SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) of the
-------------------------------------------------
SECURITIES ACT OF 1934
For the Quarterly period ended September 30, 2000
Commission File Number 0-25665
NATIONAL FRUIT AND VEGETABLE TECHNOLOGY CORPORATION
---------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Nevada 88-0222729
------ ----------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
210 Water Street, Baltimore, Ohio 43105
--------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (740) 862-6300
Common Stock, Par Value $0.001 Per Share
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
85,256,700
NUMBER OF COMMON STOCK SHARES OUTSTANDING
-----------------------------------------
On September 30, 2000
-----------------
Traditional Small Business Disclosure Format (Check One):
[X] Yes [ ] No
<PAGE>
ITEM 1. Financial Statements
[GRAPHIC OMITTED]
ICKERT & COMPANY, LLC
----------------------------
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
National Fruit and Vegetable Technology Corporation:
We have reviewed the accompanying balance sheets of National Fruit and
Technology Corporation (a Nevada development stage corporation) as of September
30, 2000 and 1999, and the related statements of loss and accumulated deficit,
shareholders' equity and cash flows for the three and nine month periods ended
September 30, 2000 and 1999 and for the period from September 14, 1983 (date of
inception) through September 30, 2000, in accordance with Statements on
Standards for Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these financial
statements is the representation of management of National Fruit and Technology
Corporation.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to the financial data. It is substantially less in scope than
an audit in accordance with generally accepted auditing standards, the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/Ickert & Company, LLC
------------------------
Ickert & Company, LLC
November 10, 2000
Columbus, Ohio.
F-1
<PAGE>
<TABLE>
<CAPTION>
National Fruit and Vegetable Technology Corporation
(A Development Stage Corporation)
Balance Sheets - Unaudited
As of September 30,
Assets
2000 1999
------------ ------------
<S> <C> <C>
Current assets
Cash $ 57,100 $ 175,600
------------ ------------
Prepaid expenses 3,800 3,800
------------ ------------
60,900 179,400
Property & equipment 15,190,000 13,969,300
Accumulated depreciation (899,700) (785,600)
------------ ------------
14,290,300 13,183,700
------------ ------------
Total assets $ 14,351,200 $ 13,363,100
============ ============
0
Liabilities & Shareholders' Equity
Current liabilities
Current portion of long-term debt $ 20,300 $ 49,000
Current portion of notes payable to shareholder 400,000 250,000
Accounts payable 359,200 47,500
Accounts payable - related party 613,700 451,600
Accrued expenses 245,700 175,700
------------ ------------
1,638,900 973,800
------------ ------------
Long-term obligations
Long-term debt -- 3,000
Capital leases 8,800 12,800
Notes payable to shareholder -- 150,000
------------ ------------
8,800 165,800
------------ ------------
Shareholders' equity
Common stock 85,300 81,400
Additional paid-in capital 21,385,400 19,451,200
Deficit accumulated during the development stage (8,767,200) (7,309,100)
------------ ------------
12,703,500 12,223,500
------------ ------------
Total liabilities & shareholders' equity $ 14,351,200 $ 13,363,100
============ ============
</TABLE>
The accompanying Accountant's Review Report and footnotes are an
