<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 2000.
REGISTRATION STATEMENT NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TASTY FRIES, INC.
(Name of Small Business Issuer in its Charter)
------------------------------
<TABLE>
<S> <C> <C>
NEVADA 2000 65-0259052
(State of Incorporation) (Primary Standard Industrial (IRS Employer
Classification Code Number) Identification No.)
</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:
MICHAEL BECKMAN, ESQ.
BECKMAN, MILLMAN & SANDERS, LLP
116 JOHN STREET
NEW YORK, NEW YORK 10038
(212) 406-4700
(212) 406-3750 (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. / /
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. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED MAX.
TITLE OF EACH CLASS MAXIMUM OFFERING AGGREGATE AMOUNT OF
OF SECURITIES AMOUNT TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) SECURITY PRICE(1) FEE
<S> <C> <C> <C> <C>
Common stock
$.001 par value....................... 6,470,000 $.35 $2,275,000 $601(2)
Total................................... $601
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(2) Fees previously paid.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TASTY FRIES, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS
--------------------------------- ---------------------
<S> <C> <C>
1. Front of registration statement and Facing Page of registration statement;
Outside Front Cover Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information and Risk Factors Prospectus Summary; Risk Factors; The
Company
4. Use of Proceeds Prospectus Summary; Use of Proceeds
5. Determination of offering Price Price Outside Front Cover Page; Use of Proceeds
6. Dilution Dilution
7. Selling Stockholders Selling securityholders and Plan of
Distribution
8. Plan of Distribution Outside Front Cover Page; Risk Factors;
Plan of Distribution; Concurrent offering
9. Legal Proceedings Business--Litigation
10. Directors, Executive Officers, Promoters Management
and Control Persons
11. Security Ownership Of Certain Beneficial Principal Securityholders
Owners and Management
12. Description of Securities Prospectus Summary; Risk Factors;
Description of Securities
13. Interests of Named Experts and Counsel Legal Matters; Experts
14. Disclosure of Commission Position on Indemnification of Directors and Officers
Indemnification for Securities Act
Liabilities
15. Organization Within Last Five Years Not Applicable
16. Description of Business Prospectus Summary; Business
17. Management's Discussion and Analysis or Management's Discussion and Analysis of
Plan of Operation(s) Financial Condition and Results of
Operation--Plan of Operation
18. Description of Property Business--Property
19. Certain Relationships and Related Certain Transactions
Transactions
20. Market for Common Equity and Related Outside Front Cover Page; Risk Factors;
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 None
Accountants on Accounting
</TABLE>
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED
PROSPECTUS
TASTY FRIES, INC.
This is an offering of 4,200,000 shares of common stock of Tasty Fries, Inc.
We are selling the shares directly and through brokers, but not through an
underwriter.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 5.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Public Offering Price....................................... $.35 $1,470,000
Commission.................................................. $ $
Proceeds to Tasty Fries, Inc. (before expenses)............. $ $
</TABLE>
There is currently a public trading market for the Shares on the OTC
Bulletin Board. Our trading symbol is "TFRY." On May 4, 2000, the reported
closing bid price of the common stock was $.43.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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.
------------------------
The date of this Prospectus is
<PAGE>
PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all of the information
that may be important to you. You should read the entire prospectus, including
"Risk Factors" and the financial statements and the notes thereto, before
deciding to invest in our common stock.
THE COMPANY
The company has developed a patented French fry vending machine (the
"machine"). The company intends to manufacture and market the machine in both
domestic and international markets through a combination of exclusive,
territorial distributorships and traditional sales to established companies in
the vending industry. The company may also own and operate machines itself. The
machines are expected to be located in high-traffic locations that have
historically been successful for vending operators, such as universities,
airports, bus and train stations, high schools, military bases, industrial
locations and recreational venues.
The company has also developed a related proprietary potato product for the
production of French fries in the machine (the "potato product"). Although the
company has developed its own potato product, the company presently intends to
purchase a comparable potato product for use in the machine from a third party.
This strategic determination is driven by the high costs associated with
establishing a production line to produce its own, proprietary potato product.
At such time as the economics of the business and the success of the machine
warrant the capital investment of a production line, the company may manufacture
its own, proprietary potato product or license the product to a contract
manufacturer.
The company's basic business strategy is to market the machines and the
ancillary products that are required to prepare each serving of French fries.
These ancillary products include the potato product, vegetable cooking oil and
serving cups (with salt and ketchup packets attached). The company's long-term
profitability and success will be driven primarily by the revenue and
accompanying profit to the company associated with each and every vended portion
sold from its installed base of machines.
The company has 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.
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.
SECURITIES OFFERED
<TABLE>
<S> <C>
Common stock offered by us................... 4,200,000 shares
Common stock to be outstanding after this
offering...................................
Use of Proceeds.............................. Repayment of $900,000 due Amreet Trading Co.,
LLC and any balance for working capital.
OTC Bulletin Board Symbol.................... "TFRY"
</TABLE>
3
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
The following table sets forth summary financial and operating data for the
Company. The income statement and balance sheet data set forth below for the
years ended January 31, 1997, 1998, 1999 and 2000, are derived from the audited
financial statements included elsewhere in this prospectus. The data for the
year ended January 31, 1996 has been derived from unaudited financial statements
of the company. You should read this information together with the financial
statements and the notes to those statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEARS ENDED
JANUARY 31,
---------------------------------------------------------------
1996 1997 1998 1999 2000
----------- ---------- ---------- ---------- ----------
(UNAUDITED) (AUDITED) (AUDITED) (AUDITED) (AUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.............................................. -0- -0- -0- -0- -0-
Loss before interest Expense.......................... $(1,358,030) (2,173,446) (4,235,688) (2,120,821) (4,896,798)
Interest expense...................................... $ 26,458 7,842 459,104 51,756 8,952
Net loss.............................................. $(1,384,488) (2,172,260) (4,798,588) (2,172,577) (4,905,750)
Net loss per share.................................... $ (.03) (.52) (.78) (.17) (.23)
BALANCE SHEET DATA:
Total assets.......................................... $ 151,788 203,822 725,876 539,315 225,961
Working capital (deficit)............................. $ (499,010) (811,531) (152,519) (531,436) (1,447,615)
Total liabilities..................................... $ 980,283 1,368,077 3,211,363 1,331,751 (1,993,576)
Stockholders' equity (deficit)........................ $ (824,495) (1,796,919) (2,485,487) (792,436) (1,767,615)
</TABLE>
4
<PAGE>
RISK FACTORS
An investment in our common stock of the Company offered hereby is highly
speculative and involves a high degree of risk. Investors could lose their
entire investment. Prospective investors should carefully consider the following
factors, along with the other information set forth in this Prospectus, in
evaluating the Company, its business and prospects before purchasing the common
stock.
WE HAVE REALIZED NO REVENUES WHICH MAKES IT DIFFICULT TO EVALUATE YOUR
INVESTMENT. We have operated our business for 9 years and have received no
revenues from operations, so you may find it difficult to evaluate our business
in making an investment decision. All cash received by us to date has been
through the sale of equity and debt securities to investors in private
placements. Limited funds have also been received from the down payments made by
certain distributors for their distribution rights for the machine and the
products. As of July 31, 1999, the amount of all such down payments aggregated
$406,000. We have utilized the proceeds from the sale of securities and
distributor down payments to fund our research and development of the machine
and the products, repay debt, satisfy court judgments and court awards and for
working capital purposes. We have incurred substantial net losses since 1991 and
are still in the development stage.
WE HAVE A HISTORY OF SUBSTANTIAL LOSSES AND WILL NEED ADDITIONAL
CAPITAL. We have incurred net losses of $4,905,750 and $2,172,577 for the
fiscal years ended January 31, 2000 and 1999, respectively. To attain any
profitability, we must commence commercial production and delivery of the
machine and its Products to distributors, lessees and independent operators if
any, and successfully plan and control costs so as to produce a positive
operating margin. There is no assurance that we can do so, and our failure to
achieve and maintain profitability could ultimately result in our inability to
pay our financial obligations as they become due. This would, as it has in the
past, have a material adverse effect on us.
GOING CONCERN ISSUES IN AUDITOR'S REPORT. The report of our independent
certified public accountants accompanying our financial statements set forth
elsewhere herein contains an explanatory paragraph that there exists substantial
doubt about our ability to continue as a going concern due to our continuing
losses and lack of liquidity and capital resources. Unless we can continue to
obtain financing from the issuance of common stock and/or through loans until
such time as we generate sufficient revenues from operations, as to which no
assurances are given; we may be required to cease all operations.
UNCERTAINTY OF ADDITIONAL FINANCING FOR OUR CAPITAL NEEDS. At January 31,
2000 and 1999, we reported a working capital deficit of approximately
$(1,447,615) and ($531,436), respectively. Presently existing capital resources
are not sufficient for us to maintain our current and planned operations through
the remainder of the fiscal quarter ending July 31, 2000. We have historically
funded our 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 down payments of distributors. We are in discussions with
several funding sources, and do not know if any will be consummated. Any debt or
equity financing, if obtained, may be dilutive to the interests of investors in
this offering.
COMPLETION OF TOOLING. We are dependent on third parties to complete our
tooling and if they do a poor job, our business could be seriously harmed. We
have not and do not intend to establish our own manufacturing operations. We
will continue to be dependent upon third parties to manufacture our machines and
Products, including the potato product. In June 1996, we entered into a
manufacturing agreement with a local Pennsylvania electronics company to
manufacture the machines. We previously had an agreement with Premier Design,
Ltd. ("Premier"), a company owned by a former director, Harry Schmidt, to
manufacture the machine.
At a cost of approximately $270,000, Tasty Fries' unaffiliated contractor
has completed the tooling necessary to produce the machines on a commercial
basis. In November 1999, the Company raised
5
<PAGE>
$274,000 through a private placement of its securities. The Company earmarked
those monies for payment to the contractor.
We have experienced delays in completing our tooling process because of lack
of funds to support the program and some distributorships have been cancelled or
reacquired. Given the unexpected time which has elapsed since the remaining 7
distributorships were established, should a distributor fail to perform, we
would not compel him to do so and we would cancel the distributorship without
penalty to ourselves.
THE RELIABILITY OF OUR MACHINES IS UNKNOWN. We have not produced our
products on a commercial basis. If our customers find our products unreliable,
our business will be seriously harmed. The machines have been operated by us on
a limited basis at trade shows, at previews to the investment banking community,
at a limited number of test sites and, in certain instances, by distributors and
others the United States and 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 our expectations over a long period of time.
NO ASSURANCE OF SUCCESSFUL IMPLEMENTATION OF BUSINESS STRATEGY. We continue
to face all of the risks inherent in the growth of a developing business,
including among other things, a continuing lack of sufficient working capital to
fund development and operations. There can be no assurances that we will
ultimately be successful and/or profitable. The purchase of the 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.
WE HAVE CHANGED OUR MARKETING PLAN AND THERE IS NOT ASSURANCE WE WILL BE
SUCCESSFUL. We previously marketed our french fry vending machine through
agreements with distributors, and had never established a clearly defined
marketing plan. We intended to utilize these exclusive distributorships to
market our machine and products worldwide. Through discussions with consultants
and other individuals and companies with experience in the vending business, a
decision was made in mid-1995 to change this marketing focus by limiting, if
not, ceasing all sales of exclusive distributorships to third parties and
possibly reacquiring existing distributorships. It is our present intention to
market the machines utilizing large vending companies that have the ability to
service and purchase machines or lease them to qualified vending companies on a
long-term basis. Additionally, these companies would have the ability to service
the machines and order large quantities of Products, including potato product
from us.
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, our President, Chief Executive Officer and Chairman of the Board
of the Company. The patent, prior to issue, was assigned to Premier, a private
company owned by 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 provided that a one-half (1/2)
interest in the patent for the machine will be assigned to Tasty Fries upon
payment by us to Premier of one-half of the machine's total development cost.
Premier has accepted 700,000 shares of our common stock in full payment of our
obligation to them.
We have also filed for patent protection under the Patent Cooperation Treaty
for the machine in 54 foreign countries. Even if Tasty Fries receives all
patents applied for, there can be no assurances given that third parties will
not assert infringement claims against us in the future or that others will not
infringe upon such patent. The cost of defending or commencing patent
infringement litigation is
6
<PAGE>
expensive with no assurances as to the outcome thereof. If we are unable to
protect our patents, our business, financial condition and results of operations
will be materially adversely affected. We have a federally registered trademark
for its current name and logo, "Tasty Fries," on the Supplemental Register and
have been marketing the machine and its Products under that name.
DEPENDENCE ON MANAGEMENT. We are wholly dependent upon the time, talent and
experience of Edward C. Kelly, our President and Chief Executive Officer, who
exercises control over our day-to-day affairs. Our future success is materially
dependent on the continued services of Mr. Kelly and on his ability to attract,
motivate and retain highly qualified employees. Mr. Kelly's employment agreement
expires on April 30, 2001. The loss of Mr. Kelly's services for any reason could
have material adverse effect on our operations. Currently, we do not maintain
key-man life insurance on Mr. Kelly or any other employees.
COMPETITION IN THE MARKET IN WHICH WE COMPETE, MAY MAKE IT DIFFICULT FOR US
TO SUCCEED. There are presently 2 companies in the French fries vending
business, operating on a commercial vending basis. OreIda/RO International
operates in the United States with a vending machine which incorporates a
convection oven to produce its product. TEGE/Vendotech markets a vending machine
in Europe using a hot oil system. Ore Ida has installed approximately 500
machines; TEGE/Vendotech no machine. As of the date of this prospectus, we have
no machines installed and no market share. Both OreIda and TEGE have
substantially greater financial resources to obtain market share for their
products.
OUR CERTIFICATE OF INCORPORATION AUTHORIZES THE ISSUE OF PREFERRED STOCK
THAT COULD PRESENT A RISK TO SHAREHOLDERS. Our directors are authorized to
issue preferred stock and fix the voting powers, designations, preferences and
other rights. We 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.
These designations could also include rights which would enable preferred
shareholders to deter or delay a takeover attempt which could result in higher
value for common shareholders.
APPROXIMATELY 12 MILLION OR 43% OF OUR TOTAL OUTSTANDING SHARES ARE
RESTRICTED FROM IMMEDIATE RESALE BUT MAY BE SOLD INTO THE MARKET IN THE NEAR
FUTURE. THIS COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DROP
SIGNIFICANTLY, EVEN IF OUR BUSINESS IS DOING WELL. As of the date hereof, the
Company has 27,719,011 shares of common stock issued and outstanding. Some of
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. Sales of substantial amounts of shares of common stock in the
public market could adversely affect the market price of our common stock and
could impair Tasty Fries' future ability to raise capital through an offering of
equity securities. During the 6 month period following the date of this
prospectus, 8,828,688 shares will be eligible for sale and 3,554,278 shares at
various times after that date.
NO DIVIDENDS. Tasty Fries 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.
PENNY STOCK REGULATION. Broker-dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock
rules adopted by the Commission. Penny stocks generally are equity securities
with a price of less than $5.00 (other than securities registered on certain
national securities exchanges or quoted on the NASDAQ system, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system). The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document that provides information about
7
<PAGE>
penny stocks and the risks in the penny stock market. The broker-dealer also
must provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, the penny stock
rules generally require that prior to a transaction in a penny stock, the
broker-dealer make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for a stock
that becomes subject to the penny stock rules. If the Company's securities
become subject to the penny stock rules, investors may find it more difficult to
sell their securities.
FORWARD-LOOKING STATEMENTS
In this prospectus, we make statements about our future financial condition,
results of operations and business. These are based on estimates and assumptions
made from information currently available to us. Although we believe these
estimates and assumptions are reasonable, they are uncertain. These
forward-looking statements can generally be identified because the context of
the statement includes words such as may, will, except, anticipate, intend,
estimate, continue, believe or other similar words. Similarly, statements that
describe our future expectations, objectives and goals or contain projections of
our future results of operations or financial condition are also forward-looking
statements. Our future results, performance or achievements, could differ
materially from those expressed or implied in these forward-looking statements,
including those listed under the heading "Risk Factors" and other cautionary
statements in this prospectus.
8
<PAGE>
USE OF PROCEEDS
We will receive net proceeds of approximately $1,260,000 if all the common
stock offered is sold at the price listed. We cannot assure you that we will
sell any common stock or receive any proceeds. We are selling this common stock
on a continuous, no minimum basis. We will use any proceeds received towards the
payment of a $900,000 obligation due Amreet Trading Co., LLC (See "Plan of
Operations--Recent Event") and the balance for working capital.
DIVIDEND POLICY
Tasty Fries 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".
CAPITALIZATION
The following table sets forth (1) as of January 31, 2000, the
capitalization of the Company and (2) the capitalization on an "As Adjusted"
basis, which reflects the sale of the 4,200,000 common shares offered by the
Company at the public offering price of $.35 per share, and the receipt of
estimated net proceeds of $.30 per share.
<TABLE>
<CAPTION>
AS OF JANUARY 31, 2000
-------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Stockholders' Equity:
Common stock - $.001 par value; 50,000,000 shares
authorized; 27,719,011 shares issued and outstanding...... 27,719 27,719
Common stock to be issued................................... 4,200
Additional Paid-in Capital.................................. 17,347,811 18,603,611
Retained Earnings (loss).................................... (19,143,145) (19,143,145)
Total Stockholders') Equity................................. (1,767,615) (507,615)
Total Capitalization........................................ (1,757,615) (497,615)
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
PLAN OF OPERATION
Our basic business model is to market the machines and the ancillary
products that are required to prepare each serving of French fries. These
ancillary products include the potato product, vegetable cooking oil and serving
cups (with salt and ketchup packets attached). Our long-term profitability and
success will be driven by a significant degree by the revenue and accompanying
profit to us associated with each and every vended portion sold from its
installed base of machines. We are currently in negotiations with a supplier for
the potato product.
With that business model in mind, the our current plan of operation is to
manufacture an initial quantity of 25 machines. None have been completed but all
are in various stages of assembly. The parts, sub-assemblies and service aspects
of the machines are being inspected, tested and being made field ready. Effort
is being made not to produce prototypes but to incorporate designs into the
machine which are needed for mass production. Twenty-five machines should be
completed by July 2000 and all will be owned by us. Management currently
estimates that a portion of these initial machines will be sold to third parties
(existing distributors and others) and a number of them will be owned and
operated by us. Tasty Fries intends to place its machines in locations within
the greater Portsmouth, New Hampshire area.
We believe that, once in full production, the business cycle of Tasty Fries
will allow it to operate in a cash positive fashion. We plan to require a
significant advance payment from its customers with receipt of each order;
therefore providing a good portion of the capital necessary to fund the
procurement of essential component parts for machine production. If we are
incorrect in this assumption, our capital needs for manufacturing may be greater
than currently anticipated. In this event, we will be required 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 Tasty Fries.
We believe we will be successful in placing 25 machines in operation by July
2000. Upon installation of the machines, we anticipate receiving orders from
distributors and customers. Orders for machines will be accompanied by
downpayments and we believe financing sources, other than the sale of equity,
will also be available. A production schedule can be organized to make use of
downpayments in the production of the machines.
RECENT EVENTS
On October 5, 1999, pursuant to a promissory note, we borrowed $900,000 from
Amreet Trading Co., LLC. Repayment of the sum is due June 30, 2000 with interest
at 18% per annum. Prior to borrowing the money from Amreet, we had no prior
relationship with Amreet. The proceeds of the loan were used to pay in full our
obligation to California Food and Vending, Inc.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have had no revenues from operations and have relied
almost exclusively on stockholder loans, limited distribution deposits and sales
of securities to raise working capital to fund operations. At January 31, 2000
the Company had approximately $10,703 in cash.
As of January 31, 2000, 27,719,011 shares were outstanding, of which
transfer on 12,382,866 shares were restricted. During the period ending
July 31, 2000, 8,828,688 will become eligible for sale and 3,554,278 shares
after that date.
10
<PAGE>
In June 1997, we received $1,000,000 from three non-"U.S. Persons", as
defined in Regulation S, in exchange for notes convertible into the Company's
common stock. The financing was completed pursuant to Section 903(C)(2) of
Regulation S under the Securities Act of 1933. Under the terms of the financing,
we issued 1,142,857 shares of common stock to be held in escrow, pending the
potential conversion of notes. The notes bore interest at 7% annually and had a
maturity date of May 14, 2000. In connection with the financing, we also issued
250,000 common stock purchase warrants. The notes were subsequently converted
into 2,180,280 shares of our common stock at conversion prices ranging from $.34
to $.54. The warrants expired without being exercised.
