UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
--------------------- ----------------------
March 31, 1999 0-22024
BAYWOOD INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
Nevada
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14950 North 83rd Place, Suite 1
Scottsdale, Arizona 85260
(Address of principal office) (Zip code)
Registrant's telephone number, including area code: (602) 951-3956
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
$.001 par value common stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter periods that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
As of March 31, 1999, there were 27,610,042 shares of Baywood International,
Inc. common stock, $.001 par value outstanding.
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BAYWOOD INTERNATIONAL, INC.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheet as of March 31, 1999 3
Statements of Operations for the three months ended
March 31, 1999 and 1998 4
Statements of Cash Flows for the three months ended
March 31, 1999 and 1998 5
Statement of Information Furnished 6
Item 2 - Management's Discussion and Analysis or
Plan of Operation 7-11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities 12
Item 3 - Defaults Upon Senior Securities 13
Item 4 - Submission of Matters to a Vote of Security Holders 13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 13
SIGNATURES 15
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BAYWOOD INTERNATIONAL, INC.
BALANCE SHEET
March 31, 1999
ASSETS
CURRENT ASSETS
Cash and equivalents $ 14,858
Accounts receivable 15,673
Inventories 61,734
Prepaid expenses and other current assets 59,367
-----------
Total current assets 151,632
-----------
OTHER ASSETS
Investment in Baywood Nutritionals, S.A 33,516
Investment in BII Acquisition Company 75,000
-----------
Total other assets 108,516
-----------
Total assets $ 260,148
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 193,185
Interest payable 6,088
Accrued liabilities 54,213
-----------
Total current liabilities 253,486
-----------
NOTES PAYABLE 348,945
-----------
STOCKHOLDERS' EQUITY
Preferred Stock, $1 par value,
10,000,000 shares authorized,
35,000 Class A shares issued and outstanding
10,000 Class D shares issued and outstanding 45,000
Common stock, $.001 par value, 50,000,000
shares authorized, 25,791,259 shares
issued and outstanding 25,791
Additional paid-in capital 6,403,824
Accumulated deficit (6,816,898)
-----------
Total stockholders' equity 6,662
-----------
Total liabilities and stockholders' equity $ 260,148
===========
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BAYWOOD INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
Three Months Ended March 31,
1999 1998
----------- -----------
NET SALES $ 37,971 $ 754,862
COST OF SALES 22,190 446,000
----------- -----------
Gross profit 15,781 308,862
----------- -----------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Marketing expenses 123,507 106,990
General and administrative expenses 92,846 78,382
Depreciation and amortization -- 11,729
----------- -----------
Total selling, general and administrative
expenses 216,353 197,101
----------- -----------
Operating profit (loss) (200,572) 111,761
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 62 5,220
Miscellaneous income 337 --
Interest expense (7,498) --
Equity in net income (loss) of investee (6,512) --
----------- -----------
Total other income (13,611) 5,220
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (214,183) 116,981
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET INCOME (LOSS) $ (214,183) $ 116,981
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE $ (0.01) $ 0.01
=========== ===========
DILUTED NET INCOME (LOSS) PER COMMON SHARE $ -- $ --
=========== ===========
WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING 24,952,472 17,498,115
=========== ===========
* less than $.01 per share
** antidilutive
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BAYWOOD INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
3 Months Ended March 31,
1999 1998
--------- ---------
OPERATING ACTIVITIES:
Net income (loss) $(214,183) $ 116,981
Adjustments to reconcile net income
to cash used in operating activities:
Depreciation and amortization -- 11,729
Issuance of common stock for services performed 75,000 --
Equity in net loss of investee 6,912 --
Changes in assets and liabilities:
(Increase) in accounts receivable (13,502) (233,739)
Increase in interest payable 6,088 --
(Increase) decrease in inventory 4,369 (994)
(Increase) decrease in prepaid expenses (7,001) 2,950
(Decrease) in accounts payable and accrued
liabilities (55,983) (296,984)
--------- ---------
Net cash provided (used) by operating
activities (198,300) (400,057)
--------- ---------
FINANCING ACTIVITIES:
Issuance of common and preferred stock for cash 10,000 --
Fees paid in connection with offering of common
and preferred stock (10,022) --
Proceeds from exercise of stock options 13,000 --
Proceeds from notes payable 233,300 --
Principal payments on notes payable (73,989) --
--------- ---------
Net cash provided by financing activities 172,289 --
--------- ---------
CASH AND EQUIVALENTS
PROVIDED BY (USED) DURING PERIOD (26,011) (400,057)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 40,869 668,906
--------- ---------
CASH AND EQUIVALENTS, END OF PERIOD $ 14,858 $ 268,849
========= =========
SUPPLEMENTAL DISCLOSURES AND CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,410 $ --
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BAYWOOD INTERNATIONAL, INC.