integral part of these financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
National Fruit and Vegetable Technology Corporation
(A Development Stage Corporation)
Statements of Loss and Accumulated Deficit - Unaudited
For the periods ended September 30,
Cumulative
Three Months Three Months Nine Months Nine Months During
Ended Ended Ended Ended Development
9/30/00 9/30/99 9/30/00 9/30/99 Stage
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Costs and expenses
General and administrative $ 213,400 $ 33,300 $ 863,000 $ 410,100 $ 6,072,600
Depreciation and amortization 29,900 29,900 89,800 89,800 1,415,500
Research and development -- -- -- -- 297,100
Loss on property disposal -- -- -- -- 717,800
----------- ----------- ----------- ----------- -----------
Loss from operations 243,300 63,200 952,800 499,900 8,503,000
----------- ----------- ----------- ----------- -----------
Other income (expense)
Interest income -- -- -- -- 83,900
Interest expense (11,000) (36,000) (33,000) (61,200) (342,100)
Gain (loss) on sale of assets -- -- -- -- (6,000)
----------- ----------- ----------- ----------- -----------
Net loss (254,300) (99,200) (985,800) (561,100) (8,767,200)
----------- ----------- ----------- ----------- -----------
Accumulated deficit -- Beginning of period 8,512,900 7,209,900 7,781,400 6,748,000 --
----------- ----------- ----------- ----------- -----------
Accumulated deficit -- End of period $ 8,767,200 $ 7,309,100 $ 8,767,200 $ 7,309,100 $ 8,767,200
=========== =========== =========== =========== ===========
Loss per common share
(Basic and Diluted) $ 0.003 $ 0.001 $ 0.012 $ 0.007 $ 0.182
=========== =========== =========== =========== ===========
</TABLE>
The accompanying Accountant's Review Report and footnotes are an
integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
National Fruit and Vegetable Technology Corporation
(A Development Stage Corporation)
Statement of Shareholders' Equity - Unaudited
For the period ended September 30, 1999
Common Stock
(par value $ .001 per share) Additional Accumulated
Shares Amount Paid-in Capital Deficit Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1998 79,215,500 $ 79,200 $ 18,370,900 $ (6,748,000) $ 11,702,100
------------ ------------ ------------ ------------ ------------
Stock issued in exchange
for cash at $ .50 per
share (net of redemptions) 734,500 700 366,600 -- 367,300
Net loss for the period
ended March 31, 1999 -- -- -- (268,300) (268,300)
------------ ------------ ------------ ------------ ------------
Balance March 31, 1999 79,950,000 79,900 18,737,500 (7,016,300) 11,801,100
------------ ------------ ------------ ------------ ------------
Stock issued in exchange
for cash at $ .50 per
share (net of redemptions) 415,000 400 207,100 -- 207,500
Net loss for the period
ended June 30, 1999 -- -- -- (193,600) (193,600)
------------ ------------ ------------ ------------ ------------
Balance June 30, 1999 80,365,000 $ 80,300 $ 18,944,600 $ (7,209,900) $ 11,815,000
------------ ------------ ------------ ------------ ------------
Stock issued in exchange
for cash at $ .50 per
share (net of redemptions) 1,015,500 1,100 506,600 -- 507,700
Net loss for the period
ended September 30, 1999 -- -- -- (99,200) (99,200)
------------ ------------ ------------ ------------ ------------
Balance September 30, 1999 81,380,500 $ 81,400 $ 19,451,200 $ (7,309,100) $ 12,223,500
============ ============ ============ ============ ============
</TABLE>
The accompanying Accountant's Review Report and footnotes are an
integral part of these financial statements.