In November 1997, in a separate transaction, we received $1,600,000 from six
non-"U.S. persons", as defined in Regulation S, in exchange for notes
convertible into our common stock. The financing was completed pursuant to
Section 903(C)(2) of Regulation S under the Securities Act of 1933. We issued
2,400,000 shares of common stock to be held in escrow, pending the potential
conversion of notes. The notes bore interest at 6% annually and had a maturity
date of November 5, 2000. In connection with the financing, the Company also
issued 720,000 common stock purchase warrants. The notes were subsequently
converted into 4,105,870 shares or our common stock at conversion prices ranging
from $.32 to $.49. The warrants expired without being exercised.
In January 1998, we and a private investment corporation, a former investor
in the Company from April 1996, terminated the stock purchase agreement that had
been the basis for the original investment in 1996, due to lack of performance
on the investor's part.
In April 1998, we entered into an agreement to receive $1,500,000 in
proceeds from the sale of restricted stock to a U.S. corporation. We issued
3,000,000 shares of common stock as consideration. We also issued warrants to
purchase 1,500,000 shares of common stock at an exercise price of $1.90; the
warrants expire April 12, 2001. We also issued 150,000 shares of restricted
stock as a commission on the transaction. We and the investor entered into an
escrow agreement for this transaction and the shares were issued into escrow,
pending funding. As of January 31, 2000 we received $1,050,000 of the total
$1,500,000 financing and 2,100,000 of the total 3,000,000 shares have been
released.
Although we estimated that the April 1998 financing would allow us to
proceed with our current plan of operation, we will need to raise additional
capital to enter into full scale production. If we are unable to obtain the
desired funding from any source, it is highly unlikely that we will be able to
generate a sufficient amount of cash to support our operations during the 12
months following the date hereof, unless we obtain the necessary funds from the
sale of debt and/or equity during such period. Based upon our past ability to
secure financing, we believe that we will be able to obtain funding in such
manner but are unable to predict with any certainty the amount and terms
thereof.
Subsequent to January 31, 1999, the Company has issued additional shares and
warrants to purchase common stock to various parties as payment for services
rendered. The Company intends to continue this practice. These transactions
included the following:
a. 1,810,000 freely tradable shares for legal services;
b. 1,150,000 freely tradable shares for consulting services;
c. 400,000 freely tradable shares for compensation;
d. 250,000 restricted shares for consulting services canceled or returned
due to non performance;
e. 462,500 restricted shares issued for consulting services.
In our fiscal year ending January 31, 2000, we received $752,000 through the
sale of 2,808,482 shares of our common stock and $900,000 through the sale of an
18% note due June 30, 2000.
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RESULTS OF OPERATIONS, FISCAL YEAR ENDING JANUARY 31, 1999 AND 2000
We had no revenue for the fiscal years ending January 31, 1999 and 2000.
From fiscal 1999 to 2000, travel and entertainment expenses decreased
approximately 9% from approximately $57,656 in 1999 to approximately $52,434 in
2000 due primarily to a reduction in air travel. Consulting expenses increased
from approximately $(82,750) in fiscal 1999 to approximately $1,737,432 in
fiscal 2000. The increase in consulting services was due primarily to reduction
in the number of employees. Payroll and payroll taxes decreased approximately
31% from approximately $573,815 in fiscal 1999 to approximately $395,700 in
fiscal 2000. The decrease in payroll and payroll taxes resulted primarily from
reduction in the number of employees. Legal fees increased approximately 220%
from approximately $200,750 in fiscal 1999 to approximately $641,575 in fiscal
2000 due to the defense of various lawsuits and additional filings with
regulatory agencies.
RESULTS OF OPERATIONS, FISCAL YEARS ENDING JANUARY 31, 1998 & 1999
We had no revenues for the fiscal years ended January 31, 1998 and 1999.
From fiscal 1997 to 1998, travel and entertainment expenses decreased
approximately 61% from approximately $147,372 in 1997 to approximately $57,656
in 1998 primarily due to significant decrease in business related travel.
Consulting expenses decreased from approximately $1,159,964 in fiscal 1997 to
$172,600 in fiscal 1998. The decrease in consulting expenses was primarily due
to our reduced dependence on consultants to provide financial, business and
marketing expertise. Payroll and payroll taxes decreased approximately 10% from
approximately $640,267 in fiscal 1997 to approximately $573,814 in fiscal 1998.
The decrease payroll and payroll tax expense resulted primarily from the release
of personnel in 1998. 2 employees were released in 1998. One employee found the
commute from New York too time consuming and the director of manufacturing was
let go when manufacturing was out-sourced. Severance pay included $25,000 and
300,000 shares of free trading stock. The decrease in personnel has not affected
our operations. We believe, although it cannot be assured, that we have made
significant inroads in stabilizing our operating and overhead costs and should
be able to move forward with our business plan as discussed herein.
For our year ending January 31, 1998, 4 persons received restricted stock
and warrants for consulting services primarily relating to production of the
machine. These persons included L. Eric Whetstone (25,000 shares); Mordechai
Book (5,000 shares and 10,500 three year warrants @$1.90); Rose Marie Fox
(47,500 shares and 106,500 three year warrants @$1.90); and Andreas Tobler
(30,000 shares and 30,000 three year warrants @$1.90). All these persons are
unaffiliated with the Tasty Fries except that Mr. Whetstone and his affiliates
own approximately 12.7% of our company.
BUSINESS
GENERAL
We were organized as a Nevada corporation in 1985 and have developed a
patented French fry vending machine. We intend to manufacture and market the
machine in both domestic and international markets through a combination of
exclusive, territorial distributorships and traditional sales to established
companies in the vending industry. We anticipate selling the vending machines
for $9,000 each. We may also own and operate machines ourselves. The machines
are expected to be located in high-traffic locations that have historically been
successful for vending operators, such as universities, airports, bus and train
stations, high schools, military bases, industrial locations and recreational
venues.
We have developed a related potato product for the production of French
fries in the machine. Although we have developed our own potato product, we are
in negotiations to purchase a comparable potato product for use in the machine
from an unrelated third party. The reason to seek outside sources is primarily
financial. The cost to add a back end proprietary cutter to the potato drying
line
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has been estimated in excess of $300,000. In addition, we would be required to
order a minimum quantity of potatoes that would be beyond our needs. Our
decision to outsource the production of the potato product is unrelated to our
settlement agreement with California Food & Vending, a prior distributor.
Our basic business strategy is to market the machines and the ancillary
products that are required to prepare each serving of French fries. These
ancillary products include the potato product, vegetable cooking oil and serving
cups (with salt and ketchup packets attached). Our long-term profitability and
success will be driven primarily by the revenue and the accompanying profit
associated with each and every vended portion sold from our installed base of
machines. We have registered our name and logo, "Tasty Fries", as a federal
trademark on the Supplemental Register and have been marketing the machine and
its products under that name.
We expect to place our first 25 machines in operation by July 2000 and
commence commercial production in our third quarter.
DESIGN AND MANUFACTURING
In 1992, persons then associated with Tasty Fries filed a U.S. patent
application with respect to a device for the vending of fresh French fried
potatoes (the original machine) which was assigned to us on October 9, 1992. In
January 1993, we entered into a manufacturing agreement with Premier Design,
Ltd. ("Premier") for the production of our original vending machine (the
"Premier Agreement"). The Premier Agreement provided that Premier would refine
and manufacture the original machine. The Agreement called for us and Premier to
share the development costs of the project; such costs were to include design,
engineering and initial manufacturing costs projected over the initial quantity
of production machines. The Agreement also provided for Premier to manufacture
any additional or similar machines for us. The Premier Agreement could not be
terminated by either party so long as Premier provided the machines as required
by us. Pursuant to the terms of the Premier Agreement, the first initial
production of machines was to be delivered by June 15, 1993.
As one element of the process undertaken by Premier, an engineering review
of the machine was to be performed. Mr. Harry Schmidt, president of Premier,
retained the services of Mr. Edward C. Kelly to perform said evaluation. In
February 1993, Mr. Kelly submitted the findings of his evaluation. Mr. Kelly's
study found the device failing to perform as anticipated and his review
identified significant and numerous mechanical and design problems. Mr. Kelly
and Premier's recommendation to prior management was that the existing machine
should be abandoned completely. Prior management, none of whom are presently
connected with us, believed they had developed a viable production model French
fry vending machine. They decided to abandon the original device. We retained
Premier Design to design and develop a machine based on new and different
technology. Mr. Kelly and Premier began the process of designing a new machine
in March 1993.
Premier is a private company owned by Mr. Schmidt. Mr. Schmidt was
subsequently appointed to our Board of Directors in May 1993, but did not stand
for reelection to the Board in September 1995. At the time of the original
Premier Agreement, neither Mr. Schmidt nor Mr. Kelly had any affiliation with
us. Edward C. Kelly joined us as Executive Vice President in January 1994 and
was subsequently appointed to our Board of Directors in February 1994. In June
of 1994, he was named our President.
In December 1994, having completed much of the design and development of the
new machine, the partners amended the original manufacturing contract (the
"Premier Amendment"). The Premier Amendment described the terms under which
Premier would manufacture the 10 prototype models of the new machine and begin
manufacture of the production units.
In July 1996, a U.S. patent was issued in Mr. Kelly's name for the machine.
Mr. Kelly assigned the patent rights for the machine to Premier based upon the
terms of the Premier Amendment and the
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express understanding between Premier, ourselves and Mr. Kelly (individually)
that: (a) upon issuance, the patent would be assigned 100% to Premier as
consideration for the significant funds expended by Premier in the development
of the machine; (b) Premier would immediately assign to us a 50% interest in the
patent upon payment to Premier by us of one-half of the total development costs.
Our 50% share of the development costs were later determined to be $650,000
(not including the $350,000 paid by us for the 10 prototype machines). Premier
has agreed to accept 700,000 shares of our common stock in full payment of our
obligation to them. Premier will also receive $250 per machine manufactured by a
third party.
In the Spring of 1996, Premier and Tasty Fries agreed that Premier would be
unable to manufacture the machines under the terms of the Premier Amendment. On
June 17, 1996, we announced our 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 a non-exclusive
manufacturing agreement with S&H for such purpose. S&H is a
contract-manufacturer which specializes in the assembly and testing of
electromechanical assemblies and equipment. Subsequently, the contract was
cancelled. In January, 2000, we opened an assembly facility in Portsmouth, New
Hampshire and are hiring sub-contractors to produce the first 25 units. The
first 25 units will be produced by subcontract manufacturers located in
Portsmouth, NH.
PRE-PRODUCTION TOOLING
The pre-production tooling stage for the machine is a critical element of
the process of getting the machine into commercial production. Consider that the
Tasty Fries device is comprised of approximately 3,100 individual parts. A
portion of these parts are basic, "off-the-shelf" manufacturing components such
as hardware, lighting and electrical components. However, approximately 75% of
the components are customized parts that require a subcontract supplier to
manufacture specifically for Tasty Fries. Because of the costs associated with
manufacturing these custom-designed parts, the most critical components have
been designed to be tooled, molded or cast by the various suppliers. While very
costly and time-consuming in the front-end of a project, the tooling of various
component parts will: (a) ensure the consistency and quality of the machine's
critical parts and (b) greatly reduce the unit costs of both the individual
parts and the overall machine, as production volume increases. As with our
overall business plan, the tooling process itself has been delayed over the past
12-18 months due to the lack of capital available to complete the process.
The pre-production tooling stage is complete. We are considering, but have
not made a determination to produce at table top model of the machine. Modifying
the existing machine for table top use and ordering tooling would cost
approximately $200,000 to $300,000. Customized parts will be marketed to
operators of the machine, be they owners or leasees. No third parties will have
any interest in the sale of the parts. We are unable to estimate when sale of
the parts might commence but when they do, revenues are not expected to be
significant.
THE MACHINE
The machine is designed to produce quality, freshly-made French fries
utilizing a unique method that automatically converts a dehydrated potato
product into re-hydrated potato mix, delivers this mix into a proprietary
forming and cooking cycle, and finally into complete, high-quality, freshly-made
French fries. The potato product can be stored at room temperature, has a
shelf-life of between 12 and 24 months (depending on storage conditions),
requires no refrigeration or freezing, and occupies less storage space than
frozen fries, thereby offering greater storage capacity than competing
technologies which use frozen French fries. The French fries are delivered to
the consumer in a 4-ounce serving of 32 French fries. From the time currency is
deposited, the total vend time for an order of fries from the final production
model machine is estimated to be approximately one and one-half minutes. The
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utilization of a state-of-the-art combination of computer driven mechanics makes
this possible. Attached to the bottom of the vended cup are individually
prepackaged portions of ketchup and salt.
The design of the machine involves the use of a vegetable oil enabling the
process to deliver a cholesterol-free product. Each vend contains French fries
which are crisp and golden brown. The quality of the product is consistently
uniform in each vend. The machine has the capacity to produce 500 vends before
any refill of potato product or other ingredient 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 fries 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 currency mechanism.
The machine currently requires a 220-volt electrical connection (although
the Company plans for production models of the machine to require a 110 volt
connection) and is equipped with modern computer technology using
microprocessors and sensors. If the machine operator desires, the machine can
communicate with a central data base, via modem, to make available immediate
information on product levels, service issues or currency levels. The machine's
cash management program enables it to monitor the cash position at any time and
the amount of vends, which allows for spontaneous and immediate cash reporting
to the vending operator.
The machines have been designed to be repaired on-site without the necessity
of being returned to the manufacturer. It is anticipated that ongoing
maintenance will be limited, and the majority of an operator's labor
expenditures will involve the replenishment of products into the machines. At
such time oil and water will be replaced and additional cups (with condiment
packages attached) will be restocked. Water will also be changed at such time
unless the machine is directly attached to a plumbing supply, which is not
necessary for the machine's operation. The frequency with which the machine must
be restocked depends completely upon the number of vends dispensed daily.
There will be 2 certifications that will provide independent confirmation of
the uniform quality of our product--Underwriter's Laboratory ("UL") and National
Automatic Merchandising Association. We have undergone preliminary testing from
UL and our pre-production models have met with their approval. However, neither
group will award certification pending examination of commercial production. We
expect to receive approvals with commercial production.
THE POTATO PRODUCT
Our French fries have been tasted by hundreds of people at trade show or by
visitors to our offices for a sampling of our product. There has been a
consistent high degree of satisfaction by our customers.
Our potato product for use in the machine was developed in 1995 by a third
party contractor. We estimate that the cost to establish a manufacturing line to
produce the potato product is significant. Due to the considerable costs
involved and the current availability of another potato product that is
comparable with our potato product for use in the machine, we do not currently
intend to establish a manufacturing line for the production of its own product.
See "AVAILABILITY OF RAW MATERIALS".
MARKETING
We have historically marketed the machines and the products exclusively
through territorial distributorships. We currently intend to market our products
in both domestic and international markets through a combination of exclusive,
territorial distributorships and traditional sales to established companies in
the vending industry. We may also own and operate machines itself.
The existing distributorship agreements vary from territory to territory,
but essentially require an up-front payment and minimum annual payments usually
over the life of the contract. Most distributors
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must also pay a specified sum 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.
We have sold or granted an aggregate of 15 territorial distributorships. In
the course of normal business, some of these distributorships have been
reacquired by us and others have been terminated due to default on behalf of the
distributor. There are currently 7 distributorships which have not been
terminated or reacquired. The 7 territorial distributors include: (1) Texas;
(2) Pennsylvania; (3) Brazil; (4) New Jersey; (5) Maryland, Delaware and
Virginia; (6) New England states; and (7) International Tasty Fries representing
7 European countries. Termination of a distributorship territory requires refund
of the distribution deposit. We have complied with all refund requests. The
distributor's obligations to make further payments, after tendering the initial
deposit required upon execution of the distributorship agreement, are
conditioned on our ability to ship our machines and related products. We believe
that once commercial production of machines is commenced and distributors
notified and required to place orders for machines, some of such distributors
may be financially unable to do so or may simply elect not to purchase machines
and effectuate their respective agreement.
We have retained the services of Claridge Capital Corporation to assist with
the Marketing and Sales of the machine. Claridge had been instrumental in
developing and maintaining the Company's web site (www. tastyfries.com) and
introducing the Company to the marketplace. A definitive contract with Claridge
has not yet been finalized.
CALIFORNIA FOOD & VENDING, INC.
In May 1991, we entered into a joint venture agreement with California Food
& Vending, Inc. ("CFV"), another vending and food service company with a high
interest in the research and development of a French fry vending machine. The
companies planned to work together in the manufacturing and marketing of a
French fry machine. Disputes arose between the parties, litigation was
instituted by CFV and in July 1999 the disputes were settled and the litigation
dismissed. Pursuant to the settlement agreement, we regained our distributorship
rights for the State of California; agreed to pay CFV the sum of $1,000,000
which has been paid; issue 250,000 shares of our common stock to CFV; and CFV
will receive $350 for each of the first 500 machines produced and $450
thereafter and $.25 for each pound of potato product sold by Tasty Fries.
LEASE FINANCING
In September 1996, we entered into a vendor agreement (the "Vendor
Agreement") with Forrest Financial Corp., a leasing company, to provide lease
financing to distributors and others who may wish to lease machines rather than
purchase them outright. The Vendor Agreement provides that up to $15 million
will be made available to qualified lessees for this purpose. Tasty Fries
believes that lease financing will be an important element of its strategic
plan, as leasing is a very prevalent financing structure used in the vending
industry. As of the date of this prospectus, no party has entered into an
agreement to lease the machine.
COMPETITION
The technology in our machine has been awarded U.S. patent #5,537,916 issued
June 23, 1996. Other attempts of bring a French fry vending machine to market
have not utilized our patented technology. Our process of using dehydrated
potato is the difference between us and the competition. Most attempts use
either a frozen or pre-cooked potato and are heated by microwave or convection
oven. Our patented process is unique and we believe produces the best tasting
product.
We face competition from other suppliers of French fries, including fast
food outlets. We are aware of other companies which have test marketed French
fry vending machines or are in the process
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of developing such machines. Certain of the companies may be viewed as
competitors or may become competitors in the future and have more capital and
greater resources than us. We are aware of at least three competitors in the
French fry vending machine business: Ore-Ida, TEGE and Vendotech.
Ore-Ida, a U.S. based major manufacturer and distributor of frozen potato
products, has developed a machine that uses frozen, precut French fries which
are heated by a hot-air system. Ore-Ida has spent many years and considerable
capital in the development of their machine. They have been marketing their
machine domestically and abroad for a number of years. Ore-Ida has produced 500
machines of which approximately 100 are installed in the United States and
Europe. Vendotech, a European company, also utilizes a frozen, precut French fry
which it cooks in oil. Vendotech has a marketing alliance with McCain, a large
Canadian potato producer. Vendotech has no readily available information
regarding placement or performance of their machines. TEGE uses a dehydrated
potato powder, which is formed into French fries, and cooked in oil. TEGE
installed one machine in a department store in Europe but subsequently removed
it due to technical difficulties. TEGE's current marketing strategy is focused
on four primary European markets. Ore-Ida, Vendotech and TEGE have substantially
greater financial resources to obtain market share for their products.
By the end of July, 2000, we expect to have our first 25 machines installed.
Our installations will represent a minimum market share. We believe, although no
assurances are given, that due to current demand for French fried potatoes, that
there may be additional competition in the future in the area of French fry
vending.
AVAILABILITY OF RAW MATERIALS
The raw materials or inputs used by the machine in the production of each
serving of fries are: potato product, cooking oil, water and serving cups (with
ketchup and salt packets attached to the bottom). We believes that the oil,
condiments and serving cups used in the dispensing of French fries are readily
available from its current suppliers. In the event that one or more of these
materials were to be unavailable from a current supplier, we are confident that
comparable substitute products would be available from other suppliers. We
presently purchase potato product from 2 unrelated sources. We currently have no
contract (exclusive or otherwise) or licensing rights to purchase the potato
product from any supplier. At such time in the future as may be warranted by the
success of our business, we may elect to enter into the production of our own
proprietary potato product or enter into contract manufacturing for same. See
"POTATO PRODUCT."
