. Commitments and Contingencies:
During the year ended January 31, 1996 and 1995, the Company paid $17,400
and $9,600, respectively, for rental of office space. The Company has
leased this office space at a monthly rental of $1,650 until May 31,
1997.
F-7
<PAGE>
TASTY FRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996 AND 1995
8. Issuance of Common Stock:
The total shares issued during the year ended January 31, 1996 was
44,773,502; 36,415,000 shares were sold in private placements by the
Company; 6,733,502 shares were issued in payment for advertising,
marketing, consulting and legal services; 625,000 shares were issued for
conversion of a $50,000 loan to common stock and 1,000,000 shares were
issued for the repurchase of the Canadian distributorship (see Note 5).
The total shares issued during the year ended January 31, 1995 was
5,281,621 shares; 3,129,999 shares were sold in private placements by the
Company and 2,151,622 shares were issued in payment for advertising,
marketing, consulting and legal services.
9. Litigation:
Former officers of the Company caused the Company to guarantee a lease
for another corporation owned by them. The other corporation breached its
lease obligation and this action caused the landlord to assert a claim
against the Company as guarantor that it was due approximately $110,000.
In October, 1994 the Company, without admitting any liability, settled
the litigation by paying the landlord $76,000.
On October 25, 1994 the Company received a copy of the award of the
arbitrator in the American Arbitration Association matter of California
Food & Vending, Inc. (CFV) vs. Tasty Fries, Inc. et.al. An award was
rendered against the Company in the aggregate amount of $279,500 for
domestic and international distribution fees owed to the plaintiff and
$249,500 in compensatory damages. The award and compensatory damages
totaling $529,000 have been recorded in the financial statements as of
October 31, 1994. Payment pursuant to a settlement agreement which
supersedes the award began in February, 1995 and was satisfied in full in
May, 1996.
The arbitration award also ordered (a) the enforcement of the terms of
the Memorandum of Understanding dated March 17, 1992 and Joint Venture
Agreement dated May 14, 1991 which, generally, provide for the payment by
the Company of certain royalties, fees and profits to CFV in connection
with future sales of Company vending machines and related products, and
(b) the issuance of the Company to CFV of an option for the purchase of
2,000,000 shares of the Company's common stock at a exercise price of
$2.00 per share through March 17, 1997.
F-8
<PAGE>
TASTY FRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996 AND 1995
9. Litigation (continued):
In connection with the foregoing, an award was entered in favor of
cross-claimant, which requires, among other things, that the Company
issue 1,000,000 shares of unrestricted common stock to the
cross-claimant. The financial statements do not reflect the issuance of
these shares.
On January 5, 1995, the arbitrator in the case of California Food and
Vending, Inc. (CFV) vs. the Company awarded CFV and cross-claimant legal
fees amounting to $94,963 and $4,099, respectively. The total of $99,062
is recorded in the financial statements as of January 31, 1995. Payment
pursuant to a settlement agreement which supersedes the award began in
February, 1995 and was satisfied in full in May, 1996.
On March 15, 1996, the Federal District Court for the Central District of
California issued a Temporary Protective Order (TPO) against the Company
since the Company defaulted on their February, 1996 installment payment
to CFV. The TPO provided that any monies received by the Company
currently were to be paid to CFV until all monies due CFV were paid in
full. The Company satisfied, in full, the CFV judgment in April and May,
1996 and rendered the TPO void.
The Company is a defendant in several lawsuits arising from normal
business activities. Management has reviewed pending litigation with
legal counsel and believes that those actions are without merit or that
the ultimate liability, if any, resulting from them will not materially
affect the Company's financial position.
10. Subsequent Events:
In April, 1996 the Company borrowed $100,000 from a third party and
subsequently forwarded this money to CFV in partial satisfaction of the
TPO. These borrowed monies are intended to be repaid by the Company
during the fiscal year ending January 31, 1997 including interest at 10%
per annum.
On April 30, 1996, the Company received $500,000 in financing from an
investor, which enabled the Company to satisfy the CFV Temporary
Protective Order and will allow the Company to facilitate the production
of its vending machine. The second phase of financing of $750,000
occurred on May 31, 1996. In May, 1996, 10,000,000 shares of the
Company's restricted common stock was issued to the investor at $.05 per
share for the investment of $500,000. The Company issued an additional
15,000,000 shares of its restricted common stock at $.05 per share upon
receipt of $750,000.