STATEMENT OF INFORMATION FURNISHED
The accompanying financial statements have been prepared in accordance
with Form 10-QSB instructions and in the opinion of management contain all
adjustments (consisting of only normal and recurring accruals) necessary to
present fairly the financial position as of March 31, 1999 and the results of
operations for the three months ended March 31, 1999 and 1998 and the cash flows
for the three months ended March 31, 1999 and 1998. These results have been
determined on the basis of generally accepted accounting principles and
practices applied consistently with those used in the preparation of the
Company's 1998 Annual Report on Form 10-KSB.
Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that the accompanying
financial statements be read in conjunction with the financial statements and
notes thereto incorporated by reference in the Company's 1998 Annual Report on
Form 10-KSB.
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BAYWOOD INTERNATIONAL, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
Since its inception, the Company had directed most of its sales efforts
toward international markets and had established either distribution or
registration of its products into certain Pacific Rim and European Countries.
Prior to 1998, the Company's product line had not been expanded in order to
capture the domestic market. As a result, the Company relied on the continued
distribution of one main product, Aloe Minerals Plus(TM), to one major customer
in China. In March of 1998, due to governmental restrictions in China, this
customer discontinued its purchases of Aloe Minerals Plus(TM) which caused a
dramatic decrease in the Company's sales for all of 1998 and the first quarter
of 1999.
The Company had not developed any market for its products prior to 1998
in the United States. Throughout 1998 and through the first quarter of 1999, the
Company developed a new line of nutritional supplements and implemented
strategies to establish marketing and distribution into health food stores. At
this time, the Company is continually exploring the international market, but
has focused on strengthening the domestic marketing and sales of its new branded
product line in the United States.
The Company's principal executive offices are located at 14950 North
83rd Place, Suite 1, Scottsdale, Arizona 85260 and its telephone number is (602)
951-3956.
The Company's primary objective is to become a recognized leader in the
provision of natural products that are based on natural compounds. The Company's
potential for growth at this time involves developing niche product lines that
can be marketed and sold into niche distribution channels. Niche product lines
include but are not limited to vitamins, minerals, herbs, nutraceuticals and
herbal teas. Niche distribution channels include retail in health food and
grocery and drug chains, mail order and physician distribution. The Company's
current product lines include nutraceutical products with current distribution
into health food retail in the United States. Through consistent active
involvement in the trends that affect the natural products industry, the Company
creates or improves products to fit market needs.
The Company pursued and implemented the following fundamental
developments during 1998 and the first quarter of 1999 that are considered to be
instrumental components toward positioning the Company for long-term growth:
DEVELOPMENT OF CORPORATE IDENTITY. Historically, Baywood has sustained
a minimal level of operational growth based on a few large customers in the Far
East that purchased a few basic products. Moreover, Baywood acted as a private
labelling company which in effect eradicated brand recognition for the Company's
name. Beginning in early 1998, the Company created and implemented a new
marketing image and corporate logo. In April 1998, two specific new product
developments occurred under a new brand: a line of nutraceutical supplements was
added and two separate lines of nutraceutical products were developed for the
international market for sports nutrition and for daily essential needs.