F-4
<TABLE>
<CAPTION>
National Fruit and Vegetable Technology Corporation
(A Development Stage Corporation)
Statement of Shareholders' Equity - Unaudited
For the period ended September 30, 2000
Common Stock
(par value $ .001 per share) Additional Accumulated
Shares Amount Paid-in Capital Deficit Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1999 83,452,400 $ 83,500 $ 20,485,100 $ (7,781,600) $ 12,787,000
------------ ------------ ------------ ------------ ------------
Stock issued in exchange
for cash at $ .50 per
share (net of redemptions) 672,400 700 335,500 -- 336,200
Net loss for the three months
ended March 31, 2000 -- -- -- (238,000) (238,000)
------------ ------------ ------------ ------------ ------------
Balance March 31, 2000 84,124,800 84,200 20,820,600 (8,019,600) 12,885,200
------------ ------------ ------------ ------------ ------------
Stock issued in exchange for
cash at $ .50 per
share (net of redemptions) 1,140,900 1,100 564,800 -- 565,900
Net loss for the three months
ended June 30, 2000 -- -- -- (493,300) (493,300)
------------ ------------ ------------ ------------ ------------
Balance June 30, 2000 85,265,700 $ 85,300 $ 21,385,400 $ (8,512,900) $ 12,957,800
------------ ------------ ------------ ------------ ------------
Stock issued in exchange for
cash at $ .50 per
share (net of redemptions) -- -- -- -- --
Net loss for the three months
ended September 30, 2000 -- -- -- (254,300) (254,300)
------------ ------------ ------------ ------------ ------------
85,265,700 $ 85,300 $ 21,385,400 $ (8,767,200) $ 12,703,500
============ ============ ============ ============ ============
</TABLE>
The accompanying Accountant's Review Report and footnotes are an
integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
National Fruit and Vegetable Technology Corporation
(A Development Stage Corporation)
Statements of Cash Flows - Unaudited
For the periods ended
Three Months Three Months
Ended Ended
9/30/00 9/30/99
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net loss $(254,300) $ (99,200)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 29,900 29,900
Loss on sale of equipment -- --
Loss on property disposal -- --
Common stock issued for operating expenses -- --
Sources (uses) of cash from change in:
Other -- --
Deposits 8,500 --
Accounts payable 226,800 (264,900)
Accounts payable - related party 38,800 --
Accrued expenses (2,900) 9,600
--------- ---------
Net cash used in operating activities 46,800 (324,600)
--------- ---------
Cash flows from investing activities
Purchases of property and equipment (522,900) (189,800)
Sale of property and equipment -- --
--------- ---------
Net cash used in investing activities (522,900) (189,800)
--------- ---------
Cash flows from financing activities
Proceeds from issuance of long-term debt -- --
Principal payments on long-term debt -- --
Proceeds from notes payable to shareholder -- --
Principal payments on notes payable to shareholder -- --
Proceeds from capital leases -- --
Principal payments on capital leases (8,700) (17,200)
Proceeds from issuance of common stock -- 507,700
Redemption of common stock -- --
--------- ---------
Net cash provided by financing activities (8,700) 490,500
--------- ---------
Increase (decrease) in cash (484,800) (23,900)
Cash -- Beginning of period 541,900 180,600
--------- ---------
Cash -- End of period $ 57,100 $ 156,700
========= =========
</TABLE>
The accompanying Accountant's Review Report and footnotes are an
integral part of these financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
National Fruit and Vegetable Technology Corporation
(A Development Stage Corporation)
Statement of Cash Flows - Unaudited
For the periods ended September 30,
Cumulative
Nine Months Nine Months During
Ended Ended Development
09/30/00 09/30/99 Stage
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (985,800) (561,100) $ (8,767,400)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 89,800 89,800 1,415,500
Loss on sale of equipment -- -- 6,000
Loss on property disposal -- -- 717,800
Common stock issued for operating expenses -- -- 311,100
Sources (uses) of cash from change in:
Deposits -- -- (3,800)
Accounts payable 259,500 (127,800) 359,400
Accounts payable - related party 125,700 163,600 613,700
Accrued expenses (10,700) 41,600 176,500
Other -- -- 53,500
------------ ------------ ------------
Net cash used in operating activities (521,500) (393,900) (5,117,700)
------------ ------------ ------------
Cash flows from investing activities
Purchases of property and equipment (1,008,500) (798,700) (13,035,900)
Sale of property and equipment -- -- 219,200
------------ ------------ ------------
Net cash used in investing activities (1,008,500) (798,700) (12,816,700)
------------ ------------ ------------
Cash flows from financing activities
Proceeds from issuance of long-term debt -- -- 1,112,100
Principal payments on long-term debt -- (8,900) (690,000)
Proceeds from notes payable to shareholder -- -- 650,000
Principal payments on notes payable to shareholder -- -- (175,000)
Proceeds from capital leases -- -- 90,700
Principal payments on capital leases (32,900) (55,100) (197,000)
Proceeds from issuance of common stock 952,100 1,092,500 17,537,200
Redemption of common stock (50,000) (10,000) (336,500)
------------ ------------ ------------
Net cash provided by financing activities 869,200 1,018,500 17,991,500
------------ ------------ ------------
Increase (decrease) in cash (660,800) (174,100) 57,100
Cash -- Beginning of period 717,900 349,700 --
------------ ------------ ------------
Cash -- End of period $ 57,100 175,600 $ 57,100
============ ============ ============
</TABLE>
The accompanying Accountant's Review Report and footnotes are an
integral part of these financial statements.