F-9
<PAGE>
TASTY FRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1996 AND 1995
11. Common Stock Option Plan:
The Company adopted incentive and nonqualified stock option plans for
employees effective as of September 18, 1995. The plan also provides for
stock options to be issued to non-employee directors based upon a formula
set forth in the document. The incentive stock option plan is intended to
qualify under Section 422 of the Internal Revenue Code. Under the terms
of the plan, options to purchase common stock are granted at not less
than the estimated fair market value at the date of the grant and are
exercisable during specified future periods.
F-10
<PAGE>
TASTY FRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
ASSETS
OCTOBER 31, JANUARY 31,
1996 1996
----------- -----------
(Unaudited)
Current Assets:
Cash $ 27,747 $ 5,273
Machine 70,000 70,000
Subscription receivables 2,092,000
Loans receivable - officer 50,000 50,000
---------- ----------
Total current assets 147,747 2,217,273
Property and equipment, net 25,088 30,515
---------- ----------
$ 172,835 $2,247,788
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Note payable $ 25,000 $ 25,000
Note payable, shareholder/officer 50,000 50,000
Accounts payable and accrued expenses 669,686 549,283
Unearned revenue 376,000 356,000
---------- ----------
Total current liabilities 1,120,686 980,283
---------- ----------
Stockholders' Deficiency:
Common stock, $.01 par value; authorized
100,000,000 shares; issued and outstanding
93,963,594 shares at October 31, 1996 and
77,000,495 at January 31, 1996 939,636 770,005
Additional paid-in capital 4,348,140 5,119,270
Deficit accumulated in development stage (6,235,627) (4,621,770)
---------- ----------
(947,851) 1,267,505
---------- ----------
$ 172,835 $2,247,788
=========== ==========
See notes to consolidated financial statements
F-11
<PAGE>
<TABLE>
<CAPTION>
TASTY FRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(Unaudited)
Three Months Ended Nine Months Ended
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 0 $ 0 $ 0 $ 478
---------- ---------- ---------- -----------
Costs and expenses:
Machine and product development 17,385 7,384 22,113 587,006
Selling, general and administrative 314,025 364,068 771,579 1,020,925
---------- ---------- ---------- -----------
331,410 371,452 793,692 1,607,931
---------- ---------- ---------- -----------
Net loss before interest (331,410) (371,452) (793,692) (1,607,453)
Interest expense 1,621 1,910 25,197 6,404
---------- ---------- ---------- -----------
Net loss $ (333,031) $ (373,362) $ (818,889) $(1,613,857)
========== ========== ========== ===========
Net loss per share of common stock $(.01) $(.01) $(.01) $(.02)
===== ===== ===== =====
Weighted average shares outstanding 55,625,617 93,963,594 41,151,847 83,068,472
========== ========== ========== ===========
</TABLE>
See notes to consolidated financial statements
F-12
<PAGE>
<TABLE>
<CAPTION>
TASTY FRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(Unaudited)
Three Months Ended Nine Months Ended
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (333,031) $ (373,362) $ (818,889) $(1,613,857)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 1,580 1,809 4,740 5,427
Other assets (225,000)
Subscriptions receivable (2,150,000) 2,070,000 (2,150,000) 2,092,000
Unearned revenue (100,000) (80,000) 20,000
Accounts payable and accrued expenses (222,448) 74,902 (446,692) 120,404
----------- ----------- ----------- -----------
Net cash used by operating activities (2,803,899) 1,773,349 (3,715,841) 623,974
----------- ----------- ----------- -----------
Net cash flows used by investing
activities:
Purchase of property and equipment -0- -0- (5,604) -0-
----------- ----------- ----------- -----------
Cash flows from financing activities:
Issuance (cancellation) of common
stock 2,565,000 (2,045,000) 3,514,500 (676,500)
Issuance of common stock for services 246,960 421,714 75,000
Loan receivable, officer (50,000)
Loan conversion to stock (50,000)
Repayment of note payable (25,000)
Note payable shareholder/officer (79,947)
----------- ----------- ----------- -----------
Net cash provided by financing
activities 2,811,960 (2,045,000) 3,731,267 (601,500)
----------- ----------- ----------- -----------
Net increase (decrease) in cash 8,061 (271,651) 9,822 22,474
Cash, beginning balance 2,066 299,398 305 5,273
----------- ----------- ----------- -----------
Cash, ending balance $ 10,127 $ 27,747 $ 10,127 $ 27,747
=========== =========== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 360 $ 20 $ 22,636 $ 1,363
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-13
<PAGE>
TASTY FRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(Unaudited)
1. Basis of presentation:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions for Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the nine months ended October 31, 1996
are not necessarily indicative of the results that may be expected for
the year ended January 31, 1997. The unaudited consolidated financial
statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended January 31, 1996.