DEVELOPMENT OF NUTRACEUTICALS LINE OF PRODUCTS. The Company's line of
nutraceuticals follows the introduction of Beta-s(TM), formulated to maintain
healthy cholesterol levels. This new line of products is formulated with what
the Company considers the most effective ingredients and dosages to target
specific needs and conditions of consumers. The products include sinuS(TM) for
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BAYWOOD INTERNATIONAL, INC.
soothing sinus support, anti-OX(TM) as an antioxidant for molecular and cellular
protection, energy+(TM) for support against fatigue, jointS(TM) for connective
tissue and joint support, eyeZ(TM) for support for healthy vision, memorE(TM)
for memory and brain support, cardio-V(TM) for healthy cardiovascular support,
immune+(TM) for immune system support and moodZ(TM) for natural mood enhancement
(please see our web site at www.baywoodinternational.com for more product
information). The Company intends to target many other specific nutritional
needs of consumers and continually add to this line of nutraceuticals under its
new brand label. This line is currently being marketed to health food stores
across the United States. In 1999, the Company intends to intensify its
marketing efforts in this particular channel and to emphasize its quality and
unique brand.
DEVELOPMENT OF MARKETING AND ADVERTISING CAMPAIGN. The Company is
marketing its line of nutraceuticals directly and through wholesale distributors
which distribute to health food stores across the United States. To create
awareness at the retail and consumer levels, the Company advertises through any
number of channels including the distributor's newsletters and catalogs,
independent trade and consumer publications, direct mailings to health food
stores, radio and cable television.
FORMATION OF BAYWOOD NUTRITIONALS, S.A. IN SANTIAGO, CHILE. The
Company's sports nutrition line was specifically designed for the South American
market and is being marketed through a new sales and marketing office in Chile
formed as a joint venture in 1998 under the name of Baywood Nutritionals S.A.
The Company owns approximately 41% of Baywood Nutritionals S.A. This line which
will be marketed and distributed through health clubs includes ProPlus(TM) as a
comprehensive multi-vitamin, AminoPlus(TM) as an amino acid supplement,
SportsPlus(TM) for energy, ProteinPlus(TM) in a chocolate flavor for additional
protein supplementation and FiberPlus(TM) as a chewable for additional dietary
fiber and as a convenient snack. The Company is also introducing a line of
products marketed through physician's including ProTech(TM) as a comprehensive
multi-vitamin, LifeTech(TM) for antioxidant protection, DietTech(TM) as a fat
burner, SportsTech(TM) for energy, FiberTech(TM) as a chewable for additional
dietary fiber and as a convenient snack, CareTech(TM) for cardiovascular support
and PrimeTech(TM) to help maintain healthy cholesterol. The purpose of
establishing this office in Santiago, Chile is to facilitate the marketing and
distribution of branded products using the Company's brand name. It is intended
that the establishment of brand recognition in Chile will provide the proper
catalyst to open up other countries in Latin America as well as other
international markets.
FORMATION OF BAYWOOD ESPANA IN BARCELONA, SPAIN. In January of 1999,
the Company established Baywood Espana in Barcelona, Spain. The entity was
formed to place the Company in a position to supply and service European
manufactured products to the Company's customers in the European Common Market
countries on a duty free and tariff-free basis.
ENGAGEMENT OF INVESTMENT BANKING FIRM AS BUY-OUT PARTNER FOR
ACQUISITIONS. In September of 1998, the Company signed an agreement with Abacus
Capital, L.L.C. ("Abacus") as part of its strategic plan of acquiring other
companies in the nutritional supplement industry. Abacus is a merchant banking
firm which specializes in the acquisition of private companies ranging from $5
million to $50 million in revenues in emerging growth niches. The Company's
engagement of Abacus demonstrates the first step toward initiating its
acquisition plan of other unique companies within the natural products industry.
It is anticipated that Abacus will facilitate the Company's needs for raising
the necessary capital to fund the Company's acquisition of other companies
within the nutritional supplement industry. Through this agreement, the Company
acquired a 15% interest in BII Acquisition Company ("BII") for $75,000. An
additional 10% interest may be obtained through a future management agreement.
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BAYWOOD INTERNATIONAL, INC.
BII is the holding company that has been organized to acquire the target
companies. It is anticipated that Abacus, through its informal commitments with
its institutional investors, will arrange for the financing through BII to
buyout any such targets. Through share exchanges at agreed upon future stock
prices, the Company has the ability to acquire such target companies from BII.
The aggregate amount of cash required at any point in time to fund any
acquisitions may exceed the Company's cash balance. The Company has no
additional commitments to provide cash to BII to fund acquisitions although BII
may need to seek substantial debt or equity financing to make acquisitions that
are synergistic within the existing business plans of the Company.