PATENTS AND PROPRIETARY RIGHTS
The machine's inventor, Edward C. Kelly, is our President and Chief
Executive Officer and was issued a patent by the U.S. Patent and Trademark
office in July 1996. In addition, the Company is seeking, but has not yet
received, patent protection in Canada, Japan, Israel, Brazil and the European
Patent office (which currently represents 17 European countries). The Israel
patent has been granted; we are awaiting examinations of the European and Brazil
applications; the Canada and Japan applications have been deferred, we can't
estimate when these patents will be granted.
We intend to seek patent, trademark and related legal protection in the
future where we deem the same to be beneficial. However, legal protections and
precautions do not prevent third party development of competitive products or
technologies. There can be no assurance that the legal precautions and other
measures taken by us will be adequate to prevent misappropriation of our
proprietary technology. Notwithstanding the foregoing, we do not intend to be
solely dependent upon patent protection for any competitive advantage. We expect
to rely on our technological expertise and the early entry into the marketplace
of our machine and products to further enhance our position as a leader in the
field and protect our technologies.
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GOVERNMENTAL APPROVALS AND REGULATIONS
The machine was designed and developed in consideration of applicable
governmental and industry rules and regulations. We believe that the machine's
design complies with National Sanitation Foundation ("NSF") guidelines as well
as Underwriter's Laboratory ("UL") standards. The machine will receive UL and
NSF approvals prior to sale and installation. We have requested that the machine
be inspected and expect to have the machine inspected by various regulatory
agencies during the production process but prior to sale and installation. In
this regard, we have begun the process of obtaining UL certification. We are
also seeking certification from the National Automatic Merchandising Association
("NAMA"). We have been advised that all certifications and approvals should be
applied for upon commercial production and would not issue until such time. We
believe, although no assurance is given, that the required approvals from UL,
NAMA and the various regulatory agencies are obtainable and are not currently
aware of anything that will delay the necessary approvals.
We are not aware of and do 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.
RESEARCH AND DEVELOPMENT COSTS
For the fiscal years ended January 31, 2000 and 1999, we incurred $144,403
and $460,417, respectively, in costs and expenses relating to the research and
development of its machine.
We could incur additional research and development costs over the next year
should we introduce a table top model of our French fry vending machine. No
decision has been made regarding introduction of such a model. Projected costs
to design, develop and manufacture this model should not exceed $300,000 as much
technology can be transferred from the standard vending machine.
PERSONNEL
As of September 30, 1999 we had a total of 5 full-time employees. 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.
If hired, such additional employees may include a director of marketing, a chief
financial officer, and sales and marketing personnel. At the present time, we
are unable to estimate how many employees will be needed during the next 12
months.
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 Company's current lease
commitments total approximately $2,085 per month until May, 2001. At the present
time, management believes that this office space is sufficient; however, the
Company may require additional space during the next 12 months.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 compliance issue has not impacted us in any meaningful way.
LEGAL PROCEEDINGS
On August 28, 1996, the Company, Edward C. Kelly and Premier Design, Ltd.
were added as defendants to a civil law suit in the Riverside County Branch of
the Superior Court of the State of California brought by Prize Frize, Inc.,
William Bartfield and Larry Wirth. The suit also named as
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defendants approximately 25 other parties, all allegedly involved, in some
manner, in the pursuit of the French fry machine concept and/or business. The
case was removed to Federal Court. The Company successfully moved for dismissal
of the claim on behalf of itself and Mr. Kelly; the case was dismissed on June
2, 1997. The dismissal was reversed on appeal by the Federal Court and the case
was remanded to State Court. The plaintiffs' claim against Tasty Fries was
severed. The claims against Edward C. Kelly and Premier Design, Ltd. were
dismissed. The claim brought by Prize Frize asserts that the Company has usurped
its trade secrets by developing a French fry vending machine which utilizes the
Basic American Food potato product. The Company denies the allegations and is
vigorously defending the litigation. It is the opinion of the company's counsel
that Prize Frize's lawsuit lacks merit and that the Company will prevail.
RECENT DEVELOPMENTS
In November 1999, 5 investors purchased notes of the Company in the
principal amount of $274,000. In January 2000, holders of the notes converted
them into 1,570,000 shares of common stock. We lease a 2,500 square foot office
in an industrial park in Portsmouth, New Hampshire on a month to month basis.
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MARKET FOR COMMON EQUITY
The common stock of the Company is quoted on the OTC Bulletin Board, 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 inter-dealer quotations, without retail
markup, markdown or commission and may not be reflective of actual transactions.
<TABLE>
<CAPTION>
FISCAL 1998 HIGH BID LOW BID
- ------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
First Quarter............................................................ .95 .51
Second Quarter........................................................... .85 .45
Third Quarter............................................................ 1.30 .38
Fourth Quarter........................................................... .59 .32
FISCAL 1999
First Quarter............................................................ .87 .25
Second Quarter........................................................... .78 .42
Third Quarter............................................................ .84 .35
Fourth Quarter........................................................... .73 .34
FISCAL 2000
First Quarter............................................................ .73 .38
</TABLE>
On May 4, 2000, the closing bid price of the common stock on the OTC
Bulletin Board was $.43. As of March 15, 2000 there were approximately 1,155
shareholders of record. The Company has never paid or declared any dividends on
its common stock and does not anticipate paying any cash dividends in the
foreseeable future. The Company currently intends to retain future earnings to
fund the development and growth of its business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our current directors 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:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH COMPANY
- ------------------------------------------- ----------- -------------------------------------------
<S> <C> <C>
Edward C. Kelly............................ 63 President, Chief Executive Officer,
Treasurer and Chairman of the Board**
Leonard J. Klarich......................... 65 Vice President, Secretary and Director**
Jurgen A. Wolf............................. 65 Director**
Ian D. Lambert............................. 54 Director
Kurt R. Ziemer............................. 44 Director
</TABLE>
- ------------------------
** Member of the Executive Committee of the Board of Directors
EDWARD C. KELLY--Mr. Kelly has been President 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 in June 1996. From
January 1994 until June 10, 1994 he was Executive Vice President. Mr. Kelly has
been involved in the engineering and design of the machine since 1993 and was
awarded a U.S. patent in July 1996. Mr. Kelly owned and operated Mega Products
Corporation, a subcontract manufacturing company, from 1970 through 1994. Mega
serviced companies including IBM, GE, Dupont, Gulf & Western and Kulick & Soffa.
LEONARD J. KLARICH--Since September 1995, Mr. Klarich has been a director
and also was a consultant from March through May 1996. Mr. Klarich was retained
as Executive Vice President in June 1996 to assist in the day to day operations,
with specific emphasis on distribution networks, distributors and marketing. In
June 1997, his title was changed to Vice President. 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 plastics
manufacturing company with revenue in excess of $40 million upon his sale of the
company. Prior thereto, he spent a number of years as a chief operating officer
of companies in need of turnaround due to financial concerns.
JURGEN A. WOLF--Mr. Wolf has been a director 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. From August 1992 to March 1993,
Mr. Wolf was a director of Yukon Spirit Mines Ltd. (currently known as Gainey
Resources Ltd.). Mr. Wolf is also a director of four Canadian public companies,
which include: Consolidated Gulfside Industries, Ltd., Shoreham Resources, Ltd.,
U.S. Oil Inc. and Key Capital Group, Inc.
IAN D. LAMBERT--Mr. Lambert was appointed as a director in July 1995. He is
the President of International Tasty Fries, Inc., a stockholder in the Company
and, until November 1996, was President of Yukon Spirit Mines Ltd. (now doing
business as Gainey Resources Ltd.). International Tasty Fries and Yukon are
affiliated entities. International Tasty Fries has a distributorship agreement
with us for a number of European countries; Yukon's distribution agreement was
reacquired by us in April 1998. Other than International Tasty Fries being one
our territorial distributors, we have no other
21
<PAGE>
relationship with them. 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 a director of five
publicly-traded companies of which only we are 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.
KURT R. ZIEMER--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 us. 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.
EXECUTIVE COMPENSATION
The following table presents information compensation earned for services
rendered during each of our last three fiscal years by our Chief Executive
Officer and our other two most highly compensated executive officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
---------------------------
FISCAL
YEAR ONE-TIME COMPENSATION
ENDED ---------------------------------------
NAME & PRINCIPAL POSITION JANUARY 31, SALARY BONUS RESTRICTED STOCK (2)
- -------------------------------------------------- --------------- ---------- ------------- ------------------------
<S> <C> <C> <C> <C>
Edward C. Kelly................................... 2000 $ 240,000 $ 0 $ 1,031,250(4)
President, CEO & Chairman (3) 1999 $ 267,000 $ 0
1998 $ 289,000
Leonard J. Klarich................................ 2000 $ 0 $ 0
Secretary, Director and Vice-President (5) 1999 $ 12,400 $ 0
1998 $ 60,000 $ 0
</TABLE>
- ------------------------
(1) There were no long-term incentive payments made in the year-ended January
31, 1999. The column for "Other Annual Compensation" has been omitted
because there is no compensation required to be reported in that column. The
aggregate amount of perquisites and other personal benefits provided to each
executive officer above is less than the lesser of $50,000 and 10% of the
total annual salary and bonus of that officer.
(2) Value of restricted stock grants are determined by using the closing bid
price of our common stock on the date of issuance.
(3) Mr. Kelly has served as President and Treasurer 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. This table does
not include: (a) accrued director compensation of approximately $833 per
month since September 1995 and (b) a restricted stock award of 9,206 shares
granted to Mr. Kelly as component of his compensation for the fiscal year
ended January 31, 1996.
(4) Represents the value assigned to a restricted stock grant of 1,500,000
shares made to Mr. Kelly on September 11, 1997, pursuant to the terms of the
Stock Purchase Agreement from April 1996.
(5) This table does not include: (a) accrued director compensation of
approximately $833 per month since September 1995; (b) an option to purchase
1,042 shares of common stock exercisable at $2.40 per share until
December 15, 2005, automatically granted to each non-employee director under
the 1995 Stock Option Plan on December 15, 1995 and (c) an option to
purchase 4,082
22
<PAGE>
post-split shares of common stock exercisable at $2.45 per share until
December 15, 2006, automatically granted to each non-employee director under
the 1995 Stock Option Plan.
OPTION GRANTS IN THE FISCAL YEAR ENDED JANUARY 31, 2000
None
FISCAL YEAR END OPTION VALUES
The following table shows information relating to unexercised options held
as of January 31, 2000 by our Chief Executive Officer and our other two
executive officers. No options were exercised by these officers during fiscal
2000.
<TABLE>
<CAPTION>
UNEXERCISED OPTIONS AS VALUE OF UNEXERCISED IN-THE-MONEY
1/31/00* OPTIONS AT 1/31/00
NAME EXERCISEABLE/UNEXERCISABLE EXERCISEABLE/UNEXERCISABLE
- ------------------------------------------------- ----------------------------- -------------------------------------
<S> <C> <C>
Edward C. Kelly.................................. 1,200,000 0
</TABLE>
- ------------------------
* The value of unexercised in-the-money options has been determined based on
the fair market value of the common shares as determined by our board of
directors on the date of the option grant.
COMPENSATION OF DIRECTORS.
Directors are paid an annual fee of $10,000 plus reasonable expenses
commencing as of such date. Accrued compensation for Messrs. Kelly and Klarich
accumulates at $10,000 per year. Messrs. Kelly and Klarich are each owed $20,000
of accrued compensation. When we begin to generate revenues we will be in a
position to evaluate compensation to directors. Our board will determine when
and if, this action can be taken.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
On October 1, 1994 we 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 and was
automatically renewable for additional one year terms after expiration on
September 30, 1996. The employment agreement was subsequently amended effective
May 1, 1995 and expires on April 30, 2001. Mr. Kelly's employment agreement was
amended by the board of directors and any future amendments or extensions will
be made by them.
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Certificate of Incorporation provides we will indemnify our officers and
directors for monetary damages for any breach of fiduciary duty. Notwithstanding
the prior sentence, a director or officer shall be liable for acts or omissions
which involve intentional misconduct, fraud or a knowing violation of law. We
have been informed, that in the opinion of the U.S. Securities and Exchange
Commission, the indemnification of directors and officers for liabilities
arising under the Securities act of 1933, as amended ("Act"), is against public
policy expressed by the Act and is therefore unenforceable.
23
<PAGE>
PRINCIPAL SECURITYHOLDERS
The following table sets forth, as of January 31, 2000, the ownership of
common stock by persons known to the Company who own beneficially more than 5%
of the outstanding shares of common stock:
<TABLE>
<CAPTION>
AMOUNT & NATURE OF
NAME & ADDRESS OF BENEFICIAL PERCENT
BENEFICIAL OWNER OWNERSHIP OF CLASS
- ----------------------------------------------------------------------------------- ------------------- -----------
<S> <C> <C>
Edward C. Kelly.................................................................... 1,568,650 5%
650 Sentry Parkway, Ste. One
Blue Bell, PA 19422 (1)
Lancaster Investment Corporation................................................... 2,200,000 7%
11 Waterfront Estates
Estates Drive
Lancaster, PA 17602 (2,3)
L. Eric Whetstone.................................................................. 539,000 1.9%
11 Waterfront Estates
Estates Drive
Lancaster, PA 17602 (3,4)
Whetstone Ventures Corporation, Inc. .............................................. 777,000 2.7%
11 Waterfront Estates
Estates Drive
Lancaster, PA 17602 (3)
</TABLE>
- ------------------------
(1) Does not include an option for 1,000,000 shares of common stock granted by
the Board of Directors on July 1, 1998 exercisable until July 1, 2000 at .50
per share; an option for 100,000 shares of common stock exercisable until
July 31, 2000 @.50 per share and an option for 100,000 shares of common
stock exercisable until July 31, 2002 @.50 per share.
(2) Does not include 900,00 additional shares issued to Lancaster Investments
pursuant to the terms of the April 1998 financing. These additional shares
are being held in escrow pending the complete funding of the transaction and
will be released from escrow on a pro-rata basis as the financing is
completed. As of January 31, 2000, $1,050,000 of the total $1,500,000
financing has been received and 2,100,000 of the total 3,000,000 shares have
been released.
(3) Lancaster Investment Corporation and Whetstone Ventures Corp. are both
affiliates of L. Eric Whetstone. In aggregate, the 3,516,000 shares
currently owned by these three parties represent 12.7% of the outstanding
shares of the Company.
(4) Includes 150,000 shares of common stock issued to L. Eric Whetstone in
connection with the April 1998 financing from Lancaster Investment Corp.
24
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of January 31, 2000, the beneficial
common stock ownership of all directors, executive officers, and of all
directors and officers as group:
<TABLE>
<CAPTION>
AMOUNT & NATURE OF
NAME & ADDRESS OF BENEFICIAL PERCENT
BENEFICIAL OWNER OWNERSHIP OF CLASS
- ----------------------------------------------------------------------------------- ------------------- -----------
<S> <C> <C>
Edward C. Kelly.................................................................... 1,568,650 5%
650 Sentry Parkway, Ste. One
Blue Bell, PA 19422 (1)
Leonard J. Klarich................................................................. -- --
839 Claybrook Court
Knoxville, TN 37923 (2)
Jurgen A. Wolf..................................................................... -- --
1285 West Pender Street
Vancouver, B.C. Canada (3)
Ian D. Lambert..................................................................... 230,000 LESS THAN1%
c/o International Tasty Fries, Inc.
595 Howe Street, Ste. 602
Vancouver, B.C. V6C 2T5 (4)
Kurt R. Ziemer..................................................................... 640,000 2%
599 Valley View Drive
New Holland, PA 17557 (5)
All Officers and Directors as a group (5 persons).................................. 2,438,650 8%
</TABLE>
- ------------------------
(1) Does not include an option for 1,000,000 shares of common stock granted by
the Board of Directors on July 1, 1998 exercisable until July 1, 2000 at .50
per share; an option for 100,000 shares of common stock exercisable until
July 31, 2000 @.50 per share and an option for 100,000 shares of common
stock exercisable until July 31, 2002 @.50 per share.
(2) Does not include: (a) an option to purchase 1,042 shares of common stock
exercisable at $2.40 per share until December 15, 2005, automatically
granted to each non-employee director under the 1995 Stock Option Plan on
December 15, 1995, and (b) an option to purchase 4,082 shares of common
stock exercisable at $2.45 per share until December 15, 2006, automatically
granted to each non-employee director under the 1995 Stock Option Plan.
(3) Does not include: (a) an option to purchase 1,042 shares of common stock
exercisable $2.40 per share until December 15, 2005, automatically granted
to each non-employee director under the 1995 Stock Option Plan on
December 15, 1995 and (b) an option to purchase 4,082 shares of common stock
exercisable at $2.45 per share until December 15, 2006, automatically
granted to each non-employee director under the 1995 Stock Option Plan.
(4) 436,952 shares were issued to International Tasty Fries, Inc. in 1995 as
consideration for a financing. Mr. Lambert is the President of International
Tasty Fries and is a shareholder of that company. Does not include: (a) an
option to purchase 1,042 shares of common stock exercisable at $2.40 per
share until December 15, 2005, automatically granted to each non-employee
director under the 1995 Stock Option Plan on December 15, 1995 and (b) an
option to purchase 4,082 shares of common stock exercisable at $2.45 per
share until December 15, 2006, automatically granted to each non-employee
director under the 1995 Stock Option Plan.
(5) Does not include 680 shares underlying an option exercisable at $2.45 per
share until December 15, 2006, automatically granted to each non-employee
director under the 1995 Stock Option Plan. Mr. Ziemer's option has been
prorated to reflect the date he was appointed to the Board of Directors on
October 4, 1996.
25
<PAGE>
CERTAIN TRANSACTIONS
In connection with the Subscription Agreement dated April 13, 1998 between
us and Lancaster Investment Corp., we granted Whetstone Ventures, Inc. the right
to name one of the five directors to the Board of Directors of Tasty Fries, Inc.
Together with a previous right of appointment (from the April 1996 stock
purchase agreement), Whetstone Ventures, Inc. may appoint two members to the
Board of Directors of Tasty Fries, Inc. Whetstone has only appointed Kurk
Ziemer.
Except as described in this Prospectus, there are no arrangements, known to
us, including any pledge by any person of our securities, the operation of which
may at a subsequent date result in a change in control of Tasty Fries.
In the normal course of business, we have engaged Louis Kelly, son of Edward
C. Kelly, President, to render certain legal services to us. Louis Kelly owns
approximately 11,000 of our shares. We believe that the fees paid for these
services were comparable to those which would have been paid to an attorney with
no relationship with an officer.
DESCRIPTION OF SECURITIES
THE COMPANY
Our capital stock consists of 50,000,000 shares of common stock, $.001 par
value, of which 27,719,011 shares are issued and outstanding as of January 31,
2000. Tasty Fries 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 non-assessable.
Holders of our 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, 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 our common stock other than as referred to herein.
PREFERRED STOCK
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 Tasty Fries. See "RISK FACTORS--OUR
CERTIFICATE OF INCORPORATION AUTHORIZES THE ISSUE OF PREFERRED STOCK THAT COULD
PRESENT A RISK TO SHAREHOLDERS."
WARRANTS
As of January 31, 2000, the Company had warrants to purchase common stock
outstanding. Warrants to purchase 1,343,250 shares expire before January 31,
2001; to purchase 2,973,831 shares
26
<PAGE>
expire before January 31, 2002; to purchase 150,000 shares before January 31,
2003 and to purchase 15,272 shares in subsequent years.
SHARES ELIGIBLE FOR FUTURE SALE
As of January 31, 2000 (assuming no exercise of options or warrants after
that date), there were 27,719,011 shares of common stock outstanding. Of these,
including the shares sold this offering, 15,336,145 are freely tradable without
restriction under the Securities Act of 1933, as amended (the "Act"). The
remaining 12,382,866 shares will be "restricted shares" as that term is defined
in Rule 144 ("Restricted Shares") of the Act. Restricted Shares may be sold in
the public market only if registered or if they qualify for an exemption from
registration under Rule 144 of the Act.