2. Description of Business and Significant Accounting Policies:
The Company is a development stage company since it has not completed
designing, testing, and manufacturing its sole product, a vending
machine which will cook and dispense french fries. The Company had
entered into a manufacturing requirements agreement with Premier
Design, Inc., a company which manufactures and assembles a variety of
high technology equipment. The Company has determined that Premier will
be unable to meet production requirements. The Company has determined
with Premier to pay them $650,000 in research and development costs
($100,000 paid July, 1996; $550,000 due as of October 31, 1996). In
exchange for 25% of research and development costs paid with the
remaining balance paid over twelve months, Premier will assign one-half
interest in the patent associated with the machine. This new agreement
was executed by the Company to avoid significant costs from potential
litigation proceedings and further delays in production of the machine.
The additional research and development costs are reflected in the nine
months loss figure. The President of the manufacturing company is a
former Director of Tasty Fries, Inc. and the President of Tasty Fries,
Inc. owns 50% of the manufacturing company. In June, 1996, the Company
entered into a new manufacturing agreement with S&H Electronics, Inc.
(a Pennsylvania corporation) to assemble the machines after the tooling
phase is completed. From the corporation's date of inception, October
18, 1985, to date it has engaged in various business activities that
were unprofitable. The Company has no revenues from operations, but
does have immaterial revenues from operation of beta test machines. Its
ability to continue as a going concern is dependent on the continuation
of equity financing to fund the expenses relating to successfully
marketing the vending machine and resolving existing litigation (Note
5).
All intercompany accounts and transactions have been eliminated.
F-14
<PAGE>
TASTY FRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(Unaudited)
3. Unearned Revenue:
In May 1996 the Company received payments totaling $20,000 for the
rights to distribute its machines in Israel, Egypt and Jordan.
4. Issuance of Common Stock:
There were no additional shares issued during the quarter ended October
31, 1996.
5. Litigation:
On October 25, 1994 the Company received a copy of the award of the
arbitrator in the American Arbitration Association matter of California
Food & Vending, Inc. (CFV) vs. Tasty Fries, Inc. et.al. An award was
rendered against the Company in the aggregate amount of $279,500 for
domestic and international distribution fees owed to the plaintiff and
$249,500 in compensatory damages. The award and compensatory damages
totaling $529,000 have been recorded in the financial statements as of
October 31, 1994. Payment pursuant to a settlement agreement which
supersedes the award began in February 1995 and was satisfied in full
in May, 1996.
The arbitration award also ordered (a) the enforcement of the terms of
the Memorandum of Understanding dated March 17, 1992 and Joint Venture
Agreement dated May 14, 1991 which, generally, provide for the payment
by the Company of certain royalties, fees and profits to CFV in
connection with future sales of Company vending machines and related
products, and (b) the issuance of the Company to CFV of an option for
the purchase of 2,000,000 shares of the Company's common stock at an
exercise price of $2.00 per share through March 17, 1997.
In connection with the foregoing, an award was entered in favor of
cross-claimant, which requires, among other things, that the Company
issue 1,000,000 shares of unrestricted common stock to him. The
financial statements reflect the issuance of these shares in June,
1996.
On January 5, 1995 the arbitrator in the case of California Food and
Vending, Inc. (CFV) vs. the Company awarded CFV and a cross-claimant
legal fees amounting to $94,963 and $4,099, respectively. The total of
$99,062 is recorded in the financial statements as of January 31, 1995.
Payment pursuant to a settlement agreement which supersedes the award
began in February, 1995 and was satisfied in full in May, 1996.