The Company has targeted certain acquisitions and is currently in
discussions and negotiations with one or more of these targets. The Company may
at any time reach an agreement to acquire any number of targets but can provide
no assurance that any acquisitions will close within a timely manner or at all.
RESULTS OF OPERATIONS
Net sales for the three months ended March 31, 1999 were $37,971
compared to net sales of $754,862 for the same period last year, a decrease of
$716,891 or 95%. The decrease in net sales for the three months ended March 31,
1999 is entirely due to the ban on network marketing companies in China where
the Company's freeze dried aloe vera and mineral drink, Aloe-Minerals Plus(TM),
was supplied to one major customer. This major customer is a direct marketing
company and accounted for $754,790 of net sales for the three months ended March
31, 1998.
International sales for the three months ended March 31, 1999
represented 58% of the Company's net sales. The Company is continually focused
on building a broader customer base so that its historical reliance on a few
major customers is lessened and so that the volatility of sales from quarter to
quarter is decreased. This focus on broadening the customer base is accomplished
through the introduction of other new products into current distribution
channels, the continued support through advertising and promotion of existing
products and the acquisition of other companies in the industry that have
established lines of complementary products and new areas of distribution. Due
to high demand in the industry for nutritional supplements for health and well
being both domestically and internationally, the Company anticipates this line
to be the primary foundation for revenue growth and profitability in the future.
The Company's gross profit margin for the three months ended March 31,
1999 was 41.6% compared to 41% for the same period last year.
Selling, general and administrative expenses for the three months ended
March 31, 1999 were $216,353 compared to $197,101 for the same period last year,
an increase of $19,252. Overall corporate expenditures have decreased compared
to the same period last year inclusive of legal fees, bad debt expense and rent.
Advertising and new product development expenses, however, increased and were
the largest portion of selling, general and administrative expenses for the
three month period totalling $46,728.
Net loss for the three months ended March 31, 1999 was $(214,183) or
$(.01) per share compared to net income of $116,981 or $.01 per share for the
same period last year.
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BAYWOOD INTERNATIONAL, INC.
The Company's reliance on computer information systems is such that it
does not anticipate that the "year 2000 problem" will have any material, adverse
effect on its financial condition, operation or financial statements. The
Company is not aware of any significant problems being encountered by its
customers and vendors.
OTHER INFORMATION
The Company's interest expense was incurred from interest on notes
payable to officers of the Company.
The Company's investment in Baywood Nutritionals, S.A. incurred costs
which contributed to a net loss in the equity of the investment in the amount of
$6,512.
CAPITAL EXPENDITURES
During the three months ended March 31, 1999, the Company had not
incurred material expenditures for property and equipment.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had $120,382 in current assets of
which $30,531 or 25.4% was cash and receivables. Total current liabilities for
the same period totalled $222,236. This represents a ratio of current assets to
current liabilities of .54 at March 31, 1999.
Management is currently exploring alternatives for raising debt or
equity financing in order to properly fund the Company's working capital needs
and to significantly increase the Company's sales growth of new products into
new distribution channels. Certain officers have funded operations within the
first quarter of 1999 through loans to the Company. In addition, certain
officers have elected to defer the payment of their salaries to conserve cash.
Management intends to pay these deferred salaries in the future when the Company
is able to maintain a higher cash balance. It is expected that the Company will
require $300,000 to $500,000 in debt or equity financing within the next six to
nine months to support its operations.
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BAYWOOD INTERNATIONAL, INC.
"CAUTION REGARDING FORWARD-LOOKING STATEMENTS"
CERTAIN STATEMENTS CONTAINED IN THIS REPORT THAT ARE NOT RELATED TO
HISTORICAL RESULTS, INCLUDING, WITHOUT LIMITATIONS, STATEMENTS REGARDING THE
COMPANY'S BUSINESS STRATEGY AND OBJECTIVES AND FUTURE FINANCIAL POSITION, ARE
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT AND SECTION 21E OF THE EXCHANGE ACT AND INVOLVE RISKS AND UNCERTAINTIES.
ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS ON WHICH THESE
FORWARD-LOOKING STATEMENTS ARE BASED ARE REASONABLE, THERE CAN BE NO ASSURANCE
THAT SUCH ASSUMPTIONS WILL PROVE TO BE ACCURATE AND ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE SET FORTH IN THE FOLLOWING SECTION, AS WELL AS THOSE DISCUSSED ELSEWHERE
IN THIS REPORT. ALL FORWARD-LOOKING STATEMENTS CONTAINED IN THIS REPORT ARE
QUALIFIED IN THEIR ENTIRETY BY THIS CAUTIONARY STATEMENT.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company believes that results of operations in any quarterly period
may be impacted by factors such as delays in the shipment of new or existing
products, difficulty in the manufacturer acquiring critical product components
of acceptable quality and in required quantity, timing of product introductions,
increased competitions, the effect of announcements and marketing efforts of new
competitive products, a slower growth rate in the Company's target markets, lack
of market acceptance of new products and adverse changes in economic conditions
in any of the countries in which the company does business. Specifically, the
timing of registration of, and import restrictions on, new or existing products
in different countries in which the Company is doing business or may do business
could delay orders. Also, the significant portion of sales and net income
contributed by international operations, specifically by one customer, and any
disruption in supply from either of the Company's main suppliers, could
materially affect the Company's results of operations and financial condition in
a particular quarter. In particular, China's recent ban on direct marketing have
continued to materially affect sales to the Company's main customer. Due to the
factors noted above, the Company's future earnings and stock price may be
subject to significant volatility. Any shortfall in revenues or earnings from
levels expected by the investing public or securities analysts could have an
immediate and significant adverse effect on the trading price of the Company's
common stock.
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BAYWOOD INTERNATIONAL, INC.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
(b) Description of New Securities
On February 16, 1999, the Company filed a Certificate of
Designation authorizing the issuance of 2,000,000 shares of Class D Redeemable
Convertible Preferred Stock with the following redemption and conversion rights:
At its sole discretion, the Company will either redeem or convert
the Class D Stock on or before the first annual anniversary of
the date of issuance of each share of Class D Stock, by giving
written Notice of Redemption or Notice of Conversion to the
Holders. It may redeem or convert in whole or in part, but it
must do so pro rata. On Redemption, each share of Class D Stock
would receive:
(1) $1.00 per share in cash; PLUS
(2) 12% annual return on $1.00 in cash; PLUS
(3) an amount of shares of Common Stock equal to 18% annual
return times $1.00 divided by the average 20-day closing
market price for the Common Stock immediately before the
Date of Redemption; PLUS
(4) an amount of Common Stock Purchase Warrants covering the
same number of shares of Common Stock as are issuable upon
redemption, exercisable for 24 months at 150% of the same
20-day average closing market price before Date of
Redemption.
On Conversion, each share of Class D Stock would receive:
(1) that number of shares of Common Stock equal to $1 divided by
.85 times the 20-day closing market price for the Common
Stock; PLUS
(2) the number of shares of Common Stock equal to $1 times 30%
annual return on $1.00 divided by 85% of the same average
20-day closing market price of the Common Stock; PLUS
(3) an amount of Common Stock Purchase Warrants covering the
same number of shares of Common Stock issuable upon
Conversion, exercisable for 24 months at 150% of the 20-day
average market close before the Date of Conversion.
To date, the Company has issued 10,000 shares of this class
of stock.
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BAYWOOD INTERNATIONAL, INC.
(c) Sale of Unregistered Securities
During the first quarter of 1999, the Company sold 10,000
shares of Class D Redeemable Convertible Preferred Stock to
James L. Henry for $10,000 in a private transaction under
Section 4(2) and 4(6) of the Securities Act.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Exhibit Name Method of Filing
-------------- ------------ ----------------
3.1 Articles of Incorporation, as amended *
3.2 By-Laws **
4.1 Specimen Common Stock Certificate ***
4.2 Description of Common Stock ****
4.3 Certificates of Designation for *****
Preferred Shares
4.4 Certificates of Designation for Class Exhibit filed
D Redeemable Convertible Preferred Stock herewith
27.1 Financial Data Schedule Exhibit filed
herewith
* Incorporated by reference to Exhibit 3.1 of annual report on Form 10-KSB
(file no. 0- 22024) filed on April 18, 1996.
