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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): OCTOBER 30, 1996
(OCTOBER 22, 1996)
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KCD HOLDINGS INCORPORATED
(Exact name of registrant as specified in its charter)
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NEVADA 33-06827LA 95-4029439
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation or organization) File Number) Identification No.)
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2835 TOWNSGATE ROAD, SUITE 110
WESTLAKE VILLAGE, CALIFORNIA 91361
(Address of principal executive offices) (Zip Code)
___________________________
(805) 494-6687
(Registrant's telephone number,
including area code)
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS
In June 1994, the Seattle Regional Office of the Federal Trade
Commission ("FTC") initiated a non-public inquiry into the Company's
advertising claims in connection with its SeQuester 1 product. Pursuant to
their investigation, the FTC directed an initial information request and
several follow-up requests to the Company seeking the scientific basis for
certain claims utilized in advertisements and other promotional material
regarding the fat sequestrant technology of SeQuester 1 and its effect on
weight loss. The Company responded to each FTC inquiry through its legal
counsel. (Refer to the Company's Current Report on Form 8-K filed with the
Commission on November 7, 1995)
In August 1995, the FTC staff informed the Company that in the FTC's
opinion, the Company had violated the Federal Trade Commission Act (the "FTC
Act") by making false and unsubstantiated claims for SeQuester 1. The FTC
prepared a complaint describing the Company's alleged FTC Act violations and
also prepared a consent agreement for the Company's consideration. The consent
agreement was directed to the Company and to Mr. Clark Holcomb, the Company's
then President, and Ms. Bonnie Richards, the Company's Vice President and
Secretary, and included the following orders: (1) an order for an injunction
prohibiting the use of certain advertising claims for SeQuester or other weight
loss products or programs; (2) an order imposing reporting and other record
keeping requirements; and (3) an order requiring payment of an unspecified
amount for restitution of deceptive advertising practices. In response, the
Company and its FTC counsel appeared at the FTC's Seattle Regional Office to
outline the Company's position with respect to the claims raised by the FTC
investigation. In its defense, the Company stated that it had received the
rights, related product claims and substantiation for such claims from Dr.
William Shell and that it had marketed SeQuester 1 in good-faith reliance upon
Dr. Shell's representations regarding these claims. The Company voluntarily
agreed to conduct additional clinical studies to verify its claims and to cease
the use of certain advertising claims in connection with SeQuester 1 pending
the outcome of any new studies.
In early 1996, Dr. Heber commenced a new study into the efficacy of
SeQuester 1. The study was designed to evaluate the ability of SeQuester 1 to
increase the excretion of ingested dietary fat from the body, increase satiety,
and effectively help the subjects lose unwanted weight. The research was
conducted on a randomized, double-blind basis. One test group was given
SeQuester 1 and the other group was given a fiber-based placebo which was
indistinguishable in taste, look, smell and feel to the SeQuester 1 treatment
tablet. The results of the study, dated September 26, 1996, demonstrated that
both test groups lost weight and that there was no significant difference
between either of the groups in terms of dietary fat excretion. From these
results, the Company concluded that weight loss was attributable to the
subjects' adherence to a diet plan and consumption of fiber supplements
(SeQuester 1 and the fiber-based placebo), rather than the actual fat-binding
properties of SeQuester 1. The study results have been submitted to the FTC.
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The Seattle Regional Office of the FTC has prepared a recommendation
to the Commission that it issue a complaint against the Company unless this
matter is settled on acceptable terms. The Company has until October 30, 1996
to agree to the Seattle Regional Office's proposed consent agreement or submit
a counter-proposal. However, in the event the Company is unable to agree upon
settlement terms with the Seattle Regional Office, the matter will be forwarded
to the FTC headquarters in Washington D.C. for consideration.
The Seattle Regional Office of the FTC has proposed a settlement order
which includes the proposed August 1995 orders and the payment of $1,500,000 in
restitution, contingent upon review of the Company's financial statements and
those of Mr. Clark Holcomb and Ms. Bonnie Richards. The Company believes that
the proposed restitution order is excessive given the facts surrounding this
matter and the Company's good-faith reliance upon prior representation and
studies. Based on the foregoing, the Company intends to continue settlement
negotiations with the FTC with the objective of arriving at a mutually amicable
settlement agreement.
There can be no assurance that a settlement agreement acceptable to
the Company and to the FTC will be reached or that this matter will not have a
material adverse effect on the Company.
In addition, in August 1996, the FTC requested information concerning
the Company's other SeQuester products - SeQuester 2, an appetite suppressant,
and SeQuester 3, a chromium-based dietary supplement. The FTC inquiry focused
on alleged weight loss claims utilized by the Company during 1996 in connection
with these two products. This matter is still pending and there can be no
assurance that any FTC findings will not have a material adverse effect on the
Company.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KCD Holdings Incorporated
Date: October 30, 1996 By: /s/ Bonnie Richards
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Bonnie Richards,
Secretary
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