F-15
<PAGE>
TASTY FRIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 1996 AND 1995
(Unaudited)
5. Litigation (continued):
On March 15, 1996, the Federal District Court for the Central District
of California issued a temporary Protective Order (TPO) against the
Company since the Company defaulted on their February, 1996 installment
payment to CFV. The TPO provided that any monies received by the
Company currently were to be paid to CFV until all monies due CFV were
paid in full. The Company satisfied, in full, the CFV judgment in April
and May, 1996 and rendered the TPO void.
In September 1995, the Company entered into an agreement with Acumen
Services, Ltd. to purchase an aggregate of 21,500,000 shares of common
stock. These shares were issued by the Company, but held in escrow
until payment for the shares was received. 3,900,000 shares were
transferred to Acumen in January, 1996, but no money has been received
for these shares to date. On June 26, 1996, the Company instituted a
lawsuit against Acumen for breach of the Guaranty and Indemnity
Agreement and has demanded the return of the 3,900,000 shares or
payment therefore of $390,000 plus interest and attorneys' fees. The
cancellation of these shares has been recorded in the books of the
Company as of October 31, 1996.
The Company is a defendant in several lawsuits arising from normal
business activities. Management has reviewed pending litigation with
legal counsel and believes that those actions are without merit or that
the ultimate liability, if any, resulting from them will not materially
affect the Company's financial position.
F-16
<PAGE>
==============================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THE OFFERING BEING MADE HEREBY NOT CONTAINED
IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY.................................... 7
SELECTED FINANCIAL DATA............................... 9
RISK FACTORS.......................................... 10
USE OF PROCEEDS....................................... 14
DIVIDEND POLICY....................................... 14
CAPITALIZATION........................................ 15
DILUTION.............................................. 16
MANAGEMENT'S DISCUSSION AND ANALYSIS -
PLAN OF OPERATION................................... 17
BUSINESS.............................................. 24
LITIGATION............................................ 33
EMPLOYEES............................................. 37
PROPERTIES............................................ 37
MARKET FOR COMMON EQUITY.............................. 38
MANAGEMENT............................................ 39
EXECUTIVE COMPENSATION................................ 42
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.................... 45
CERTAIN TRANSACTIONS.................................. 47
SELLING SECURITYHOLDERS............................... 49
DESCRIPTION OF SECURITIES............................. 53
PLAN OF DISTRIBUTION.................................. 55
LEGAL MATTERS......................................... 56
EXPERTS............................................... 56
ADDITIONAL INFORMATION................................ 56
INDEX TO FINANCIAL STATEMENTS......................... F-1
UNTIL ___________, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
==============================
==============================
6,229,408 SHARES
TASTY FRIES, INC.
COMMON STOCK
==========
PROSPECTUS
==========
___________________, 1997
==============================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XVI of the Company's Articles of Incorporation, as amended,
provides that no director or officer shall be liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty by such
person as a director or officer. Notwithstanding the foregoing sentence, a
director or officer shall be liable to the extent provided by applicable law,
(i) for acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law, or (ii) for the payment of dividends in violation of
Section 78.300 of the Nevada General Corporation Law ("NRS"). The provisions
hereof shall not apply to or have any effect on the liability of any officer or
director of the Company for or with respect to any acts or omissions of such
person occurring prior to such amendment on July 29, 1991.