** Incorporated by reference to Exhibit 3 of Registration Statement on Form
S-1 (file no. 33-10236) filed on January 27, 1987, and declared effective
on February 14, 1988.
*** Incorporated by reference to Exhibit 1 of Registration Statement on Form
8-A (File no. 022024) filed on July 2, 1993, and declared effective on July
9, 1993.
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BAYWOOD INTERNATIONAL, INC.
**** Incorporated by reference to page 31 of Registration Statement on Form S-1
(file no. 33- 10236) filed on January 27, 1987, and declared effective on
February 14, 1988.
***** Incorporated by reference to Exhibit 4.3 of quarterly report on Form
10-QSB (file no. 0- 22024) filed on August 11, 1997.
(b) Reports on Form 8-K
None
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BAYWOOD INTERNATIONAL, INC.
(Registrant)
By: /s/ Neil Reithinger Date: May 14, 1999
---------------------------------------
Neil Reithinger
Chairman of the Board, President, C.E.O.
and Principal Accounting Officer
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CERTIFICATE OF DESIGNATION
FOR
CLASS D REDEEMABLE CONVERTIBLE PREFERRED STOCK
OF
BAYWOOD INTERNATIONAL, INC.
This Certificate of Designation sets forth the rights, powers,
privileges, and preferences of a new series of Preferred Stock of BAYWOOD
INTERNATIONAL, INC. ("BAYWOOD") designated "Class D Redeemable Convertible
Preferred Stock" (Class D Stock) issuable from and after the filing of this
Certificate of Designation with the Secretary of State of Nevada. The new series
of Class D Stock of BAYWOOD shall have the following rights, powers, privileges,
and preferences:
1. NUMBER OF SHARES: 2,000,000 shares
2. PAR VALUE PER SHARE: The Class D Stock shall have a par value of $1.00
per share.
3. VOTING RIGHTS: The Holders of Class D Stock shall have no voting
rights except as provided by law.
4. DIVIDEND PREFERENCE: The Holders of Class D Stock shall share ratably
with the Common Stock and shall have no preference
or priority over the Common Stock with respect to
cash and stock dividends as the same may be
declared and paid from time to time out of funds
legally available therefor.
5. LIQUIDATION PREFERENCE: Upon the occurrence of the dissolution,
liquidation, or bankruptcy of BAYWOOD, the Holders
of Class D Stock shall be paid $1.00 for each
share of Class D Stock then issued and outstanding
plus 12% per year from the date of issuance of
each share of Class D Stock through the date of
such event, before the holders of any outstanding
shares of Class A Preferred Stock, Class B
Preferred Stock, Class C Preferred Stock, Common
Stock or other securities of Baywood receive any
amount. If the assets to be distributed are
insufficient to pay the Holders of Class D Stock
in full, then the assets available for such
payment shall be paid pro rata to the Holders of
the Class D Stock where no payment shall be made
to the holders of any other securities of Baywood.
6. REDEMPTION RIGHTS: At its sole discretion, BAYWOOD will either redeem
or convert the Class D Stock on or before the
first annual anniversary of the date of issuance
of each share of Class D Stock, by giving written
Notice of Redemption or Notice of Conversion to
the Holders. It may redeem or convert in whole or
in part, but it must do so pro rata. On
Redemption, each share of Class D Stock would
receive:
(1) $1.00 per share in cash; PLUS
(2) 12% annual return on $1.00 in cash; PLUS
<PAGE>
(3) an amount of shares of Common Stock equal to
18% annual return times $1.00 divided by the
average 20-day closing market price for the Common
Stock immediately before the Date of Redemption;
PLUS
(4) an amount of Common Stock Purchase Warrants
covering the same number of shares of Common Stock
as are issuable upon redemption, exercisable for
24 months at 150% of the same 20-day average
closing market price before Date of Redemption.