F-7
<PAGE>
National Fruit and Vegetable Technology Corporation
(A Development Stage Corporation)
Notes to Unaudited Financial Statements
As of September 30, 2000 and 1999
Note 1. Business Organization
National Fruit and Vegetable Technology Corporation (Company) was
incorporated in Nevada in December, 1986. The Company was formed to
develop a high-speed, high-powered microwave oven capable of processing
fruits and vegetables. The Company's products will be sold to customers
in both wholesale food processing and the food service industries.
Initially, the Company intends to process baked and french fried
potatoes. As the business develops, it intends to branch out into other
fruits and vegetables using the microwave technology developed in
processing potatoes. The Company has not begun food processing
operations as of the date of these financial statements and has not
generated any revenues from food processing operations.
National Fruit and Vegetable Technology Corporation is the successor to
National Veg-Tec Corporation (Veg-Tec). National Veg-Tec Corporation
was incorporated in 1983. On March 2, 1987, National Fruit and
Vegetable Technology Corporation acquired National Veg-Tec Corporation
by exchanging all of the common shares of National Fruit and Vegetable
Technology Corporation's stock (49,346,800 shares) on a one-for-one
basis for National Veg-Tec Corporation's stock. As a result of the
exchange, the financial statements are presented as if National Fruit
and Vegetable Technology Corporation had been in existence since the
inception of Veg-Tec, its predecessor. Veg-Tec was incorporated in
September, 1983.
Veg-Tec was formed by exchanging stock for property, equipment and
technology owned by an unincorporated joint venture. The joint venture
carried on extensive research and development in microwave technology
and was operated by the Company's majority shareholders. The assets
transferred to Veg-Tec were valued at the original shareholders'
historical cost, and consisted of:
Microwave oven technology and
related food processing equipment $ 297,000
Machinery & equipment 246,200
Vehicles 256,800
---------------
Other assets 116,600
---------------
$ 916,600
===============
F-8
<PAGE>
National Fruit and Vegetable Technology Corporation
(A Development Stage Corporation)
Notes to Unaudited Financial Statements
Note 2. Acquisition
In 1986, the Company acquired Veg-Tec Corporation, an Ohio corporation,
by exchanging 3,506,400 shares of common stock for all the issued and
outstanding stock of Veg-Tec Corporation. The purchase price was
$503,200 for a note receivable and technology related to a browning
oven. The shareholders of Veg-Tec Corporation are also the principal
shareholders of the Company. The assets acquired were valued at the
shareholders' historical cost. The transaction was accounted for as a
combination of entities under common control.
Note 3. Summary of Significant Accounting Policies
Development Stage Corporation -- The Company has not started regular
operations and has no product sales to date. All noncapitalizable
expenses have been charged to operations in the period they were
incurred.
Employee Benefits -- The Company has no employee benefit or pension
plans.
Research and Development -- Research and development costs are
primarily related to oven testing and integration of related equipment.
These costs are charged to operations in the period incurred. Research
and development costs have totaled $297,100 since inception of the
Company.
Cash Equivalents -- For purposes of the statement of cash flows, the
Company considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
Income Taxes -- Because the Company has not commenced planned food
processing operations, no federal or local income tax or county
property tax returns have been filed.
Concentration of Credit Risk -- The Company maintains bank accounts at
local banks. In some instances, the balances may exceed the federally
insured limit for an individual account.
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 reported
F-9
<PAGE>
National Fruit and Vegetable Technology Corporation
(A Development Stage Corporation)
Notes to Unaudited Financial Statements
amount of assets, liabilities, revenues and expenses and disclosure of
contingent assets and liabilities. Actual results could differ from the
estimates and assumptions used.