The NRS provide for indemnification where a person who was or is a
party or is threatened to be made a party to any threatened, pending or
contemplated action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than action by or in right of a corporation), by reason
of fact he is or was a Director, Officer, employee or agent of a corporation or
serving another corporation at the request of the corporation, against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement,
actually and reasonably incurred by him if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interest of
the corporation and, with respect to criminal action or proceeding, had no
reasonable cause to believe his conduct unlawful. Lack of good faith is not
presumed from settlement or nolo contendere plea. Indemnification of expenses
(including attorneys' fees) allowed in derivative actions except in the case of
misconduct in performance of duty to the corporation unless the Court decides
indemnification is proper. To the extent any such person succeeds on the merits
or otherwise, he shall be indemnified against expenses (including attorneys'
fees). Determination that the person to be indemnified met applicable standards
of conduct, if not made by the Court, is made by the Board of Directors by
majority vote of a quorum consisting of the Directors not party to such action,
suit or proceeding or, if a quorum is not obtainable or a disinterested quorum
so directs, by independent legal counsel or by the stockholders. Expenses may be
paid in advance upon receipt of undertakings to repay unless it shall ultimately
be determined that he is entitled to be indemnified by the corporation. The
Corporation may purchase indemnity insurance.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing provisions, or
otherwise, the Company has been informed that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the Act and is therefore unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC Filing Fee $ 235.96
---------
NASD Filing Fee $ 577.87
---------
Transfer Agent Fee* $ 750.00
---------
Printing Costs (including stock certificates)* $ 2,500.00
---------
Legal fees and expenses* $50,000.00
---------
Accounting fees and expenses* $10,000.00
---------
Blue Sky fees and expenses* $ 0.00
---------
TOTAL $64,063.83
=========
- -------------------------
* Indicates expenses that have been estimated for the purpose of this filing.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following securities were sold by the Company within the past three
(3) years and prior to the date of filing of this Registration Statement. There
were no underwriting discounts or commissions paid in connection with the
issuance of any of these securities. The following share amounts do not give
effect to the 1 for 20 reverse stock split effective December 18, 1996.
NAME SHARES SOLD AMOUNT OF DATE OF
---- ----------- CONSIDERATION SALE
CASH/OTHER ----
----------
Acumen Services, Ltd.(1) 21,500,000 (1) 9/5/95
Samuel Balan 1,000,000 Court Award 10/24/94
Bundy & Associates, Inc. 100,000 $35,000 7/19/94
Eric Cohen 180,000 Loan to Company 12/21/94
Eric Cohen 90,000 Loan to Company 5/4/95
Robert Crowder 1,000,000 $100,000 11/20/94
Warren Dean 133,333 $35,000 7/20/94
Echo Partnership 133,333 $35,000 7/18/94
G.D. Fader 133,333 $35,000 7/19/94
Peter R. Fader 250,000 $20,000 7/19/94
Chester A. Harberson 100,000 Loan to Company 2/7/95
Chester A. Harberson 625,000 $50,000 5/10/95
Chester A. Harberson 625,000 $50,000 8/8/95
II-2
<PAGE>
International Tasty Fries, Inc. 300,000 Loan to Company 3/16/95
International Tasty Fries, Inc. 10,000,000 Conversion of Loan 4/12/95
and $625,000
Tony Jones 176,470 Consulting Services 11/20/94
Dr. Albert Kofsky 100,000 $20,000 9/15/94
Daniel & Juliana O'Connor, 100,000 $87,500 9/6/94
JTWROS
Mickey Ogden(2) 1,000,000 $50,000 10/10/95
John L. Patten $100,000 $15,000 9/27/94
PMGN, Inc. 1,000,000 $100,000 10/3/95
Jennifer Portman 51,337 Consulting Services 9/30/94
Jennifer Portman 114,285 Consulting Services 10/31/94
T. Kent Rainey 133,000 $22,500 1/18/94
Morton J. Robinson & Jane 100,000 $35,000 4/26/94
Robinson, TE
Whetstone Ventures Corp., Inc. 10,000,000 $500,000 4/30/96
Whetstone Ventures Corp., Inc. 15,000,000 $750,000 5/31/96
Jurgen A. Wolf(2)(3) 1,000,000 Reacquisition of 9/5/96
Distributorship
Jody L. Zoto 25,000 $5,000 9/15/94
Louis Zoto 100,000 $20,000 9/15/94
Stacey Desmond Zoto 25,000 $5,000 9/15/94
Thomas M. Zoto 75,000 $15,000 9/25/94
- ---------------------------------------
(1) The consideration for these shares was a minimum of $.10 per share;
however, only 3,000,000 shares were sold. Of the balance, 14,600,000
were canceled in May 1996 and the balance of 3,900,000 are the subject
of ongoing litigation.
(2) Sold pursuant to Regulation S of the Securities Act of 1933, as
amended.
(3) Transferred to Adelaide Vending (Canada) Ltd. for reacquisition by the
Company of the Canadian distributorship. Mr. Wolf is a director of
Adelaide Vending and its majority stockholder.