7. CONVERSION RIGHTS: At its sole discretion, BAYWOOD will either redeem
or convert the Class D Stock on or before the
first annual anniversary of the date of issuance
of each share of Class D Stock, by giving written
Notice of Redemption or Notice of Conversion to
the Holders. It may redeem or convert in whole or
in part, but it must do so pro rata. On
Conversion, each share of Class D Stock would
receive:
(1) that number of shares of Common Stock equal to
$1 divided by .85 times the 20-day closing market
price for the Common Stock; PLUS
(2) the number of shares of Common Stock equal to
$1 times 30% annual return on $1.00 divided by 85%
of the same average 20-day closing market price of
the Common Stock; PLUS
(3) an amount of Common Stock Purchase Warrants
covering the same number of shares of Common Stock
issuable upon Conversion, exercisable for 24
months at 150% of the 20-day average market close
before the Date of Conversion.
Provided in both the issuance of the Common Stock
and the issuance of the Common Stock Purchase
Warrants and shares issuable upon the exercise of
such Warrants, no fractional shares will be issued
and all resulting fractional shares will be
rounded up to the next whole share.
LIMITATION ON CONVERSION OR
REDEMPTION RIGHTS: The rights of any holder of Class D Stock pursuant
to a conversion or redemption of any Class D Stock
shall be expressly limited as follows: In no event
shall any holder of Class D Stock be entitled,
upon conversion or redemption, to receive more
than three (3) shares of Common Stock and Common
Stock Warrants to purchase more than three (3)
shares of Common Stock for each share of Class D
Stock redeemed or converted. This limitation of
the total number of shares of Common Stock
issuable upon redemption or conversion shall be
subject to pro rata adjustment in the event the
number of issued and outstanding shares of Common
Stock on the date of issuance of each share of
Class D Stock increases or decreases thereafter
through any stock split, reverse stock split or
<PAGE>
otherwise. For example, in the event of a three
for one reverse stock split, a share of Class D
Stock would be convertible or redeemable into a
maximum of one (1) share of Common Stock and a
Common Stock Warrant to purchase one (1) share of
Common Stock.
This limitation could reduce the total number of
shares issued pursuant to the formulas set forth
in the above sections on Redemption and Conversion
in the event that the 20-day average market close,
prior to any dilution of the Common Stock from any
stock split or otherwise, is less than $.51. For
example, in the event of a conversion where the
20-day average market close, prior to any such
dilution, is $.50, while the formula for
conversion would provide a holder of 25,000 shares
of Class D Stock with 76,471 shares of Common
Stock and Common Stock Warrants to purchase 76,
471 shares of Common Stock, such shareholder would
actually receive only 75,000 shares of Common
Stock (3 shares of Common Stock per each share of
Class D Stock) and Common Stock Warrants to
purchase 75,000 shares of Common Stock. Such
shareholder would have no rights to any additional
shares of Common Stock.
Baywood can provide no assurances that the stock
price will reach $.51 in the next year.
8. ANTI-DILUTION PROTECTION: The number of shares into which the Class D Stock
is convertible and the number of shares issuable
upon the exercise of Common Stock Purchase
Warrants is subject to pro rata adjustment in the
event the number of issued and outstanding shares
of Common Stock on the date of issuance of each
share of Class D Stock on a fully diluted basis
increases or decreases thereafter, excluding
shares of Common Stock and other securities
convertible into Common Stock of Baywood issued in
connection with the acquisition of the assets or
stock of any other business entity; provided,
however, in no event shall the number of shares of
Common Stock issuable by reason of conversion,
redemption or exercise of Common Stock Purchase
Warrants be more than 12,000,000. There could be
limitations on the number of shares of Common
Stock issued upon conversion that would yield a
return less than that outlined above. At a maximum
issuable share amount of 12,000,000 shares of
Common Stock, the average 20- day closing market
price could be no less than $.51 per share. The
limitation would then take effect.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 14,858
<SECURITIES> 0
<RECEIVABLES> 31,308
<ALLOWANCES> 15,635
<INVENTORY> 61,734
<CURRENT-ASSETS> 151,632
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 260,148
<CURRENT-LIABILITIES> 253,486
<BONDS> 0
0
45,000
<COMMON> 25,791
<OTHER-SE> (64,129)
<TOTAL-LIABILITY-AND-EQUITY> 260,148
<SALES> 37,971
<TOTAL-REVENUES> 37,971
<CGS> 22,190
<TOTAL-COSTS> 216,353
<OTHER-EXPENSES> 13,611
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (214,183)
<INCOME-TAX> 0
<INCOME-CONTINUING> (214,183)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (214,183)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0
</TABLE>