Supplemental cash flow disclosures -- The Company made no cash payments
for interest during the first six months of 2000. The Company paid
taxes in the amount of $5,500 during the period ended June 30, 2000.
Note 4. Property and Equipment
As of September 30, 2000 and 1999, property and equipment can be
summarized as follows on a restated basis:
<TABLE>
<CAPTION>
Construction
In Service in Progress Total Total
at 9/30/00 at 9/30/00 at 9/30/00 at 9/30/99
---------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Land $ 222,800 $ - $ 222,800 $ 191,300
Buildings 125,000 2,864,800 2,989,800 2,771,000
Microwave oven - 1,301,300 1,301,300 974,200
Processing equipment - 7,898,700 7,898,700 7,314,700
Machinery 882,800 1,183,500 2,066,300 1,998,600
------------------
Vehicles 157,400 553,700 711,100 719,500
---------------- ----------------- ------------------ ------------------
------------------
1,388,000 13,802,000 15,190,000 13,969,300
---------------- ----------------- ------------------ ------------------
------------------
Depreciation (899,700) - (899,700) (785,600)
---------------- ----------------- ------------------ ------------------
==================
$ 488,300 $ 13,802,000 $ 14,290,300 $ 13,183,700
================ ================= ================== ==================
</TABLE>
F-10
<PAGE>
National Fruit and Vegetable Technology Corporation
(A Development Stage Corporation)
Notes to Unaudited Financial Statements
Amounts shown as construction in progress represent the Company's food
processing plant and the related food processing equipment. The plant
is located in Baltimore, Ohio, and is under construction at September
30, 2000 and 1999. For financial reporting purposes depreciation is
computed using the straight-line method over the useful lives of the
assets. Useful lives generally range from three to ten years. For
income tax purposes depreciation will be provided using MACRS and
straight-line methods.
Note 5. Long-term Debt
Long-term debt consists of the following as of September 30, 2000:
Unsecured debt $ 1,000
--------------
Less: amounts due within one year (1,000)
--------------
==============
Net long-term debt $ 0
==============
The unsecured debt was due in April, 2000. Payments are due monthly,
with no stated interest rate.
Note 6. Notes Payable to Shareholder
The Company had the following notes payable to a shareholder at
September 30, 2000:
Note payable due May, 1999 $ 50,000
Note payable due May, 1999 100,000
Note payable due October, 1999 50,000
Note payable due October, 1999 50,000
Note payable due February, 2000 50,000
--------------
Note payable due November, 2000 100,000
--------------
==============
Total notes payable to shareholder $ 400,000
==============
F-11
<PAGE>
National Fruit and Vegetable Technology Corporation
(A Development Stage Corporation)
Notes to Unaudited Financial Statements
The shareholder notes are all unsecured and bear interest at the rate
of 11%. The $50,000 note due May, 1999 is personally guaranteed by the
officers of the Company. Interest expense related to these notes
totaled $22,000 during the first six months of 2000 Interest is to be
paid to the shareholder with common stock of the Company at the rate of
$.50 per share. As of June 30, 2000, interest expense has been accrued
but the shares have yet to be issued.
Under the terms of each note, the shareholder may choose to take
principal payments in cash or 50% in cash and 50% in the Company's
common stock. If the stock payment option were chosen for the entire
amount payable, the shareholder would receive $205,500 and 411,000
shares of common stock.
Note 7. Accounting for Income Taxes
The Company has incurred tax net operating losses during its
development period of approximately $8,500,000. No tax benefit for
those losses has been recorded in the accompanying financial
statements, as the Company's history of operating losses make it
uncertain that the benefit will ultimately be recognized. This method
of accounting for income taxes is in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Note 8. Short term debt
The Company has obtained a line of credit in the amount of $500,000
from a bank that is secured by the Company's inventory of processed
inventory and accounts receivable. As of September 30, 2000, no draws
have been made on this line and no balance is due. The interest rate is
prime plus 1 % or 10.50% at September 30, 2000.