Unless otherwise indicated, the sales set forth above are claimed to be
exempt from registration with the Securities and Exchange Commission pursuant to
Section 4(2) of the Securities Act of 1933, as amended, as transactions by an
issuer not involving any public offering, because (i) said transactions involved
the issuance and sale by the Company of securities to financially sophisticated
individuals who at the time of purchase were fully aware of the Company's
activities, as well as its business and financial condition, (ii) there was no
advertising for or general solicitation of investors, and (iii) when said
securities were acquired for investment
II-3
<PAGE>
purposes, investors understood the ramifications of same. All certificates
representing the shares issued by the Company as set forth herein, which are
currently outstanding, have been properly legended.
[THIS SPACE INTENTIONALLY LEFT BLANK]
II-4
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3.0 Articles of Incorporation, as amended***
3.1 Articles of Amendment to Articles of Incorporation of Tasty Fries, Inc.
dated December 16, 1996 changing the authorized common shares and the
par value*
3.2 By-Laws***
4.0 Specimen Common Stock Certificate***
4.1 Warrant Certificates Issued to Edward C. Kelly and Whetstone Ventures
Corporation, Inc.***
5.0 Opinion of Kipnis Tescher Lippman Valinsky & Kain as to the legality of
the securities being registered for sale***
10.0 Employment Agreement dated as of October 1, 1994 by and between
Tasty Fries, Inc. and Edward C. Kelly*
10.1 Amendment to Employment Agreement between Tasty Fries, Inc. and
Edward C. Kelly, effective as of May 1, 1995*
10.2 Forrest Financial Corporation Vendor Agreement dated November 20,
1996 with Tasty Fries, Inc.***
10.3 Manufacturing Agreement between Tasty Fries, Inc. and S&H Electronics,
Inc. dated August 22, 1996***
10.4 1995 Stock Option Plan*
10.5 Stock Purchase Agreement between Whetstone Ventures Corporation, Inc.
and Tasty Fries, Inc. dated April 30, 1996*
10.6 Agreement between the Company and Whetstone Ventures Corporation,
Inc. dated April 30, 1996***
23.0 Consent of Schiffman Hughes & Brown**
24.1 Consent of Kipnis Tescher Lippman Valinsky & Kain (included in Exhibit
5.0)***
27.0 Financial Data Schedule*
II-5
<PAGE>
<FN>
- -----------------------------------------
* Previously filed
** Filed herewith
*** To be filed by amendment
</FN>
</TABLE>
ITEM 28. UNDERTAKINGS.
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(a) To include any Prospectus required by
Section 10(a)(3) of the Securities Act of 1933, as amended (the "Act");
(b) To reflect in the Prospectus any facts or
events arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement; and
(c) To include any material information with
respect to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under
the Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) For purposes of determining any liability under the Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
Prospectus filed by the Company pursuant to Rule 424(b)(i) or (4) or 497(h)
under the Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(5) For the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Amendment No. 1
to the Registration Statement to be signed on its behalf by the undersigned in
the City of Blue Bell, State of Pennsylvania, on January 6, 1997.
TASTY FRIES, INC.
By /S/ EDWARD C. KELLY
--------------------------------
Edward C. Kelly, Chief Executive Officer
and Principal Financial Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement was signed by the following
persons in the capacities and on the dates stated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/EDWARD C. KELLY President, Chief January 6, 1997
- ---------------------------- Executive Officer,
Edward C. Kelly Treasurer, and
Chairman of the Board
/s/LEONARD J. KLARICH Executive Vice January 6, 1997
- ---------------------------- President, Secretary
Leonard J. Klarich and Director
/s/JURGEN A. WOLF Director January 6, 1997
- ----------------------------
Jurgen A. Wolf
/s/IAN LAMBERT Director January 6, 1997
- ----------------------------
Ian Lambert
/s/KURT R. ZIEMER Director January 6, 1997
- ----------------------------
Kurt R. Ziemer
II-7
ACCOUNTANTS' CONSENT
To the Shareholders and Board of Directors of
Tasty Fries, Inc.
We consent to the use of our Independent Auditor's Report dated June 10, 1996
and accompanying financial statements of Tasty Fries, Inc. for the year ended
January 31, 1996 and 1995. This Report will be included in the Form SB-2 which
is to be filed with the Securities and Exchange Commission for Tasty Fries, Inc.
SCHIFFMAN HUGHES BROWN
Certified Public Accountants
Blue Bell, Pennsylvania
January 6, 1997