<TABLE>
<CAPTION>
SHARES
DAYS AFTER DATE OF ELIGIBLE
THIS PROSPECTUS FOR SALE COMMENT
- ----------------------- -------------- -----------------------
<S> <C> <C>
Upon Effectiveness 4,200,000 Shares Sold in the
offering
6 months 8,828,688 Shares saleable under
12 months 3,554,278 Rules 144 and 144(k)
</TABLE>
In general, under the new provisions of Rule 144, a person (or persons whose
shares are aggregated) who has satisfied a one (1) 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 two (2) 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--12,382,966 OR 43% OF OUR TOTAL
OUTSTANDING SHARES ARE RESTRICTED FROM IMMEDIATE RESALE BUT MAY BE SOLD INTO THE
MARKET IN THE NEAR FUTURE. THIS COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK
TO DROP SIGNIFICANTLY, EVEN IF OUR BUSINESS IS DOING WELL" and "PLAN OF
DISTRIBUTION."
CONCURRENT OFFERING
Concurrently with this offering of 4,200,000 shares of common stock, we are
registering 2,270,000 of common stock for concurrent future sales by the selling
securityholders.
TRANSFER AGENT
The Company's transfer agent for the common stock and Warrants is
StockTrans, Inc. located at 7 East Lancaster Avenue, Ardmore, Pennsylvania
19003-2318; telephone number (610) 649-7300.
PLAN OF DISTRIBUTION
This offering is a "best-efforts" offering, and will not be underwritten nor
will any underwriter be engaged for the marketing, distribution or sale of any
shares registered hereby. We may sell shares
27
<PAGE>
from time to time in one or more transactions directly by us or, alternatively,
we may offer the shares through dealer, brokers or agents, who may receive
compensation in the form of concession or commissions. Any dealers, brokers or
agents that participate in the distribution of shares may be deemed to be
underwriters, and any profits on the sale of the shares by them and any
discounts or commissions received by any such dealer, brokers or agents may be
deemed to be underwriting discounts and commission under the Act.
To the extent required at the time a particular offer of the shares is made,
a supplement to this Prospectus will be distributed which will set forth the
number of shares being offered and the terms of the offering.
To comply with the securities laws of certain jurisdictions, as applicable,
the common stock maybe be offered and sold only through registered or licensed
brokers or dealers. If dealers are engaged, the total discount, commission and
fees paid to licensed brokers and dealers in connection with the sale of shares
will not exceed 10% of the selling price. In addition, the common stock may not
be offered or sold in certain jurisdictions unless they are registered or
otherwise comply with the applicable securities laws of such jurisdictions by
exemption, qualification or otherwise.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Beckman,
Millman & Sanders, LLP Attorneys at Law, New York, New York.
EXPERTS
The financial statements of Tasty Fries, Inc. as of January 31, 2000, 1999
and 1998, 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.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission (the "Commission")
a registration statement on Form SB-2 under the Act with respect to the 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 us and the 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.
We are subject to the informational requirements of the Exchange Act, and in
accordance therewith files reports and other information with the Commission.
Such reports and 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. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. The
Commission also maintains a web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The Commission's web site can be accessed at
http://www.sec.gov.
28
<PAGE>
TASTY FRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998
<PAGE>
TASTY FRIES, INC.
TABLE OF CONTENTS
JANUARY 31, 2000, 1999 AND 1998
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditor's Report................................ F-3
Financial Statements:
Balance Sheets............................................ F-4
Statements of Operations.................................. F-5
Statements of Changes in Stockholder's Equity
(Deficiency)............................................ F-6
Statements of Cash Flows.................................. F-7
Notes to Financial Statements............................... F-8-18
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Tasty Fries, Inc.
We have audited the accompanying balance sheet of Tasty Fries, Inc. (a
development stage company) as of January 31, 2000, and the related statements of
operations, stockholders' equity (deficiency), and cash flows for the year ended
January 31, 2000 and for the period from October 18, 1985 (inception) to
January 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of Tasty
Fries, Inc. (a development stage company) as of January 31, 1999 and 1998 were
audited by Schiffman Hughes Brown, PC (whose practice became a part of Larson,
Allen, Weishair & Co., LLP effective January 1, 2000) whose report dated
March 30, 1999 expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tasty Fries, Inc. as of
January 31, 2000, and the results of its operations and its cash flows for the
year ended January 31, 2000 and from October 18, 1985 (inception) to
January 31, 2000, 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 a net capital
deficiency, which raises substantial doubt about its ability to continue as a
going concern. Management's plans regarding those matters also are described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
LARSON, ALLEN, WEISHAIR & CO., LLP
Blue Bell, Pennsylvania
March 31, 2000
F-2
<PAGE>
TASTY FRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
JANUARY 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 10,703 $ 66,394
Prepaid expenses.......................................... 123,313
------------ ------------
Total current assets........................................ 10,703 189,707
------------ ------------
Furniture and office equipment, net of accumulated
depreciation of $57,437 in 2000 and $45,400 in 1999....... 20,258 24,777
------------ ------------
Other assets:
Vending machines.......................................... 195,000 195,000
Loan costs, net of accumulated amortization of $107,026 in
1999.................................................... 129,831
------------ ------------
195,000 324,831
------------ ------------
$ 225,961 $ 539,315
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses..................... $ 773,576 $ 1,070,751
Shareholder loan payable.................................. 900,000
------------ ------------
Total current liabilities................................... 1,673,576 1,070,751
------------ ------------
Unearned revenue............................................ 320,000 261,000
------------ ------------
Commitments and contingencies
Stockholders' deficiency:
Common stock, $.001 par value; authorized 50,000,000
shares; issued and outstanding 27,719,011 shares at
January 31, 2000 and 17,995,606 shares at January 31,
1999.................................................... 27,719 17,996
Additional paid-in capital................................ 17,347,811 13,426,963
Deficit accumulated in development stage.................. (19,143,145) (14,237,395)
------------ ------------
(1,767,615) (792,436)
------------ ------------
$ 225,961 $ 539,315
============ ============
</TABLE>
See accomanying notes to financial statements
F-3
<PAGE>
TASTY FRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 31, 2000, 1999 AND 1998
AND FOR THE PERIOD OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 2000
<TABLE>
<CAPTION>
CUMULATIVE
SINCE
INCEPTION 2000 1999 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.................................. $ 0 $ 0 $ 0 $ 0
------------ ----------- ----------- -----------
Costs and expenses:
Research, machine and product
development........................... 2,479,335 144,403 460,417 533,458
Selling, general and administrative..... 12,517,877 3,405,895 1,660,404 2,670,980
Reacquired distributorships............. 221,500 221,500
Litigation settlements.................. 2,344,750 1,125,000 114,688
Non-recurring compensation charge....... 1,031,250 1,031,250
------------ ----------- ----------- -----------
18,594,712 4,896,798 2,120,821 4,350,376
------------ ----------- ----------- -----------
Net loss before other income (expense).... (18,594,712) (4,896,798) (2,120,821) (4,350,376)
------------ ----------- ----------- -----------
Other income (expense):
Interest income......................... 21,274 1,354 10,892
Forfeited distributor deposits.......... 15,000
Interest expense........................ (584,707) (8,952) (53,110) (459,104)
------------ ----------- ----------- -----------
(548,433) (8,952) (51,756) (448,212)
------------ ----------- ----------- -----------
Net loss.................................. $(19,143,145) $(4,905,750) $(2,172,577) $(4,798,588)
============ =========== =========== ===========
Net loss per share of common stock........ $ (.23) $ (.17) $ (.78)
=========== =========== ===========
Weighted average shares outstanding....... 21,341,885 12,518,419 6,128,198
=========== =========== ===========
</TABLE>
See accompanying note to financial statements
F-4
<PAGE>
TASTY FRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD JANUARY 31, 1996 TO JANUARY 31, 2000
<TABLE>
<CAPTION>
PAID TOTAL
COMMON IN RETAINED STOCKHOLDER
STOCK CAPITAL EARNINGS EQUITY
-------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Balance, February 1, 1997.................... $ 4,700 $ 6,097,275 $ (7,266,230) $(1,164,255)
Issuance of 1,500,000 shares for
non-recurring compensation................. 1,500 1,029,750 1,031,250
Issuance of 167,083 shares of restricted
stock...................................... 167 53,583 53,750
Issuance of 955,000 shares for services...... 955 1,239,045 1,240,000
Issuance of 43,750 shares for litigation
settlement................................. 44 54,644 54,688
Issuance of 700,000 shares for convertible
notes...................................... 700 396,979 397,679
Issuance of 452,772 shares for repayment of
notes payable.............................. 452 523,587 524,039
Issuance of 120,000 shares for repayment of
notes payable officer/director............. 120 175,830 175,950
Net loss for the year ended January 31,
1998....................................... (4,798,588) (4,798,588)
------- ----------- ------------ -----------
Balance, January 31, 1998.................... 8,638 9,570,693 (12,064,818) (2,485,487)
Issuance of 2,251,307 shares................. 2,252 1,017,748 1,020,000
Issuance of 5,586,150 shares for convertible
notes...................................... 5,586 2,196,735 2,202,321
Issuance of 42,704 shares for interest on
convertible notes.......................... 43 26,385 26,428
Issuance of 1,226,815 shares for services.... 1,227 490,652 491,879
Issuance of 250,000 shares for repurchase of
distributorship............................ 250 124,750 125,000
Net loss for year ended January 31, 1999..... (2,172,577) (2,172,577)
------- ----------- ------------ -----------
Balance, February 1, 1999.................... 17,996 13,426,963 (14,237,395) (792,436)
Issuance of 3,789,000 shares................. 3,789 1,152,384 1,156,173
Issuance of 250,000 shares for litigation
settlement................................. 250 124,750 125,000
Issuance of 5,184,405 shares for service..... 5,184 2,394,214 2,399,398
Issuance of 500,000 shares for repurchase of
distributorship............................ 500 249,500 250,000
Net loss for year ended January 31, 2000..... (4,905,750) (4,905,750)
------- ----------- ------------ -----------
Balance, January 31, 2000.................... $27,719 $17,347,811 $(19,143,145) $(1,767,615)
======= =========== ============ ===========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
TASTY FRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 2000, 1999 AND 1998
AND FOR THE PERIOD OCTOBER 18, 1985 (INCEPTION) TO JANUARY 31, 2000
<TABLE>
<CAPTION>
CUMULATIVE
SINCE
INCEPTION 2000 1999 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(19,143,145) $(4,905,750) $(2,172,577) $(4,798,588)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization........................... 294,293 141,869 90,756 37,596
Common stock issued for services........................ 6,147,413 2,399,398 491,879 2,299,411
Common stock issued for litigation settlement........... 649,689 125,000 54,689
Common stock issued for interest on convertible notes... 26,427 26,427
Common stock issued for repurchase of
distributorships...................................... 250,000 250,000
Accrued interest on notes and convertible notes
payable............................................... 398,577 398,577
Changes in assets and liabilities:
Other assets............................................ (195,000) 123,313 (248,313) 9,027
Accounts payable and accrued expenses................... 773,577 (297,175) 437,709 (249,035)
Unearned revenue........................................ 445,000 59,000 10,000
------------ ----------- ----------- -----------
Net cash used by operating activities....................... (10,353,169) (2,104,345) (1,364,119) (2,248,323)
------------ ----------- ----------- -----------
Cash flows from investing activities:
Purchase of furniture and office equipment................ (77,695) (7,519) (22,827)
Loan costs................................................ (236,856) (236,856)
------------ ----------- -----------
Net cash used by investing activities....................... (314,551) (7,519) (259,683)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from convertible notes payable................... 2,600,000 2,600,000
Issuance of common stock.................................. 6,905,173 1,156,173 1,020,000 53,750
Loan receivable, officers................................. 30,377 69,623
Note payable, current..................................... 1,093,250 900,000 133,250
Officer/director note..................................... 80,000 30,000
------------ ----------- ----------- -----------
Net cash provided by financing activities................... 10,678,423 2,056,173 1,050,377 2,886,623
------------ ----------- ----------- -----------
Net increase (decrease) in cash............................. 10,703 (55,691) (313,742) 378,617
Cash, beginning balance..................................... 66,394 380,136 1,519
------------ ----------- ----------- -----------
Cash, ending balance........................................ $ 10,703 $ 10,703 $ 66,394 $ 380,136
============ =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 54,803 $ 8,952 $ 10,500
============ =========== ===========
Supplemental disclosures of non-cash financing activities:
Issuance of common stock for services..................... $ 5,877,413 $ 2,399,398 $ 491,879 $ 2,299,411
============ =========== =========== ===========
Issuance of common stock for conversion of note payable... $ 2,675,000 $ 2,202,321 $ 397,679
============ =========== ===========
Issuance of common stock for repurchase of
distributorship......................................... $ 475,000 $ 250,000 $ 125,000
============ =========== ===========
Issuance of common stock for litigation settlement........ $ 649,689 $ 125,000 $ 54,689
============ =========== ===========
Accrued interest on notes payable......................... $ 398,577 $ 398,577
============ ===========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
TASTY FRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2000, 1999 AND 1998
NOTE 1 DESCRIPTION OF BUSINESS:
The Company is a development stage company since it has not completed
designing, testing, and manufacturing its sole product, a vending machine that
will cook and dispense french fries. The Company has incurred research and
development costs from inception to January 31, 2000 totaling $2,479,335. The
Company has received ten pre-production prototype machines primarily used for
demonstrative and sales purposes, and it is anticipated that each machine can be
sold for approximately $9,000. The Company is currently in the process of
producing its first 25 machines, which are approximately 70% complete and
included in vending machines at $125,000. The difference between the anticipated
manufacturing price per machine ($7,000) and the cost to obtain the machines has
been charged to research, machine and product development costs. 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
significant revenues from operations from the sale of its french fry vending
machine since inception and its ability to continue as a going concern is
dependent on the continuation of financing to fund the expenses relating to
successfully manufacturing and marketing the vending machine. Management is
currently in negotiations with several funding sources to provide the working
capital necessary to: (i) begin commercial production of the machines, and
(ii) bring them to market, at which time the Company believes that sufficient
cash will be generated to support its operations. Although management cannot
assure the ultimate success of the above plan.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES:
FURNITURE AND OFFICE EQUIPMENT:
Furniture and office equipment are carried at cost. Depreciation is
calculated using the straight-line method over their estimated useful lives
ranging from 3 to 7 years. Depreciation expense for January 31, 2000, 1999 and
1998 was $12,037, $11,805 and $9,522, respectively.
INTANGIBLES:
Intangibles, consisting of loan costs, were amortized on a straight-line
basis over three years.
RESEARCH, MACHINE AND PRODUCT DEVELOPMENT:
Research and development costs consist of expenditures incurred by the
Company during the course of planned search and investigation aimed at the
discovery of new knowledge which will be used to develop and test a vending
machine and potato product for the formation of french fries. Research and
development costs also include costs for significant enhancements or
improvements to the machine and/or potato product. The Company expenses all such
research and development costs as they are incurred.
IMPAIRMENT OF LONG-LIVED ASSETS:
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"), assets are generally evaluated on a
market-by-market basis in making a determination as to whether such assets are
impaired. At each year-end, the Company reviews its long-lived assets for
impairment based
F-7
<PAGE>
TASTY FRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000, 1999 AND 1998
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
on estimated future nondiscounted cash flows attributable to the assets. In the
event such cash flows are not expected to be sufficient to recover the recorded
value of the assets, the assets are written down to their estimated fair values.
INCOME TAXES:
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consists of taxes currently due plus deferred taxes
related primarily to differences between the basis of balance sheet items for
financial and income tax reporting. There is no difference between the basis for
financial and income tax reporting, thus no deferred tax asset or liability was
recorded.
UNEARNED REVENUE:
Represents monies received for distribution rights of the vending machines,
which the Company is still in the process of developing and testing. The Company
records these monies as unearned revenue upon receipt. These deferrals will be
recognized as income over the life of the machine upon commercial production of
machines or upon forfeiture by distributors as a result of breach of contract.
Since commercial production of the machine has not commenced, the unearned
revenue is classified as a non-current liability.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount reported in its financial statements and
accompanying notes. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK:
The Company occasionally maintains deposits in excess of federally insured
limits. The risk is managed by maintaining all deposits in high quality
financial institutions.
EARNINGS PER SHARE:
In March 1997, the FASB issued SFAS No. 128, EARNINGS PER SHARE. The
statement requires the Company to disclose both basic earnings per share and
diluted earnings per share for annual and interim periods ending after
December 15, 1997. Basic net income per share is based on the weighted average
number of common shares outstanding, while diluted net income per share is based
on the weighted average number of common shares and common share equivalents
that would arise from the exercise of options and warrants or conversion of
convertible securities. The Company incurred losses from operations in 2000,
1999 and 1998; therefore, basic and diluted earnings per share have been
computed in the same manner since the exercise of warrants and the conversion of
the convertible notes payable would be antidilutive.
F-8
<PAGE>
TASTY FRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000, 1999 AND 1998
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENT:
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133, which is effective, as
amended, for all quarters in fiscal years beginning after June 15, 2000,
establishes accounting and reporting standards for derivative financial
instruments and hedging activities related to those instruments, as well as
other hedging activities. As the Company does not currently engage in derivative
or hedging activities, the adoption of this standard is not expected to have a
significant impact on the Company's financial statements.
NOTE 3 VENDING MACHINES:
Vending machines are carried at the lower of cost or market. During the year
ended January 31, 1995, the Company paid to Premier, $246,600, for the
production of ten preproduction machines. In the year ended January 31, 1995,
the Company charged $176,600 to research and development expense. Balance as of
January 31, 2000 is $70,000.
During the year ended January 31, 2000 and 1999, the Company paid various
third parties $82,907 and $264,782, respectively, for the production of the
first 25 commercial machines. Of the amount paid, the Company charged $82,907
and $139,782, respectively, to research and development expense. Balance as of
January 31, 2000 and 1999 is $125,000.
NOTE 4 LOANS RECEIVABLE, OFFICERS:
In May 1995, an officer borrowed $50,000 from the Company. The loan was
repaid, along with interest at 10% per annum, in accordance with a payment plan
over the current and past fiscal years. The balance due the Company at
January 31, 1998 was $24,747 and was fully repaid the following year.
In August, 1996, another officer borrowed $50,000 from the Company. This
loan was repaid, along with interest at 10% per annum, in accordance with a
payment plan over the current and past fiscal years. The balance due the Company
at January 31, 1998 was $5,630. This loan was repaid in full during the
following year.
NOTE 5 PREPAID EXPENSES:
Prepaid expenses consisted of payments for legal services not rendered as of
January 31, 1999.
NOTE 6 NOTES PAYABLE:
A $50,000 unsecured note from a shareholder, which bears interest at the
rate of 8% per annum was due June 4, 1993 but was extended indefinitely. The
Company issued to the noteholder options for 20,000 shares of its common stock
on December 22, 1994, with an exercise price of $.35 per share in consideration
for extending the note indefinitely. The Company issued 9,000 and 4,500 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. This payment of $30,600
on May 5, 1995 includes a principal payment of $25,000 and interest covering the
period June, 1992 to March, 1995 in the amount of $5,600. The 9,000 and 4,500
shares were issued as consideration for indefinitely extending the repayment and
F-9
<PAGE>
TASTY FRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000, 1999 AND 1998
NOTE 6 NOTES PAYABLE: (CONTINUED)
recorded as a financing expense, which is included in selling, general and
administrative expense. In October, 1997, the Company issued 90,547 shares of
its common stock in satisfaction of this debt, including interest. The balance
at January 31, 2000, 1999 and 1998 was $0.
In November, 1996, Mr. McLaughlin, an unrelated third party, advanced the
Company $35,000. This advance bears no interest and repayment is due on demand.
The Company repaid $20,000 in March, 1997; $7,000 in May, 1997; and $8,000 in
June, 1997.
In March 1997, the Company received $282,000 in proceeds from loans made to
the Company by nine individuals, including two directors of the Company (one of
whom is also an officer). These loans were payable on demand and accrued
interest at 10% per annum. The principal and interest due was repaid to these
individuals in the form of restricted stock in October 1997. The total number of
shares issued was 482,044.
In October, 1999, the Company received $900,000 in proceeds from a loan made
to the Company by a shareholder. The loan bears an interest rate of 18% per
annum and is due on June 30, 2000. Accrued interest on this loan as of
January 31, 2000 was $53,550.
NOTE 7 CONVERTIBLE NOTES PAYABLE:
In June 1997, the Company received $1,000,000 in exchange for notes
convertible into the Company's common stock. These convertible notes bear
interest at the rate of 7% per annum and are due May 14, 2000. The holders of
these notes were entitled, at their option, to convert any or all of the
principal into the Company's common stock at a conversion price for each share
of common stock equal to 70% of the average closing bid price of common stock
for the five business days immediately preceding the date of receipt of notice
of conversion. Pursuant to the terms of the financing, the Company issued
1,142,857 shares of common stock to be held in escrow, pending the potential
conversion of notes. In September 1997, the note holders converted an aggregate
of $397,679 of principal into 700,000 shares of common stock. In November 1997,
the Company issued an additional 380,000 shares of common stock to be held in
escrow for potential conversion of notes. As of January 31, 1998, the aggregate
outstanding principal balance of the convertible notes is $602,321. The
remaining 822,857 shares of common stock in escrow were not deemed to be
outstanding as of January 31, 1998. In February 1998, an additional 444,000
shares of common stock were issued into escrow, pending conversion of the notes.
During the year ended January 31, 1999, the Company issued 1,480,280 shares of
common stock in satisfaction of the remaining $602,321 of convertible notes.
In November 1997, in a separate transaction, the Company received $1,600,000
in exchange for notes convertible into the Company's common stock. These
convertible notes bear interest at the rate of 6% per annum and are due May 14,
2000. The holders of these notes were entitled, at their option, to convert any
or all of the principal into the Company's common stock at a conversion price
for each share of common stock equal to 70% of the average closing bid price of
common stock for the five business days immediately preceding the date of
receipt of notice of conversion. Pursuant to the terms of the financing, the
Company issued 2,400,000 shares of common stock to be held in escrow, pending
the potential conversion of notes. As of January 31, 1998, the aggregate
outstanding principal balance of the convertible notes is $1,600,000.
F-10
<PAGE>
TASTY FRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000, 1999 AND 1998
NOTE 7 CONVERTIBLE NOTES PAYABLE: (CONTINUED)
The 2,400,000 shares of common stock in escrow were not deemed to be
outstanding as of January 31, 1998. In February 1998, an additional 960,000
shares of common stock were issued into escrow, pending conversion of the notes.
During the year ended January 31, 1999, the Company issued 4,105,870 shares of
common stock in satisfaction of these convertible notes.
NOTE 8 UNEARNED REVENUE:
Unearned revenue represents monies received for the distribution rights of
the vending machines, which the Company is still in the process of developing
and testing, and monies received as deposits on machines in production. The
Company records these monies as unearned revenue upon receipt.
During the year ended January 31, 1999, the Company issued 250,000 shares of
common stock to reacquire an existing distributorship valued at $125,000. The
Company also received during the year $10,000 as a deposit on the machines in
production.
During the year ended January 31, 2000, the Company issued 500,000 shares of
common stock to reacquire the existing distributorships valued at $41,000. The
Company received $100,000 as a deposit on the machines in production. At
January 31, 2000, 1999 and 1998, amounts related to distribution rights were
$210,000, $251,000 and $376,000, respectively. As of January 31, 2000 and 1999,
deposits on machines totaled $110,000 and $10,000, respectively.
NOTE 9 COMMITMENTS AND CONTINGENCIES:
During the years ended January 31, 2000, 1999 and 1998, the Company paid
$42,946, $43,314, and $49,284, respectively, for the rental of office space. The
Company's current lease commitments total approximately $3,628 per month until
May 31, 2000.
NOTE 10 ISSUANCE OF COMMON STOCK:
The Company issued an aggregate of 9,723,405 shares during the year ended
January 31, 2000. 3,789,000 shares were sold in private placements by the
Company, 5,184,405 shares were issued in payment of services, 250,000 shares
were issued for litigation settlement and 500,000 shares were issued for
repurchase of distributorships.
After the return to treasury of a total of 287,500 shares, an aggregate of
9,356,976 shares were issued during the year ended January 31, 1999. The
following shares were issued during the year: 2,251,307 shares were sold in
private placements by the Company; 5,628,854 shares were issued pursuant to the
terms of the Company's convertible note financing (this figure includes shares
issued for interest on the notes); 1,226,815 shares were issued in payment of
services; 250,000 shares were issued as consideration for the re-acquisition of
an existing distributorship.
An aggregate of 3,938,605 shares were issued during the year ended
January 31, 1998, including: 1,500,000 shares issued to the President as a
one-time, non-recurring compensation event; 3,922,857 shares issued into escrow,
pursuant to the June and November, 1997 convertible notes financing; 572,772
shares issued for repayment of notes payable (including notes payable to
officers/director);
F-11
<PAGE>
TASTY FRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000, 1999 AND 1998
NOTE 10 ISSUANCE OF COMMON STOCK: (CONTINUED)
167,083 shares issued in private placements of restricted common stock; 955,000
shares were issued as payment for services; 43,750 shares issued for settlement
of litigation.
The total shares issued during the year ended January 31, 1997 were
1,580,000 shares; 1,455,000 shares were sold in private placements by the
Company and 125,000 shares were issued in payment for consulting and legal
services.
Subsequent to January 31, 1999, the Company has issued additional shares and
warrants to purchase common stock to various parties as payment for services
rendered. The Company intends to continue this practice when appropriate.
NOTE 11 LITIGATION:
CALIFORNIA FOOD AND VENDING INC. LITIGATION
On July 12, 1999, the Company and California Food and Vending Inc. (CFV)
settled the case. Tasty Fries regained its State of California distributorship
which was owned by CFV. CFV gave up its rights to share equally in the first
$4,000,000 of international and domestic distributorship fees to be paid to
Tasty Fries when it commences the commercial delivery of its machines and twenty
five percent of all such fees paid to Tasty Fries after the first $4,000,000.
CFV will receive a royalty of $350 for each of the first 500 machines produced
and $450 thereafter. CFV will also receive $.25 for each pound of potato product
sold by Tasty Fries. CFV received 250,000 shares of the Company's common stock
valued at $125,000 and $1,000,000 cash.
On August 17, 1998, CFV filed a multi-count law suit in the United States
District Court for the Central District of California alleging that Tasty Fries
and its Chief Executive Officer, Edward C. Kelly, had not complied with the
parties prior settlement agreement by failing to sell distributorships,
misrepresenting the Company's financial condition at the time of the settlement
and completing a reverse split of the Company's stock after the settlement,
reducing the number of CFV's options to purchase the Company's stock and
increasing the cost of the options. Tasty Fries countersued California Food &
Vending charging that it had breached its fiduciary responsibility as Tasty
Fries' distributor by failing to market and promote the TFRY French fry vending
machine and by unsuccessfully attempting to introduce its own machine.
In February, 1995, the Company reached a settlement agreement with CFV,
which supersedes an arbitration award from October 1994 granted in CFV's favor
that resulted from an agreement between the two parties. In addition to a
one-time cash payment, the settlement agreement provides for: (i) payment to CFV
of a royalty per machine sold consisting of $350 per machine for the first 500
machines sold and 35% of the gross profit for machines sold thereafter, up to a
limit of $500 per machine; (ii) payment to CFV of a royalty consisting of $.25
for each pound of potato product sold; (iii) issuance of an option to CFV for
the purchase of 100,000 shares of the Company's common stock at an exercise
price of $2.00 per share through February 1, 1999; and (iv) CFV shall receive an
aggregate of $2,000,000 payable from 50% of all domestic and international gross
distribution fees until paid in full and thereafter 25% of all international
distribution fees. The royalties, fees, and profits payable in the future to CFV
could become material, however, the Company is unable to estimate the
F-12
<PAGE>
TASTY FRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000, 1999 AND 1998
NOTE 11 LITIGATION: (CONTINUED)
amount of this payable since it will be based on future Company sales. These
royalties will be expensed by the Company when incurred.
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. These
1,000,000 shares of common stock were accounted for in the financial statements
at market value at the time of the award (October 25, 1994). The shares were not
issued by the Company until June 1996. On March 4, 1997, the Company agreed to
pay the cross-claimant $60,000 and issue 43,750 shares of common stock at fair
value of $54,688 in settlement of pending litigation.
PRIZE FRIZE LITIGATION
On August 28, 1996, the Company, the President of the Company and Premier
Design, Ltd., were added as defendants to a civil law suit in the Riverside
County Branch of the Superior Court of the State of California brought by Prize
Frize, Inc., William Bartfield and Larry Wirth. The suit also named as
defendants approximately 25 other parties, all allegedly involved, in some
manner, in the pursuit of the french fry vending machine concept and/or
business. The case was removed to Federal Court. The Company successfully moved
for dismissal of the claim on behalf of itself and its President; the case was
dismissed on June 2, 1997. The dismissal was reversed on appeal by the Federal
Court and the case was remanded to State Court.. The plaintiffs' claim against
Tasty Fries was severed. The claims against the President of the Company and
Premier Design, Ltd. were dismissed. The claim brought by Prize Frize asserts
that the Company has usurped its trade secrets by developing a French fry
vending machine which utilizes the basic American food potato product. The
Company denies the allegations and is vigorously defending the litigation. It is
the opinion of the Company's counsel that Prize Frize's lawsuit lacks merit and
that the Company will prevail.
NOTE 12 INCENTIVE STOCK OPTION PLAN:
As of September 18, 1995, the Company established an incentive stock option
plan (the Plan) and presently has reserved 1,500,000 shares of the Company's
common stock for issuance under the Plan. Options granted pursuant to the Plan
at January 31, 1997 were 12,926, and those options were granted to certain
non-employee directors of the Company. The exercise price was $2.45 and vested
immediately. In 1999 and 1998 no options were granted All issuances were granted
at not less than fair market value of the Company's common stock at time of
grant. As of January 31, 2000 and 1999, no options have been exercised.
Transactions in the Plan since inception are as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE WEIGHTED AVERAGE
GRANTED VESTED PER VESTED EXERCISE PRICE PER
SHARES SHARES COMMON STOCK VESTED COMMON SHARE
-------- -------- -------------- -------------------
<S> <C> <C> <C> <C>
Balance, January 31, 1996................... 0 0
Activity during the year ended January 31,
1997...................................... 12,926 12,926 $2.45 $2.45
------ ------
Balance, January 31, 1997, 1998, 1999,
2000...................................... 12,926 12,926 $2.45
====== ======
</TABLE>
F-13
<PAGE>
TASTY FRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000, 1999 AND 1998
NOTE 12 INCENTIVE STOCK OPTION PLAN: (CONTINUED)
The Company accounts for stock-based compensation in accordance with SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION which permits the use of the
intrinsic value method described in APB Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and requires the Company to disclose the pro forma effects
of accounting for stock-based compensation using the fair value method as
described in the optional accounting requirements of SFAS No. 123. As permitted
by SFAS No. 123, the Company will continue to account for stock-based
compensation under APB Opinion No. 25, under which the Company has recognized no
compensation expense.
Had compensation cost for the Company's stock option plan been determined
based on the fair value of the Company's common stock at the dates of awards
under the fair value method of SFAS No. 123, the Company's net income and net
income per common share would have been reduced to the pro forma amounts
indicated below.
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net income:
As reported.......................... $(4,905,750) $(2,172,577) $(4,798,588)
Pro forma............................ (4,905,750) (2,172,577) $(4,798,588)
Net loss per common share:
As reported.......................... (.23) (.17) (.78)
Pro forma............................ (.23) (.17) (.78)
</TABLE>
Significant assumptions used to calculate the above fair value of the awards
are as follows:
<TABLE>
<S> <C>
Risk free interest rates of return.......................... 5.00%
Expected option life........................................ 60 months
Volatility.................................................. 20%
Expected dividends.......................................... $0
</TABLE>
NOTE 13 PREFERRED STOCK:
On July 29, 1991, the Board of Directors authorized 5,000,000 shares of
preferred stock at a par value of $.001 per share. No shares of preferred stock
were issued as of January 31, 2000, 1999, and 1998, respectively.
NOTE 14 OPTIONS AND WARRANTS ISSUED AND OUTSTANDING:
As of January 31, 2000, 1999 and 1998, the Company had 5,792,052 and
4,292,052 warrants and options, respectively, to purchase common stock
outstanding. The warrants and options are exercisable at share prices between
$.50 and $3.50 per share and expire at various dates between July, 2000 and
December, 2006.
F-14
<PAGE>
TASTY FRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000, 1999 AND 1998
NOTE 15 INCOME TAXES:
The Company has $18,002,847 in net operating loss carryovers, which can be
used to offset future taxable income. The net operating loss carryforwards
expire through 2015.
The components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Net operating loss carryforwards....... $ 6,300,900 $ 4,620,000 $ 3,860,600
Valuation allowance.................... (6,300,900) (4,620,000) (3,860,600)
----------- ----------- -----------
Deferred tax asset..................... $ 0 $ 0 $ 0
=========== =========== ===========
</TABLE>
NOTE 16 APRIL 1998 FINANCING:
In April 1998, the Company entered into an agreement to receive $1,500,000
in proceeds from the sale of restricted stock to a U.S. corporation. The Company
issued 3,000,000 shares of common stock as consideration for the investment. The
Company also issued warrants to purchase 1,500,000 shares of common stock at an
exercise price of $1.90; the warrants expire April 12, 2001. The Company also
issued 150,000 shares of restricted stock as a commission on the transaction.
The Company and the investor have entered into an escrow agreement for this
transaction and all of the shares were issued into escrow, pending funding. As
of January 31, 2000, $800,000 of the $1,500,000 in proceeds has been received by
the Company and 1,600,000 of the 3,000,000 shares of restricted common stock
held in escrow have been released to the investor. The balance of funds due have
not been received as of the report date.
NOTE 17 NON-RECURRING COMPENSATION CHARGE:
The restricted share issuance of 1,500,000 shares was negotiated between the
Company's President, individually, the Company and a third-party investor as a
component of the April 1996 private placement investment. The transaction
received full approval from the board of directors. The parties in
September 1997 agreed to such issuance in light of the amount and nature of
service performed by the President on the Company's behalf from the time of his
original involvement, as an outside third-party, to the approximate time of the
financing's completion.
NOTE 18 DIRECTORS' FEES:
The Company has accrued unpaid Board of Directors' fees for the years ended
January 31, 1997 through January 31, 2000. Interest has not been accrued on the
unpaid balance. At January 31, 2000 and 1999, the accrued directors' fees were
$210,000 and $160,000, respectively.
F-15
<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
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS SUMMARY.................... 3
SELECTED FINANCIAL DATA............... 4
RISK FACTORS.......................... 5
FORWARD-LOOKING STATEMENTS............ 8
USE OF PROCEEDS....................... 9
DIVIDEND POLICY....................... 9
CAPITALIZATION........................ 9
MANAGEMENT'S DISCUSSION AND
ANALYSIS--PLAN OF OPERATION......... 10
BUSINESS.............................. 12
MARKET FOR COMMON EQUITY.............. 20
MANAGEMENT............................ 21
EXECUTIVE COMPENSATION................ 22
PRINCIPAL SECURITYHOLDERS............. 24
CERTAIN TRANSACTIONS.................. 26
DESCRIPTION OF SECURITIES............. 26
CONCURRENT OFFERING................... 27
TRANSFER AGENT........................ 27
PLAN OF DISTRIBUTION.................. 27
LEGAL MATTERS......................... 28
EXPERTS............................... 28
ADDITIONAL INFORMATION................ 28
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
UNTIL , 2000 (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.
4,200,000 SHARES
TASTY FRIES, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
(Alternate Page for selling securityholder Prospectus)
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
(ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS)
SUBJECT TO COMPLETION, DATED , 2000
PROSPECTUS
TASTY FRIES, INC.
2,270,000 shares of common stock of Tasty Fries, Inc. are being sold by
certain of our security holders (the "selling securityholders"). We will not
receive any proceeds from the sale of the shares by the selling securityholders.
Shares may be offered by selling securityholders from time to time in
transactions (which may include block transactions) in the over-the-counter
market, in negotiated transactions, or a combination of such methods of sale, at
fixed prices which may be changed, at market prices prevailing at a time of
sale, or at negotiated prices. The selling securityholders may effect such
transactions by selling shares directly to purchasers or through broker dealers
who may act as agents or principals. Such broker dealers may receive
compensation in the form of discounts, concessions or commission from the
selling securityholders and/or the purchasers of the selling securityholders'
shares for whom they may sell as principals or both (which compensation as to a
particular broker dealer might be in excess of customary commissions).
The Securities Act of 1933, as amended may impose liability on selling
securityholders or any broker/dealer who may be used by the selling
securityholders for violations of federal securities laws. If the registration
statement contains untrue statements or omissions of material facts, liability
may be imposed on the selling securityholders or any broker/dealer used by the
selling securityholder and/or the broker/dealer.
On the date of this Prospectus, a registration statement under the
Securities Act of 1933 as amended with respect to a self-underwritten offering
of 4,200,000 shares of common stock was declared effective by the Securities and
Exchange Commission.
Our common stock is traded on the OTC Bulletin Board under the symbol
"TFRY". On May 4, 2000, the closing bid price of our common stock as reported on
the OTC Bulletin Board was $.43.
THE SECURITIES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED UNDER THE HEADING "RISK FACTORS"
BEGINNING ON PAGE 5 OF THE PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is
<PAGE>
(ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS)
SECURITIES OFFERED
<TABLE>
<S> <C>
Securities Registered................ 2,270,000 shares of common stock. See "selling
securityholders and Plan of Distribution."
Risk Factors......................... This offering involves a high degree of risk. See "Risk
Factors."
</TABLE>
B
<PAGE>
(Alternate Page for selling securityholders Prospectus
SELLING SECURITY HOLDERS AND PLAN OF DISTRIBUTION
2,270,000 shares of common stock are being registered by this Prospectus on
behalf of the beneficial owners thereof. 700,000 shares of common stock was
issued to Premier Design, Ltd. in satisfaction of our obligation to Premier in
January 2000 to fund 50% of the development costs for the machine. Upon delivery
of the shares to Premier, we received a 50% interest in the patent protecting
the machine. 1,570,000 shares were issued to 5 investors in connection with
their acceptance of shares in lieu of repayment of loans made as of November,
1999. We have agreed to bear all expenses (other than underwriting or selling
expenses), in connection with the registration of the shares.
The selling securityholders have advised us that sales of the common stock
may be effected from time to time by themselves in transactions in the
over-the-counter market, in negotiated transactions or a combination of such
methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, or negotiated prices. The selling
securityholders may effect such transactions by selling common stock directly to
purchasers or through broker-dealers that may act as agents or principals. Such
broker-dealers may receive compensation in the form of discounts, concession or
commissions from the selling securityholders or the purchasers of the shares of
common stock for whom such broker-dealers may act as agents or to whom they sell
as principles, or both (which compensation as to a particular broker-dealer must
be in excess of customary commissions).
The selling securityholders, and any broker-dealers that act in connection
with the sale of the shares of common stock as principals may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act and any
commission received by them and any profit on the resale of the shares of common
stock as principals might be deemed to be underwriting discounts and commissions
under the Securities Act. The selling securityholders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving sales
of the shares of common stock against certain liabilities, including liabilities
arising under the Securities Act. Sales of shares of common stock by the selling
securityholders, or even the potential of such sales, would likely have an
adverse effect on the market price of the common stock.
We are registering the shares of common stock offered in this Prospectus
with the Securities and Exchange Commission to permit secondary trading. As a
result, the selling securityholders may offer all or part of the shares for
resale to the public at any time. We will not receive any proceeds from the sale
of shares by the selling securityholders.
The following table sets forth as of the date hereof certain information
with respect to the persons for whom the Company is registering the shares. None
of the persons has held any position or office with the Company within the past
three years, other than Premier Design, owned by Harry Schmidt (a former
director and previous owner of our patent) and Christopher Plunkett who resigned
as Executive Vice President in June of 1998. Edward C. Kelly, Jr. is the son of
Edward C. Kelly, President of Tasty Fries.*
* Mr. Schmidt formerly had a material relationship with Tasty Fries as a co
owner of the patent for the machine.
<TABLE>
<CAPTION>
BENEFICIAL
BENEFICIAL OWNERSHIP OWNERSHIP AFTER
PRIOR TO OFFERING OFFERING
------------------------ SHARES ----------------------
NAME OF SELLING SECURITYHOLDER SHARES PERCENT OFFERED SHARES PERCENT
- ------------------------------ --------- ------------ --------- ------- ------------
<S> <C> <C> <C> <C> <C>
Edw. C. Kelly, Jr................................................... 255,000 < 1% 255,000 0 0
Thom. M. Monaghan................................................... 75,000 < 1% 75,000 0 0
Frank R. Monaghan................................................... 90,000 < 1% 90,000 0 0
Christopher Plunkett................................................ 400,000 < 1% 150,000 250,000 < 1%
USIS International Capital Corp. (1)................................ 1,000,000 3.6% 1,000,000 0 0
Premier Design, Ltd. (2)............................................ 700,000 2.5% 700,000 0 0
</TABLE>
- ------------------------
(1) Mark Lavi is the beneficial owner of USIS International Capital Corp.
(2) Harry Schmidt is the beneficial owner of Premier Designs.
<PAGE>
(ALTERNATE PAGE FOR SELLING SECURITYHOLDER PROSPECTUS)
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company by Beckman, Millman & Sanders, LLP, attorneys at law, New York, New
York.
EXPERTS
The financial statements of Tasty Fries, Inc. as of January 31, 2000, 1999
and 1998, 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.
D
<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
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS SUMMARY.................... 3
SELECTED FINANCIAL DATA............... 4
RISK FACTORS.......................... 5
FORWARD-LOOKING STATEMENTS............ 8
USE OF PROCEEDS....................... 9
DIVIDEND POLICY....................... 9
CAPITALIZATION........................ 9
DILUTION.............................. 9
MANAGEMENT'S DISCUSSION AND
ANALYSIS--PLAN OF OPERATION......... 10
BUSINESS.............................. 12
MARKET FOR COMMON EQUITY.............. 20
MANAGEMENT............................ 21
EXECUTIVE COMPENSATION................ 22
PRINCIPAL SECURITYHOLDERS............. 24
CERTAIN TRANSACTIONS.................. 26
DESCRIPTION OF SECURITIES............. 26
CONCURRENT OFFERING................... 27
TRANSFER AGENT........................ 27
PLAN OF DISTRIBUTION.................. 27
LEGAL MATTERS......................... 28
EXPERTS............................... 28
ADDITIONAL INFORMATION................ 28
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
UNTIL , 2000 (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.
2,270,000 SHARES
TASTY FRIES, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 ("NGCL"). 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 NGCL 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.
Section 78.751 of the NGCL provides that unless indemnification is ordered
by a court, the determination to provide indemnification must be made by the
stockholders, by a majority vote of a quorum of the board of directors who were
not parties to the action, suit or proceeding, or in specified circumstances by
independent legal counsel in a written opinion. In addition, the articles of
incorporation, bylaws or an agreement made by the corporation may provide for
the payment of the
II-1
<PAGE>
expenses of a director or officer of the expenses of defending an action as
incurred upon receipt of an undertaking to repay the amount if it is ultimately
determined by a court of competent jurisdiction that the person is not entitled
to indemnification. Section 78.751 of the NGCL further provides that, to the
extent a director or officer of a corporation has been successful on the merits
or otherwise in the defense of any action, suit or proceeding referred to in
subsection (1) and (2), or in the defense of any claim, issue or matter therein,
that person shall be indemnified against expenses (including attorney's fees)
actually and reasonably incurred by that person in connection therewith; that
indemnification provided for by Section 78.751 of the NGCL shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled and
that the scope of indemnification shall continue as to directors, officers,
employees or agents who have ceased to hold such positions, and to their heirs,
executors and administrators.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. (TO BE AMENDED)
<TABLE>
<S> <C>
SEC Filing Fee.............................................. $ 601
NASD Filing Fee*............................................ $ 700
Transfer Agent Fee*......................................... $ 750
Printing Costs (including stock certificates)*.............. $ 3,349
Legal fees and expenses*.................................... $50,000
Accounting fees and expenses*............................... $20,000
Blue Sky fees and expenses*................................. $ 0
-------
TOTAL................................................. $75,400
=======
</TABLE>
- ------------------------
* 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.
II-2
<PAGE>
1997 STOCK ISSUANCES
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF NOTE OR
NAME # OF SHARES SOLD WARRANTS AMOUNT OF CONSIDERATION DATE
- ---------------------------------- --------------------------- -------- ------------------------- --------
<S> <C> <C> <C> <C>
Samuel Balan 43,750 Restricted n/a Litigation Settlement 3/20/97
L. Eric Whetstone 25,000 Restricted n/a Consulting Services 4/1/97
UFH Endowment Ltd 7% Note Convertible 87,500 $350,000 5/29/97
into 711,078 Shares
Austo Anstalt Schann 7% Note Convertible into 87,500 $350,000 5/29/97
719,351 Shares
Colbo/UFT 7% Note Convertible into 75,000 $300,000 5/29/97
696,422 Shares
Mordechai Book 5,000 Restricted 10,500 Consulting Services 6/24/97
Rose Marie Fox 47,500 Restricted 106,500 Consulting Services 6/24/97
Andreas Tobler 47,500 Restricted 30,000 Consulting Services 6/24/97
Joseph Gallagher 133,333 Restricted n/a $100,000 9/30/97
In October 1997 the following 9 persons acquired 629,826 Shares for the aggregate sum of $277,000
Jack Lonsdale 18,375 Restricted n/a 10/1/97
Carolyn Hallinan 55,125 Restricted n/a 10/1/97
Albert Proambo 110,607 Restricted n/a 10/1/97
Harry Schmidt 78,750 Restricted n/a 10/1/97
Jurgen Wolf 75,000 Restricted n/a 10/3/97
Leonard Klarich 45,000 Restricted n/a 10/7/97
Eric Cohen 153,219 Restricted n/a 10/9/97
Bradley Whittamore 18,750 Restricted n/a 10/9/97
Carlinde, Inc. 75,000 Restricted n/a 10/22/97
Richard Michael 30,000 Restricted n/a Litigation Settlement 10/23/97
Kurt Ziemer 3,750 Restricted n/a 11/17/97
Ellis Enterprises Ltd. 60,000 Consulting Services 11/5/97
Libra Finance, S.A. 400,000 Consulting Services 11/5/97
Talbia B. Invests. Ltd 60,000 Consulting Services 11/5/97
Anthony Cataldo 250,000 Restricted n/a Canceled 12/3/97
</TABLE>
II-3
<PAGE>
1998 STOCK ISSUANCES
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF NOTE OR
NAME # OF SHARES SOLD WARRANTS AMOUNT OF CONSIDERATION DATE
- ---------------------------------- --------------------------- --------- ------------------------- --------
<S> <C> <C> <C> <C>
Steven Rizzo 2,500 Restricted n/a $5,000 1/29/98
David Hiznay 1,500 Restricted n/a $3,000 1/29/98
Ray Kuzava 2,000 Restricted n/a $4,000 1/29/98
John Schneider 2,500 Restricted n/a $5,000 1/29/98
Janet Kurtz 1,500 Restricted n/a $3,000 1/29/98
Virginia Fasnacht 1,500 Restricted n/a $3,000 1/29/98
Thomas Diehl 1,500 Restricted n/a $3,000 1/29/98
Mark Diehl 1,500 Restricted n/a $3,000 1/29/98
Stephen Macherny 1,500 Restricted n/a $3,000 1/29/98
Kurt Ziemer 20,000 Restricted n/a $40,000 1/29/98
Richard Ziemer 5,000 Restricted n/a $10,000 1/29/98
Richard Machenry 1,500 Restricted n/a $3,000 1/29/98
Austost Anstalt Schaan 6% Note Convertible into n/a $500,000 2/6/98
1,242,499 Shares
Pancontinental Investments Ltd 6% Note Convertible into 105,000 $300,000 2/6/98
791,666 Shares
International Indexed Savings 6% Note Convertible into n/a $75,000 2/6/98
Portfolio Ltd 211,153 Shares
David Morgensteren 6% Note Convertible into n/a $75,000 2/6/98
211,153 Shares
Balmore Funds SA 6% Note Convertible into n/a $500,000 2/6/98
1,242,499 Shares
Guilherme Duque 6% Note Convertible into n/a $150,000 2/6/98
406,899
Mark Lavi 350,000 Restricted n/a Consulting Services 2/12/98
L. Eric Whetstone 112,500 Restricted n/a Consulting Services 2/12/98
Lancaster Investment Corp. 3,000,000 Restricted 1,500,000 $1,050,000/Received 4/3/98
$450,000 Owed
L. Eric Whetstone 150,000 Restricted n/a Consulting Services 4/16/98
Gainey Resources 250,000 Restricted 100,000 Reacquisition of 4/16/98
Distributorship
Pacific Blue Productions 250,000 Restricted n/a Canceled 8/21/98
Magnum Ltd 250,000 Restricted n/a Canceled 10/8/98
James Zellner 175,000 Restricted n/a $70,000 10/28/98
Kurt Ziemer 88,889 Restricted 44,444 $30,000 11/19/98
David Gebhard 25,000 Restricted n/a $10,000 12/22/98
John Schantz 47,618 Restricted 59,524 $20,000 12/22/98
John Schantz 71,429 Restricted n/a $50,000 12/22/98
</TABLE>
II-4
<PAGE>
1999 STOCK ISSUANCES
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF NOTE OR
NAME # OF SHARES SOLD WARRANTS AMOUNT OF CONSIDERATION DATE
- ---------------------------------- --------------------------- -------- ------------------------- --------
<S> <C> <C> <C> <C>
John Schantz 34,482 Restricted 10,000 $10,000 1/20/99
Charles Whetstone 200,000 Restricted n/a $50,000 1/26/99
F.A.T.S., Inc. 150,000 Restricted n/a Canceled 2/4/99
David Rights 1,000,000 Restricted n/a $200,000 3/2/99
E. Benjamin Nelson 300,000 Restricted n/a Consulting Services 3/25/99
Frederick Saunders 500,000 Restricted 300,000 $200,000 4/28/99
Kurt Ziemer 8,889 Restricted n/a Prior Financing 4/21/99
John Schantz 11,905 Restricted n/a Prior Financing 5/21/99
Nitris Co. 100,000 Restricted n/a Canceled 7/6/99
Alan Rabinowitz(1) 200,000 Restricted n/a Reacquisition of 7/6/99
Distributorship
Eli Gertner(2) 200,000 Restricted n/a Reacquisition Of 7/6/99
Distributorship
California Food & Vending 250,000 Restricted n/a Settlement of CF&V 7/27/99
John Schantz 15,000 Restricted 100,000 Services 7/29/99
David Rights 1,000,000 Restricted n/a $200,000 7/30/99
McGinn Smith & Co. 62,500 Restricted n/a Consulting Services 8/25/99
Coolmedia Networks 50,000 Restricted n/a Consulting Services 9/8/99
Amreet Trading Corp. 18% conv. notes n/a $900,000 10/5/99
Mark B. Lavi 1,000,000 Restricted n/a Loan to Company 10/27/99
Ahmed Zohbi 100,000 Restricted n/a $37,000 11/10/99
Ahmed Zohbi 100,000 Restricted 25,000 $37,000 11/16/99
Saber Samadi 50,000 Restricted n/a Consulting Services 11/16/99
Jeffery Greason 50,000 Restricted n/a Consulting Services 12/20/99
Eli Lavi 20,000 Restricted n/a $6,000 1/21/00
Rinyomin Saperstein 24,000 Restricted n/a $7,200 1/21/00
Daniel Figa 20,000 Restricted n/a $6,000 1/21/00
Yossef Lavi 20,000 Restricted n/a $6,000 1/21/00
Joseph Stanaky 30,000 Restricted n/a $9,000 1/21/00
Mary Anne Fleazar 20,000 Restricted n/a $6,000 1/21/00
David Motovich 20,000 Restricted n/a $6,000 1/21/00
Marilyn Columb 20,000 Restricted n/a $6,000 1/21/00
Harrison Kletzel 10,000 Restricted n/a $3,000 1/21/00
Jennifer Chapler 10,000 Restricted n/a $3,000 1/21/00
Tzur Netz 10,000 Restricted n/a $3,000 1/21/00
Linda Schreiber 10,000 Restricted n/a $3,000 1/21/00
Gary Ratzker 30,000 Restricted n/a $9,000 1/21/00
Dennis Ratzker 10,000 Restricted n/a $3,000 1/21/00
Tori Ratzker 10,000 Restricted n/a $3,000 1/21/00
Arlene Ratzker 10,000 Restricted n/a $3,000 1/21/00
</TABLE>
II-5
<PAGE>
In November 1999, the following persons or entities loaned or agreed to loan
$274,000 to the Company and subsequently accepted 1,570,000 shares in repayment
thereof.
<TABLE>
<S> <C> <C> <C> <C>
Edward C. Kelly, Jr. 255,000 Restricted n/a 1/27/00
Thomas Monaghan 75,000 Restricted n/a 1/27/00
Frank Monaghan 90,000 Restricted n/a 1/27/00
USIS International
Capital Corp. 1,000,000 Restricted n/a 1/27/00
Christopher Plunkett 15,000 Restricted n/a 1/27/00
</TABLE>
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 (a) 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, (b) there was no
advertising for or general solicitation of investors, and (c) when said
securities were acquired for investment 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.
II-6
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------------- -----------
<C> <S>
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 Form of Warrant Agreement*
5.0 Opinion of Beckman, Millman & Sanders, LLP 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, as amended,
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*
10.7 Distribution Agreements*
10.8 Manufacturing agreement between Tasty Fries, Inc. and
Premier Designs, Ltd. dated Janaury 28, 1993 as amended.
10.9 Settlement Agreement dated July 12, 1999 between Tasty
Fries, Inc. and California Food & Vending, Inc.
23.0 Consent of Schiffman Hughes & Brown
24.1 Consent of Beckman, Millman & Sanders, LLP (included in
Exhibit 5.0)
</TABLE>
- ------------------------
* Previously filed
** To be filed by amendment
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");
II-7
<PAGE>
(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.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-8
<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 May 5, 2000.
<TABLE>
<S> <C> <C>
TASTY FRIES, INC.
By /s/ EDWARD C. KELLY
-----------------------------------------
Edward C. Kelly,
CHIEF EXECUTIVE OFFICER AND PRINCIPAL
FINANCIAL OFFICER
</TABLE>
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ EDWARD C. KELLY President, Chief Executive
------------------------------------ Officer, Treasurer, and Chairman May 5, 2000
Edward C. Kelly of the Board
/s/ LEONARD J. KLARICH Executive Vice President,
------------------------------------ Secretary and Director May 5, 2000
Leonard J. Klarich
/s/ JURGEN A. WOLF Director
------------------------------------ May 5, 2000
Jurgen A. Wolf
/s/ IAN LAMBERT Director
------------------------------------ May 5, 2000
Ian Lambert
/s/ KURT R. ZIEMER Director
------------------------------------ May 5, 2000
Kurt R. Ziemer
</TABLE>
II-9
<PAGE>
Exhibit 5.0
May 5, 2000
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
RE: TASTY FRIES, INC.
REGISTRATION STATEMENT ON FORM SB-2
(File No. 333-92661)
Gentlemen:
We have acted as counsel to Tasty Fries, Inc., a Nevada corporation (the
"Company) in connection with the registration by the Company under the
Securities Act of 1933 (the "Act"), pursuant tot he Company's Registration
Statement on Form SB-2 (File No. 333-92661) to be filed with the Securities and
Exchange Commission (the "Commission") on or about the date of this letter (the
"Registration Statement") of up to 6,470,000 shares of the Company's common
stock, par value $.001 ("Issuable Shares").
In connection with this opinion, we have examined originals or copies, certified
or otherwise to our satisfaction, of the Certificate of Incorporation of the
Company, as amended to date, Certificates of Good Standing of a recent date and
minutes of its Board of Director and such other documents, instruments and
records; and have made such other investigations, as we have deemed necessary or
appropriate as a basis for the opinions set forth herein.
We have assumed the legal capacity of all natural persons, the genuineness of
all signatures, the authenticity of all documents submitted to us as originals,
the conformity to original documents submitted to us as certified or photostatic
copies and the authenticity of all documents submitted to us as originals of
such latter documents. In making our examination of documents executed by
parties other than the Company, we have assumed that such parties had the power,
corporate or otherwise to enter into and perform their respective obligations
thereunder and have also assumed the due authorization by all requisite action,
corporate or otherwise, and the execution and delivery by such parties of such
documents and the validity and binding effect thereof. As to any facts material
to the opinions expressed herein, we have relied upon oral or written statements
and representations of officers and other representatives of the Company and
others.
<PAGE>
Page Two of Two
May 5, 2000
Securities Exchange and Commission
RE: TASTY FRIES, INC.
Based upon and subject to the foregoing, we are of the opinion that the Issuable
Shares, when issued, sold and delivered in the manner and/or the consideration
stated in the Prospectus included in the Registration Statement will be duly
authorized and validly issued, fully paid and non-assessable.
We hereby consent to the filing of the opinion with the Commission as Exhibit
5.0 to the Registration Statement. We also consent to the reference to our firm
under the caption "Legal Matter" in the Prospectus included in the Registration
Statement.
Cordially,
BECKMAN, MILLMAN & SANDERS, LLP
By: ________________________________
Steven A. Sanders
<PAGE>
Exhibit 10.8
MANUFACTURING REQUIREMENTS AGREEMENT
This Agreement is made and entered into in Warminster, Pennsylvania, this
28th day of January, 1993 by and between Adelaide Holdings, Inc., a Nevada
Corporation with offices located at 11098 Biscayne Boulevard, Miami, Florida
33161 (hereinafter "Adelaide") and Premier Design, Ltd., a Pennsylvania
Corporation with offices located at 100 Park Avenue, Warminster, Pennsylvania
18974 (hereinafter "Premier").
WHEREAS, Premier is the designer and manufacturer of proprietary products
through its manufacturing affiliate; and
WHEREAS, Adelaide holds a U.S. Patent to a certain food vending machine
dispensing hot french fried potatoes (hereinafter "AVM-93 machine"), which it
desires to market in quantities to its affiliates and distributors; and
WHEREAS, Adelaide has need for refining its machine and arranging for a
manufacturing requirements supplier for its machine; and
WHEREAS, Premier has the abilities to refine and manufacture for Adelaide
its machine at a reasonable cost and in required quantities; and
WHEREAS, Premier is willing to accept an exclusive Requirements
Manufacturing Agreement to refine, revise and manufacture a marketable machine
at a reasonable cost according to terms and conditions hereinafter described.
NOW THEREFORE, with the foregoing incorporated herein, the parties
intending to be legally bound hereby as follows:
1
<PAGE>
AWARD OF CONTRACT AND PATENT PROTECTION
1. Adelaide hereby awards to Premier the exclusive requirements
manufacturing rights to its patented vending machine and to all revisions
thereto up to Premier's ability to provide machines. Adelaide will provide to
Premier details of its Patent. The Patent will remain the property of
Adelaide. Premier will protect Adelaide from Patent disclosure, except as may
be necessary to accomplish its manufacturing responsibilities.
COST OF DEVELOPMENT
2. Adelaide and Premier will share the initial cost of development
(ICD) as to the first $150,000.00 of development costs. Adelaide will advance
payment of $75,000.00 to Premier promptly.
Excess development costs, if any, over $150,000.00 will be reimbursed
to Premier by payment at the rate of $500.00 per machine up to the first 200
production machines or $100,000.00 whichever is less. Development costs as
itemized by Premier, will include all design, engineering and initial
manufacturing costs projected over the initial 500 production machines, or
over a lesser number, as may be determined by Premier.
MACHINE PRICING AND TIME OF DELIVERY
3. (A) The first 500 production machines will be priced per machine
at a cost to Adelaide not to exceed $7,000.00 plus $500.00 reimbursement of
excess development costs, if any, up to 200 machines or $100,000.00 whichever is
less.
2
<PAGE>
As revisions occur and standards in the manufacturing process achieved,
Premier will reduce the cost of machines and if possible before the first 500
production machines are completed. Premier will, from time to time, keep
Adelaide informed as to all progress and costs.
After the development phase (500 initial production machines or less)
Premier shall be paid per machine its manufacturing cost plus twenty (20%)
percent overhead/profit.
(B) Time is considered to be of the essence of this Agreement. Premier
will exercise its best efforts to deliver a prototype machine not later than
April 15, 1993 and to deliver initial production machines not later than June
15, 1993. It is understood however that Premier may require up to an additional
sixty (60) days thereafter for delivery of initial production machines, which
later delivery if required, will not be considered late. Delays occasioned by
applications for certifications (para. 10 (B)) shall not be counted in the times
for delivery.
DEVELOPMENT, MANUFACTURING PROCEDURES
4. Premier will have the exclusive right to develop, design, revise
and standardize manufacturing procedures as to all components and sheet metal to
be incorporated into the machine and will have proprietary rights to its work.
Adelaide will style and approve all language and logo identifications, colors,
decals and labels, collectively referred to as "appearance features".
3
<PAGE>
5. All development, design and manufacturing features and processes
shall remain the proprietary property of Premier and shall not be disclosed
other than as may be necessary. Any patentable concepts arising from its
development, design and manufacturing efforts shall at the option of Adelaide be
patented jointly in the names of Adelaide and Premier with the understanding
that so long as this Agreement exists, no royalties shall inure to either party
from the use of these patented features. In the event of termination of this
Agreement, Premier shall be entitled to reasonable compensation for use of its
patented processes.
6. The exclusive manufacturing right shall include the right to
sub-contract for the manufacturing of components and/or for assembly work. If
and when Premier considers it necessary to establish regional facilities to
perform component manufacture or assembly work, it shall arrange for the same
after consultation with Adelaide. Regardless of sub-contracting, the machine
cost shall remain at manufacturing cost plus twenty (20%) percent
overhead/profit, in conformity with paragraph 3 hereof.
7. In addition to development, design and manufacture of the machine,
Premier will provide after-market components and service parts and will make
available to Adelaide and its distributors an available parts/price list for
parts. Premier will maintain a ready inventory of parts to reasonably
accommodate the need of Adelaide and its distributors. An operating-service
manual shall be developed jointly by Premier and Adelaide for use with the
4
<PAGE>
machine and Adelaide shall provide at its cost a technical representative to
become familiar with the operating and service features of the machine so as to
be available to Adelaide, its distributors and machine operators.
PROCEDURES FOR THE SALE OF MACHINES
8. Premier will sell and deliver working machines to Adelaide or its
designated distributors in response to written purchase orders containing
delivery destination designations. Terms to be FOB Warminster, PA with one-third
(1/3) of price be paid with the order and the balance (including freight costs)
paid five (5) days prior to announced delivery to the common carrier.
9. Prices for the manufactured unit and after market parts may from
time to time change upon sixty (60) days prior to written announcement to
Adelaide and its authorized distributors.
INDEMNITY - CERTIFICATIONS
10. (A) Upon acceptance of the machine for sale by Adelaide or by its
authorized distributors, Premier shall be relieved of all liablility, direct or
collarteral which is not shown to have been caused by the design or
manufacturing of Premier. Adelaide shall hold Premier and its affiliates
harmless from all manner of demand, claim, suit or judgment including reasonable
attorney's fees and costs. Premier shall be required to give prompt notice to
Adelaide if it seeks indemnification under this paragraph.
5
<PAGE>
(B) Adelaide, at its cost, will be responsible for filing applications
and obtaining the required approvals and certifications prior to public use of
the machine or from time to time thereafter as may be reasonably required.
Premier will cooperate with Adelaide in obtaining approvals from:
1) Underwriters Laboratory's electrical certification (UL);
2) Qualification to the standards of the National Automated Merchandising
Association (NAMA); and 3) All other federal, state or local governmental
agencies having concern with a food vending machine. Premier will use its best
efforts to build machines in compliance with the standards of Underwriters
Laboratory and the National Automated Merchandising Association.
MISCELLANEOUS
11. This Agreement may not be terminated by either party so long as
Premier provides the machines as required by Adelaide, its successors as
assigns.
12. Any unresolved dispute shall be resolved by Commercial Arbitration
in accordance with the then applicable rules of the American Arbitration
Association. In the event a hearing is required, the same shall be conducted in
Philadelphia, PA. This Agreement shall be interpreted in accordance with
Pennsylvania law. The Arbitration shall, if appropriate, award reasonable
attorney's fees and costs to the prevailing party as part of its Decision/Award.
6
<PAGE>
13. Adelaide represents that its present Patent is valid, held
unassigned and is not subject to known claims of infringement.
14. Adelaide shall provide to Premier a right of first refusal to
participate in the development and manufacture of any subsequent product
developed by Adelaide arising from the relationship established in this
Agreement.
15. This Requirements Manufacturing Agreement sets forth all of the
agreements, terms and conditions, covenants, representations and understandings
between the parties with respect to the subject matter herein. No assignment,
subsequent amendment, modification or waiver of any of the provisions shall be
effective unless in writing signed by the parties hereto.
16. Notices, if required under this Agreement shall be given in
writing by certified mail, return receipt requested as follows:
TO: ADELAIDE HOLDINGS, INC.
11098 Biscayne Boulevard
Suite 403
Miami, FL 33161
ATTENTION: Mr. Gary J. Arzt, President
WITH COPY TO:
Myles Tralins, Esquire
TRALINS AND ASSOCIATES
2 South Biscayne Boulevard
Suite 3310
Miami, FL 33131
TO: PREMIER DESIGN, LTD.
100 park Avenue
Warminster, PA 18974
ATTENTION: Mr. Harry W. Schmidt, President
WITH COPY TO:
Robert A. Rosin, Esquire
ROBERT A. ROSIN, PROFESSIONAL CORPORATION
Packard Building - 24th Floor
111 So. 15th Street
Philadelphia, PA 19102
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
in two (2) originals by their duly authorized officers on the day and year first
above written.
WITNESS: ADELAIDE HOLDINGS, INC.
/s/ Jaime Gallagher BY: /s/ []Illegible]
- --------------------------------- ---------------------------------
PREMIER DESIGN, LTD.
/s/ G. Scott [Illegible] BY: /s/
- --------------------------------- ---------------------------------
8
<PAGE>
AMENDMENT
TO
MANUFACTURING REQUIREMENTS AGREEMENT
This Amendment to the Manufacturing Requirements Agreement of 28 January 1994,
is made this 30th day of December 1994, by and between Tasty Fries, Inc.
("TFI"), formerly known as ADELAIDE HOLDINGS, INC., and PREMIER DESIGN, LTD.
("PDL").
WITNESSETH
WHEREAS, the parties above mention entered into a Manufacturing Requirements
Agreement dated 28 January 1993 (hereinafter called the "MRA"), wherein TFI
contracted with PDL to refine and finish its French Fries Vending Machine/AVM-93
and make it manufacturable and ready for marketing; and
Whereas, PDL engaged in extensive engineering and design studies of the AVM-93,
as a result of which it was determined that the unit could not be made reliable
and manufacturable. These conclusions were confirmed to TFI on or about 27
February 1994 in an Engineering Survey of the AVM-93.
WHEREAS, as a result of this conclusion TFI and PDL agreed that PDL would
endeavor to design a completely new machine using state of the art electronics,
engineering and design features that would be acceptable to TFI; and
WHEREAS, PDL proceeded to develop in its professional capacity a reliable,
commercially manufacturable French Fries Vending Machine, said machine bearing
no significant conceptional, mechanical, electrical or engineering similarity to
the AAVEM-93, save that it is designed around the dehydrated potato pellets
specified by TFI; and,
(1)
<PAGE>
WHEREAS, PDL has advised TFI that it is now prepared to make a series of
pre-production units (ten, in all) to be used, under PDL's supervision, for Beta
Site Testing; and,
WHEREAS, all of the above as proceeded without the parties having amended the
original MRA of 28 January 1993, they now desire to reduce to a written form the
premises upon which they have proceeded with the development of the new, PDL
developed French Fries Vending Machine.
NOW THEREFORE, incorporating the foregoing history herein, the parties intending
to be legally bound hereby amend, clarify and, where appropriate, supersede the
28 January 1993 MRA in the following particulars:
(1) PDL agrees to provide the Ten (10) Beta Site Test units at a cost
of Thirty Five Thousand Dollars ($35,000.00) per unit payable under the
following agreed terms per the 28 January 1993 MRA.
PDL agrees that it will field test the French Fries Vending Machines for
TFI and, upon the results being deemed satisfactory to TFI, is prepared to
engage in the manufacture of this French Fries Vending Machine exclusively for
TFI.
It is understood that the first Five Hundred (500) units to be
manufactured will be sold to TFI at a price of Seven Thousand Dollars per unit
(generally in accordance with paragraph 3 (A) of the MRA but without the
additional provision for "development costs" amortization). Premier Design Ltd.
Agrees to commence delivery of production units within 180 days after receipt of
purchase order. Payment for machines from Tasty Fries, Inc. to PDL will be in
accordance with the original MRA.
Minimum order for French Fries Machines is One Hundred (100) units per
month. From time to time, PDL and TFI may choose to amend the Minimum Order
Quantity.
After Five Hundred (500) units the price for the machines will be cost
plus 20%.
(2)
<PAGE>
(2) The parties agree that any Patents (US and Foreign) obtained on
the French Fries Vending Machine and/or any aspects thereof, shall be held in
the joint names of TFI and PDI. It is agreed, however, that prior to TFI's name
being added to the Patents (currently on Application), PDL will provide TFI with
an audited accounting of the development costs.
Subsequent to receipt of same, TFI will tender to PDL a sum equal to
Twenty Five Per Cent (25%) thereof; subsequent payments to be made within a
twelve month period of an additional Twenty Five Per Cent (25%) (50% of total
development cost.) It is understood that Tasty Fries has a credit toward
payment of development costs in the amount of Thirty-Seven Thousand Five Hundred
(37,500.00) Dollars.
During the life of the Patents, no Royalties for the use of the
technology will pass from TFI to PDL or from PDL to TFI. However, should the
parties, jointly, elect to license any part of the Patented technology to a
third party for their own use, than, any Royalties earned from such Licensing
shall be shared equally by PDL and TFI.
(3) PDL agrees that, it will, in conjunction with TFI seek independent
bids on the manufacture of the French Fries Vending Machine. At the same time,
PDL will commence a cost evaluation to determine savings to be achieved through
molding, extruding and casting.
(4) The parties further agree that should a manufacturer provide a bid
that the parties deem proper and economical, PDL has the right to purchase units
from said bidder/manufacturer and to add its Twenty Per Cent (20%) mark-up to
said price for sale to TFI. At all times, PDL remains responsible for Quality
Control on all units delivered to TFI.
(5) PDL asserts that it is in the process of obtaining UL and NAMA
certification of the French Fries Vending Unit, and, that its development
responsibilities will not have been fulfilled until such certifications have
been obtained.
(3)
<PAGE>
(6) Such interest as either party may hold in the Patents, as and when
issued, is not assignable without the prior written consent of the other party.
(7) It is agreed that TFI can not license any manufacturer to build
the French Fry Vending Machine (Domestic or International) without written
consent from PDL.
(8) In all regards other than as may be modified hereby, amended or be
inconsistent herewith, the MRA of 28 January 1993 is reaffirmed.
(9) Notices, if required, shall be given in writing by Certified Mail,
Return Receipt Requested, as follows
TO: Tasty Fries, Inc.
650 Sentry Parkway - Suite One
Blue Bell, PA 19422
ATT: Edward C. Kelly, President
TO: Premier Design, Ltd.
100 Park Avenue
Warminster, PA 18974
ATT: Harry W. Schmidt, President
(4)
<PAGE>
IN WITNESS WHEREOF, the parties have signed this amendment on the date first
hereinabove written.
WITNESS: /s/ Karl E. Barlow TASTY FRIES, INC.
----------------------------
BY: /s/ Edward C. Kelly (SEAL)
/s/ -------------------------------
---------------------------- EDWARD C. KELLY
PRESIDENT
BY: /s/ Gary J. Arzt (SEAL)
-------------------------------
GARY J. ARZT
CHAIRMAN OF THE BOARD
PREMIER DESIGN, LTD.
BY: /s/ Harry W. Schmidt (SEAL)
-------------------------------
HARRY W. SCHMIDT
PRESIDENT
(5)
<PAGE>
Exhibit 10.9
SETTLEMENT AGREEMENT
AND
MUTUAL GENERAL RELEASE
A. PARTIES
This Settlement Agreement And Mutual General Release (the "Agreement")
is entered into as of July 12, 1999, by and between:
1. Tasty Fries, Inc., a Nevada corporation, formally known as
Adelaide Holdings, Inc., for itself and on behalf of all its present and former
affiliated, subsidiary and/or parent companies or corporations, and all of their
present and former officers, directors, agents, employees, representatives,
shareholders, and attorneys (hereinafter collectively "Tasty Fries");
2. Edward C. Kelly, Chairman of the Board of Directors, Chief
Executive Officer and President of Tasty Fries, and for himself and on behalf of
his agents, employees, representatives, attorneys and Edward C. Kelly,
individually (hereinafter collectively "Kelly"); and
3. California Food And Vending, Inc., a California
corporation, for itself and on behalf of all its present and former affiliated,
subsidiary and/or parent companies or corporations, and all of their present and
former officers, directors, agents, employees, representatives, shareholders,
and attorneys (hereinafter collectively "CFV").
4. Tasty Fries, Kelly and CFV are sometimes individually
and/or collectively referred to as the, or a, "Party" or the "Parties" herein.
<PAGE>
B. RECITALS
WHEREAS,
1. CFV, on the one hand, and Adelaide Holdings, Inc.
("Adelaide"), on the other hand, were Parties to that certain action formerly
pending in the United States District Court, Central District of California,
Case No. SACV 93212 AHS (RwRx) entitled CALIFORNIA FOOD AND VENDING, INC. VS.
ADELAIDE HOLDINGS, INC., ET AL., (the "Prior Action");
2. On June 15, 1995, a Judgment and Order was entered in the
Prior Action in favor CFV and against Adelaide, a true and correct copy of which
is attached hereto as Exhibit "A". Attached to the Judgment as Exhibit "1" is
the Award of Arbitrator in the Prior Action. Attached as Exhibit "2" to the
Judgment is an Agreement of Settlement and Mutual and General Releases which
became a part of the Judgement and Order (collectively, the "Judgment and
Order");
3. CFV, on the one hand, and Tasty Fries and Kelly, on the
other hand, are Parties to that certain action currently pending in the United
States District Court, Central District of California, Case No. 986711 NM
(AIJx), entitled CALIFORNIA FOOD AND VENDING, INC. VS. TASTY FRIES, INC., EDWARD
KELLY, AN INDIVIDUAL, which, for purposes of this Agreement is intended to and
does include the claims made by Tasty Fries in its proposed Counter-Claim sought
to be filed (the "Action");
4. On July 12, 1999, the Parties settled the Action before the
Honorable Harry Hupp, United States District Court Judge, and said settlement
was put on the record and agreed to by the Parties and their attorneys (the
"Settlement");
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5. By this Agreement, the Parties intend to document the
Settlement. Upon the execution of this Agreement, all terms and conditions of
the Settlement are merged herein, and this Agreement shall hereinafter control.
C. AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual
undertakings contained in the Settlement, this Agreement, the mutual promises
and other good and sufficient consideration, the Parties agree as follows:
1. INCORPORATION OF THE RECITALS. The Recitals set forth
herein are incorporated herein by this reference as though fully set forth
verbatim.
2. PAYMENT TO CFV. Tasty Fries will pay to CFV the sum of One
Million Dollars ($1,000,000) cash, to be paid as follows:
(a) Tasty Fries will pay to CFV's attorney, Ronald Jason
Palmieri ("Palmieri") free trading Tasty Fries common stock having a net minimum
value of $100,000 representing attorneys' fees, costs and disbursements incurred
by Palmieri in the Action. CFV and Palmieri warrant and agree to sell the shares
to generate net cash proceeds necessary to pay Palmieri attorney's fees, costs
and disbursements in the minimum amount of $100,000 but not to exceed $125,000.
CFV shall direct Palmieri to instruct his broker to sell no more than 15,000
shares per day in lot increments no larger than 5,000 shares. (Net cash proceeds
means the gross proceeds from the sale of stock, less broker's fees or
commissions not to exceed $3,000 in total for all stock issued to Palmieri under
this Agreement.) CFV and Palmieri warrant and represent that Palmieri's
attorneys' fees, costs, and disbursements incurred in connection with the Action
are at least $125,000. CFV and Palmieri acknowledge receipt of Three Hundred
Thousand (300,000) shares of Tasty Fries' common stock delivered to Palmieri on
July 23, 1999. Upon liquefying shares equivalent to generate minimum net cash
proceeds of $100,000, or maximum net cash proceeds of $125,000, Palmieri shall
return any remaining shares of Tasty Fries stock to
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Tasty Fries or, Tasty Fries will provide Palmieri with additional shares to
reach the minimum net cash proceeds of $100,000. In addition, at Tasty Fries'
option, Tasty Fries may provide Palmieri with additional shares to reach the
maximum net cash proceeds of $125,000.
(b) Tasty Fries shall pay the remaining balance of the
$1,000,000, plus all accrued interest, less the total amount of Palmieri's fees
paid by Tasty Fries as set forth above, to CFV, in cash, no later than Monday,
January 10, 2000.
3. INTEREST ON PAYMENT. Tasty Fries will pay simple interest
to CFV at the rate of seven and one-half percent (7.5%) per annum beginning on
July 13, 1999 on any and all outstanding balances owed to CFV pursuant to
paragraph 2, above, until all principal payments are made in full. Interest is
due on payment of the principal balance on or before January 10, 2000.
4. DEFAULT. The failure by Tasty Fries to pay the monies owed
to CFV by January 10, 2000 shall constitute a default. Tasty Fries shall have no
opportunity to cure any default with regard to the monies due by January 10,
2000. In the event of a default by Tasty Fries, CFV may apply to the court, EX
PARTE and with forty-eight hours notice to Tasty Fries, to enter and obtain a
judgment against Tasty Fries for the entire remaining balance of sums owed under
paragraph 2, above. A signed declaration under the penalty of perjury by CFV,
outlining Tasty Fries' default shall constitute good cause for the Court to
enter judgment in favor of CFV. The judgment shall thereafter become immediately
enforceable. Attached hereto as Exhibit "B" is the Stipulation for Entry of
[Proposed] Modified Judgment and [Proposed] Modified Judgment that may be
entered by CFV if Tasty Fries defaults as aforesaid.
5. NO ENTRY OF JUDGMENT UNLESS BY DEFAULT. CFV shall not seek
entry of judgment pursuant to the Stipulation for Entry of [Proposed] Modified
Judgment, unless and until, Tasty Fries defaults under paragraph 2 of this
Agreement.
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6. TASTY FRIES STOCK. In addition to the payments set forth
above, on July 28, 1999 Tasty Fries delivered to CFV Two Hundred Fifty Thousand
(250,000) shares of restricted Rule 144 Tasty Fries' common stock. Tasty Fries
shall include the shares with the next registration which Tasty Fries undertakes
under the Securities Act of 1933, as amended, except with respect to
registration statements on form S-4, S-8 or another form not available for
registering the shares. Notwithstanding the foregoing, if CFV provides an
opinion letter from its SEC counsel that CFV is entitled to be issued 250,000
shares of unrestricted stock in lieu of the restricted Rule 144 stock issued to
CFV pursuant to this paragraph, Tasty Fries will issue free trading common stock
and CFV shall return the restricted Rule 144 stock to Tasty Fries if and only if
said opinion letter is acceptable to Tasty Fries' SEC counsel.
7. TASTY FRIES STOCK WARRANTS. In addition to the payments set
forth above, on July 23, 1999, Tasty Fries delivered to CFV 250,000 warrants
issued to CFV on July 13, 1999 of Tasty Fries' common stock at the strike price
of $0.42 per share, which represents the average price per share over the five
(5) day trading period from July 6, 1999 through July 12, 1999, rounded up to
the nearest penny. The right of CFV to exercise said warrants shall be to July
13 2001.
8. DISTRIBUTORSHIPS. CFV relinquishes any right, claim, title
or interest in any and all Tasty Fries distributorships including, but not
limited to, all California territorial rights which were awarded to it in the
Judgment and Order, as more particularly described in paragraph "4g" at pages
12-13 of Exhibit 2 of the Judgment and Order. All rights granted to CFV in
paragraph "4g" at pages 12-13 of the Judgment and Order are revoked, void and of
no further force and effect. In addition, Tasty Fries has no further obligations
to CFV to sell it any potato products and/or supplies. Tasty Fries has no
further obligation to provide CFV with any of its marketing brochures or
materials developed by Tasty Fries in connection with the exploitation of Tasty
Fries' french fry vending machine.
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9. DISTRIBUTION FEES. All rights granted to CFV to share in or
otherwise receive monies from distribution fees, royalty fees, utilization fees,
or similar charges, including but not limited to territory fees from
distributors (collectively "Distribution Fees") generated from the sale by Tasty
Fries of domestic and international territories are terminated. Paragraph "4d"
at pages 10-11 of Exhibit 2 of the Judgment and Order and all prior claims for
any Distribution Fees are hereby revoked, void and of no further force and
effect.
10. NO RIGHT TO MANUFACTURE TASTY FRIES MACHINES. CFV
relinquishes and forgoes any right to manufacture any machine developed by Tasty
Fries, as well as any right to Tasty Fries' plans and specifications, that were
awarded or given to CFV in the Judgment and Order.
11. CFV'S VENDING MACHINES. Nothing in this Agreement shall be
construed, either expressly nor impliedly, to preclude, impede, restrain, hamper
or in any way restrict CFV's absolute right to begin or continue to design,
produce or manufacture its own (or having any interest in its own or another
company's) french fry vending machine or the selling of products for any such
machine or interest therein, so long as any such machine does not infringe on
the patents or trade secrets for the design, production or manufacture of Tasty
Fries' machines. Any rights Tasty Fries may have had, or claimed to have had,
with regard to CFV designing, producing or manufacturing a competitive french
fry vending machine or having any interest in CFV's french fry vending machine
and/or CFV's ancillary products are hereby forever relinquished, waived, null,
void and of no legal force and effect.
12. ANCILLARY PRODUCTS. All of the rights granted to CFV in
paragraph "4c" set forth at page 9 of Exhibit 2 of the Judgment and Order shall
remain in full force and effect.
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13. ROYALTIES ON THE FRENCH FRY VENDING MACHINE FOR DOMESTIC
AND INTERNATIONAL SALES. CFV's rights to royalties on the french fry vending
machine for domestic and international sales as set forth in paragraph "4b" set
forth at pages 8 and 9, inclusive, of Exhibit 2 of the Judgment and Order remain
in full and force and effect, except for the following modification: The cap of
Five Hundred Dollars ($500) royalty per machine is reduced to a cap of Four
Hundred and Fifty Dollars ($450) royalty per machine. In addition, CFV shall be
entitled to CPI increases every three years on the sale of said machines, except
for the first 500 machines for which CFV shall receive Three Hundred and Fifty
Dollars ($350) per machine.
14. NO OPTION TO PURCHASE STOCK. Other than the warrants
granted to CFV under this Agreement, CFV acknowledges, understands and agrees
that it no longer has any option rights to purchase Two Million (2,000,000)
shares of Tasty Fries' stock at 10(cent) per share as set forth in paragraph
"4e" at page 11 of Exhibit 2 of the Judgment and Order.
15. SECURITY AND REPORTS. The Parties acknowledge, understand
and agree that the Security and Report provisions set forth in paragraph "4f" at
pages 11-12 of Exhibit 2 of the Judgment and Order remain in full force and
effect.
16. RETURN OF BETA TESTING MACHINE. Upon Palmieri's liquidation
of shares of Tasty Fries stock equivalent to minimum cash proceeds of
$100,000.00, as set forth in paragraph 2 (a) herein, CFV shall return to Tasty
Fries the Tasty Fries' Beta Testing Machine currently stored by CFV in its
storage facility, FOB Los Angeles County, California.
17. CLARIFICATION OF CFV'S RIGHTS TO OTHER TASTY FRIES
MACHINES. The reference in paragraph "g" at page 5 of Exhibit 2 of the Judgment
and Order to "any french fry machine of any kind or derivation including such
models as table top, home model, industrial (fast food, high production models),
combination model machines such as french fries, onion rings, chicken nuggets or
fish and chip combinations or any other model designed now, later designed, or
after acquired by Adelaide Holdings, Inc., without limitation" is understood and
agreed by the Parties to only apply to any french fry machines or combination
model machines
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that dispense french fries, onion rings, chicken nuggets or fish and chip
combinations or any other machines developed by Tasty Fries that use, as one of
its components, hot oil to deep fry food products.
18. DISMISSAL OF ACTION. Within three days after execution of
this Agreement, the Parties shall execute a dismissal, with prejudice, of the
entire Action and file it with the Court. The dismissal, with prejudice, will be
in the form of Exhibit "C", hereto and will recite that the Court shall retain
jurisdiction for the entry of judgment, pursuant to stipulation, in the event
that Tasty Fries does not pay the remaining monies owed to CFV as set forth in
paragraph 2(b), above. If the Court, for whatever reason, refuses to retain
jurisdiction for entry of judgment, the Parties will request the Court to stay
the Action and the dismissal will be filed upon timely payment of all sums set
forth in paragraph 2 herein.
19. MODIFICATION OF JUDGMENT IN PRIOR ACTION. The Parties agree
to execute a stipulation for modification of judgment in the Prior Action to
reflect the modifications to the Judgment in the Prior Action as set forth
herein. Attached hereto as Exhibit "B" is the Stipulation for Entry of
[Proposed] Modified Judgment and [Proposed] Modified Judgment to be entered into
the Prior Action.
20. CONTEMPT PROCEEDINGS. CFV shall not institute any
collection, contempt or other proceedings with regard to any monies CFV contends
Tasty Fries owes to CFV pursuant to the Judgment and Order that occurred prior
to the date of this Agreement, including but not limited to CFV's claim that it
is owed $87,500 plus interest as a result of the distributorship agreement
provided to Canadian Tasty Fries in or about 1995. In addition, CFV shall not
further pursue the contempt proceedings which it initiated in the Action
pertaining to the discovery dispute concerning production of Tasty Fries
documents and Orders of the Court thereon.
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21. RETAINING JURISDICTION. The Court shall retain jurisdiction
to enter judgment in this Action, upon the default of Tasty Fries, to and
including Tuesday, April 11, 2000, or such later date that the Court deems
appropriate. The parties expressly agree that said date shall be extended for an
unlimited time in the event Tasty Fries files for protection under the
Bankruptcy laws of the United States of America so as to enable CFV to seek
appropriate relief from stay to enforce its rights and enter judgment under this
Agreement.
22. RETURN OF DOCUMENTS. Within seven (7) days after execution
of this Agreement, CFV will return to Tasty Fries all copies of all Confidential
and Attorneys' Eyes Only documents produced by Tasty Fries to CFV in the Action,
and Tasty Fries will return to PCM all copies of all Confidential and Attorneys'
Eyes Only documents produced by PCM to Tasty Fries.
23. RELEASES.
(a) In consideration of the terms and provisions of this
Agreement, and expressly omitting therefrom the obligations created hereinabove
and any obligations arising from the Judgment and Order not modified by this
Agreement, CFV shall and does hereby relieve, release, and discharge Tasty Fries
and Kelly, their successors and assigns, and their present and former
representatives, agents, licensees, sub-licensees, employees, administrators,
assigns, subsidiaries, divisions, affiliates, operating companies, parents,
partners, officers, directors, stockholders and attorneys and each of them, of
and from any and all claims, debts, liabilities, demands, obligations, promises,
acts, agreements, costs, expenses (including but not limited to attorneys'
fees), damages, actions, causes of action, and claims for relief, of whatever
kind or nature, whether known or unknown, suspected or unsuspected, based on,
arising out of, or in connection with anything whatsoever done, omitted or
suffered to be done with respect to any matter as of the date hereof, including,
but not limited to, any and all claims raised by CFV in the Action; and
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(b) In consideration of the terms and provision of this
Agreement, and expressly omitting therefrom the obligations created hereinabove
and any obligations arising from the Judgment and Order not modified by this
Agreement, Tasty Fries and Kelly shall and do hereby relieve, release, and
discharge CFV, its successors and assigns and its present and former
representatives, agents, licensees, sublicensees, employees, administrators,
assigns, subsidiaries, divisions, affiliates, operating companies, parents,
partner, officers, directors, stockholders and attorneys and each of them, of
and from any and all claims, debts, liabilities, demands, obligations, promises,
acts, agreements, costs, expenses (including but not limited to attorneys'
fees), damages, actions, cause of action, and claims for relief, of whatever
kind or nature, whether known or unknown, suspected or unsuspected, based on,
arising out of, or in connection with anything whatsoever done, omitted or
suffered to be done with respect to any matter as of the date hereof, including,
but not limited to, any and all claims raised by Tasty Fries in the Action.
24. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The Parties
hereto, and each of them, represent and warrant to each other and agree with
each other, as follows:
(a) CFV acknowledges, understands and agrees that Tasty
Fries has no affirmative obligation to CFV, and makes no representation to CFV,
that Tasty Fries' french fry vending machines shall be produced, if ever, or
produced by any particular date. CFV further acknowledges, understands and
agrees that Tasty Fries makes no representation that if the french fry vending
machines are in fact produced and sold, that they will be successful or
profitable in the marketplace, or that they will continue to be sold. Tasty
Fries acknowledges, understands and agrees that other than the obligations
expressly set forth in paragraphs 2(a), 4, 5, 10, 16, 18, 19, 20 and 22,
inclusive, in this Agreement, CFV has no other obligations to Tasty Fries under
the Judgment and Order nor pursuant to the terms of this Agreement. Other than
the obligations expressly set forth in this Agreement, CFV has not made, nor
herein makes, any representation to Tasty Fries that it promises to do any act
for Tasty Fries benefit, nor is it obligated to so do.
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CFV represents, and based upon such representation, Tasty Fries acknowledges,
that CFV is the absolute owner of the beneficial rights set forth herein and in
the Judgment and Order. Other than the obligations expressly set forth in
paragraphs 2(a), 4, 5, 10, 16, 18, 19, 20 and 22, inclusive, in this Agreement,
Tasty Fries agrees that no future obligations exist for CFV to perform for the
benefit of Tasty Fries or any third parties relative to this Agreement and/or
the Judgment and Order.
(b) Each of the Parties hereto has received independent
legal advice from attorneys of its or his own choice, with respect to the
advisability of executing this Agreement, and prior to the execution of this
Agreement by each Party, each Party's attorneys reviewed this Agreement at
length, and made all desired changes;
(c) Except as expressly stated in this Agreement, no
Party hereto has made any statement or representation to any other Party
regarding any fact relied upon by such other Party in entering into this
Agreement, and each Party specifically does not rely upon any statement,
representation, or promise of the other Party in executing this Agreement,
except as expressly stated in this Agreement;
(d) There are no other agreements or understandings
between the Parties relating in any way to the claims settled herein, except as
stated in this Agreement;
(e) Each Party, together with his or its attorneys, has
made such investigation of the facts pertaining to this Agreement, and of all
the matters pertaining thereto, as it deems necessary;
(f) The terms of this Agreement are contractual, not a
mere recital; this Agreement is the result of negotiation between the Parties,
each of whom has participated in the drafting hereof, through its respective
attorneys;
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(g) This Agreement has been carefully read by, the
contents hereof are known and understood by, and it is signed freely by, each
person executing this Agreement;
(h) Each Party to this Agreement has the power and
authority to enter into and perform this Agreement, and the execution and
performance of this Agreement have been duly authorized by all requisite
corporate action;
(i) In entering into this Agreement and the settlement
provided for herein, each Party recognizes that no facts or representations are
ever absolutely certain; accordingly, except as specifically provided in this
Agreement, each Party assumes the risk of any misrepresentation, concealment, or
mistake, and if any Party should subsequently discover that any fact it relied
upon in entering into this Agreement was untrue, or that any fact was concealed
from any Party hereto, or that any understanding of the facts or of the law was
incorrect, such Party shall not be entitled to set aside this Agreement by
reason thereof. This Agreement is intended to be final and binding between and
among the Parties hereto, including their heirs, successors, and assigns, and is
further intended to be effective as a full and final accord and satisfaction
between and among the Parties hereto. Each Party relies on the said finality of
this Agreement as a material factor inducing the Party's execution of this
Agreement;
(j) Each Party hereto hereby covenants and agrees not to
bring any claim, action, suit, or proceeding against any other Party hereto,
directly or indirectly, regarding or related in any manner to the matters
released hereby or to the settled claims, and each Party further covenants and
agrees that this Agreement is a bar to any such claim, action, suit or
proceeding.
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25. WAIVER UNDER SECTION 1542 OF THE CALIFORNIA CIVIL CODE.
The Parties hereto expressly waive any and all rights under
Section 1542 of the Civil Code of the State of California and any similar
provision in any other jurisdiction. Section 1542 provides as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR."
The Parties hereto expressly and completely waive and release any right
or benefit which they have or may have under said Section 1542 of the Civil Code
of the State of California pertaining to the matters released herein. In
connection with such waiver and relinquishment, the Parties hereto, and each of
them, acknowledge that it or he is aware that it or he may hereafter discover
claims presently known or unsuspected, or facts in addition to or different from
those which it or he now knows or believes to be true, with respect to the
matters released herein. Nevertheless, it is the intention of the Parties
hereto, and each of them, through this Agreement, and with the advice of
counsel, to fully, finally and forever settle and release all such matters, and
all claims relative thereto, which do not exist, may exist, or heretofore have
existed between the Parties to this Agreement. In furtherance of such intention,
the releases herein given shall be and remain in effect as full and complete
mutual releases of such matters notwithstanding the discovery of existence of
any such additional or different claims or facts relative thereto.
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26. HEIRS, SUCCESSORS AND ASSIGNS. This Agreement shall inure
to the benefit of, and shall be binding upon, the heirs, successors and assigns
of the Parties hereto, and each of them. This Agreement is intended to release
and inure to the benefit of each corporate Party's former and present affiliated
corporations, subsidiaries, partial subsidiaries, divisions, operating
companies, officers, directors, agents, employees, representatives,
shareholders, accountants, and attorneys, individually as well as in the
capacity indicated. However, except as expressly provided herein, this Agreement
is not for the benefit of any person not a Party hereto or specifically
identified as a beneficiary herein, and is not intended to constitute a third
party beneficiary contract.
27. INTEGRATION. This Agreement constitutes a single
integrated, written contract expressing the entire agreement of the Parties
hereto relative to the subject matter hereof. No covenants, agreements,
representations, or warranties of any kind whatsoever have been made by any
Party hereto, except as specifically set forth in this Agreement. All prior
discussions and negotiations have been and are merged and integrated into, and
are superseded by, this Agreement.
28. NO ADMISSION OF LIABILITY/COMPROMISE. The claims made in
the present Action by the Parties are disputed. It is understood and agreed by
and between the Parties that this Agreement and the Parties' and their counsel's
respective signatures on this Agreement are the result of a compromise, are not
and shall not be construed as an admission of any liability or fault. The
Parties agree and acknowledge that each Party hereto has agreed to this
Settlement Agreement and Mutual General Release for the sole purpose of buying
the peace of the Parties and avoiding further litigation or claims between them.
29. SEVERABILITY. In the event that any provision of this
Agreement should be held to be void, voidable, or unenforceable, the remaining
portions hereof shall remain in full force and effect.
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30. GOVERNING LAW. This Agreement shall be construed in
accordance with, and be governed by, the laws of the State of California and
jurisdiction for any disputes arising out of or relating to this Agreement shall
exclusively lie in a Court situated within the County of Los Angeles, State of
California.
31. EXECUTION IN COUNTERPARTS AND BY FACSIMILE. This Agreement
may be executed and delivered in two or more counterparts, each of which, when
so executed and delivered, shall be an original, but such counterparts shall
together constitute one and the same instrument and Agreement. This Agreement
shall be deemed to be executed as of July 12, 1999. The Parties agree that this
Agreement can be executed and delivered by facsimile and facsimile signatures
are hereby agreed to be legally binding.
32. SURVIVAL OF WARRANTIES AND REPRESENTATIONS. The warranties
and representations of this Agreement are deemed to survive the date of
execution hereof.
33. REPRESENTATIVE CAPACITY. Each person executing this in a
representative capacity is empowered to do so.
34. SECTION HEADINGS. The section headings, titles and
subtitles herein are used solely for convenience, shall not be used in
interpreting this Agreement, and shall not be construed in any way to limit,
modify or affect the terms of this Agreement.
35. EXECUTION OF DOCUMENTS. The Parties hereto agree to execute
all documents necessary to effectuate the terms of this Agreement and that the
execution of this Agreement has been approved by the Board of Directors of each
Party.
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36. ATTORNEYS' FEES AND COSTS. Except as set forth in paragraph
2, above, each Party shall bear its or his own attorneys' fees, costs and
expenses incurred in the Action. In the event that a dispute arises concerning
this Agreement, the prevailing Party will have the right to collect all
reasonable attorneys' fees and costs.
37. NOTICES. Any notice, report or writing required to be given
hereunder, including a notice of default, shall be in writing and served by
sending the same to the Party by facsimile transmission as set forth below. A
courtesy copy of the notice shall be sent by first class U.S. mail. Any and all
such notices shall be delivered to the Parties at their respective addresses and
facsimile/telephone numbers listed below:
For CFV: Glenn E. Stern
California Food & Vending, Inc.
3000 South Robertson Blvd., Suite 280
Los Angeles, California 90034-3158
With courtesy copy to: Ronald Jason Palmieri
Law Offices of Ronald Jason Palmieri
911 Linda Flora Drive
Los Angeles, CA 90049
Telephone: (310) 471-1881
Facsimile: (310) 471-3511
For Tasty Fries, Inc.: Edward C. Kelly, CEO
Tasty Fries, Inc.
650 Sentry Parkway, Suite One
Blue Bell, Pennsylvania 19422
Telephone: (610) 941-2109
Facsimile: (610) 941-2108
With courtesy copies to: Myles J. Tralins, Esq.
TRALINS AND ASSOCIATES
One Biscayne Tower, Suite 3310
Miami, Florida 33131
Telephone: (305) 374-3300
Facsimile: (305) 374-4933
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and,
Steven L. Hogan, Esq.
Lurie & Zepeda
A Professional Corporation
9107 Wilshire Boulevard, Suite 800
Beverly Hills, California 90210-5533
Telephone: (310) 274-8700
Facsimile: (310) 274-2798
EXECUTED by the Parties as follows:
CALIFORNIA FOOD AND VENDING, INC., a
California corporation
Dated: September 10, 1999 By: /s/ Glenn E. Stern
-------------------------------------
Glenn E. Stern
Its Chief Executive Officer and
Chairman of the Board
EDWARD C. KELLY
Dated: August 30, 1999 By: /s/ Edward C. Kelly
-------------------------------------
Edward C. Kelly, individually
TASTY FRIES, INC., a Nevada corporation
Dated: August 30, 1999 By: /s/ Edward C. Kelly
-------------------------------------
Edward C. Kelly
Its Chief Executive Officer and
President and Chairman of the Board
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READ AND APPROVED AS TO FORM.
LAW OFFICES OF RONALD JASON PALMIERI
By: /s/ Ronald Jason Palmieri
---------------------------------
Ronald Jason Palmieri
Attorneys for California Food And Vending, Inc.
TRALINS & ASSOCIATES
By: /s/ Myles J. Tralins
---------------------------------
Myles J. Tralins
Attorneys for Tasty Fries, Inc. and Edward Kelly
LURIE & ZEPEDA
By: /s/ Steven L. Hogan
---------------------------------
Steven L. Hogan
Attorneys for Tasty Fries, Inc. and Edward Kelly
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EXHIBIT 23.0
ACCOUNTANT'S CONSENT
To the Stockholders and Board of Directors of
Tasty Fries, Inc.
We consent to the use of our Independent Auditor's Report dated March 31, 2000
and accompanying financial statements of Tasty Fries, Inc. for the year ended
January 31, 2000. The Report will be included in the Form SB-2 which is to be
filed with the Securities and Exchange Commission for Tasty Fries, Inc.
Larson, Allen, Weishair & Co., LLP
Certified Public Accountants
Blue Bell, Pennsylvania
April 29, 2000