F-12
<PAGE>
National Fruit and Vegetable Technology Corporation
(A Development Stage Corporation)
Notes to Unaudited Financial Statements
Note 9. Capital Leases
The Company leases equipment under lease agreements expiring on various
dates through 2002. The leases are capital leases with the Company
owning the assets outright at the end of the lease terms.
At September 30, 2000, future minimum lease payments for all leases,
and the minimum payments for those leases were as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 6,000
2001 13,000
2002 9,400
2003 2,600
-------------
thereafter -
-------------
Total minimum lease payments 31,000
-------------
Less: interest portion (2,900)
-------------
Present value of net minimum lease payments 28,100
-------------
Less: current portion (19,300)
-------------
=============
Net long-term lease liability $ 8,800
=============
At September 30, 2000, assets under capital leases were as follows:
Food processing equipment $ 54,400
-------------
Machinery and equipment 74,000
-------------
Less: Accumulated depreciation (55,200)
-------------
Net assets under capital lease 73,200
=============
</TABLE>
F-13
<PAGE>
National Fruit and Vegetable Technology Corporation
(A Development Stage Corporation)
Notes to Unaudited Financial Statements
Note 10. Related Party Transactions
The Company rents a storage facility owned by an entity controlled by
the officers and principal shareholders of the Corporation. The lease
arrangement is renewable on an annual basis. Rent expense for the
facility was $200,000 in 1999 and 1998. Management has determined that
the rental rates charged do not exceed fair market rates for this
geographic area. As of September 30, 2000 and 1999, this related entity
has a balance due from the Company of $613,700 and $451,600,
respectively.
From time to time, the Company has borrowed funds from various
shareholders. At September 30, 2000 and 1999, a total of $401,000 and
$251,000 was due to various shareholders. Interest expense incurred on
this indebtedness amounted to $44,000 and $27,200 respectively in 1999
and 1998.
Note 11. Going Concern
The Company has been in the development stage since its inception on
September 14, 1983. To date, the Company has not begun food processing
operations and has not generated revenues. The accompanying financial
statements have been prepared assuming the Company will be able to
operate profitably. Realization of a major portion of the assets is
dependent on the Company's ability to place the microwave oven system
into operation on a profitable basis, the outcome of which cannot be
determined at this time. As of September 30, 2000, the Company needed
to raise additional funding to complete the construction of its
Baltimore plant and provide working capital to initiate operations. To
date the Company has been able to raise equity capital for
construction. Management's plans include an equity offering to raise
additional capital. Management is of the opinion that adequate equity
funding can be obtained to begin operations. The financial statements
do not include any adjustments that might result from the outcome of
these uncertainties.
F-14
<PAGE>
ITEM 2: Management's Discussion and Analysis or Plan of Operation
Statements contained herein that are not historical facts are
forward-looking statements as that term is defined by the Private Securities
Litigation Reform Act of 1995. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, the
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ from those projected. The Company cautions
investors that any forward-looking statements made by the Company are not
guarantees of future performance and that actual results may differ materially
from those in the forward-looking statements. Such risks and uncertainties
include, without limitation: well established competitors who have substantially
greater financial resources and longer operating histories, regulatory delays or
denials, the Company's ability to compete as a start-up company in a highly
competitive market, and access to sources of capital.
The Company has not received revenues from operation during the
two-year period immediately preceding the filing of this Form 10-QSB.
Plan of Operation
During the past year, the Company has focused on creating its potato
processing facility. During the last quarter of 1999, the Company concentrated
on enhancing the facility's automated weighing, bagging and packaging line. By
the end of December 1999, the Company's entire facility ran smoothly and was
able to process raw potatoes into cooked and packaged potato products.
Management focused on processing potatoes into french fries and has been able to
run the Company's facility all day long and process, cook, bag and store in
french fry product.
During the first quarter of 2000, the Company's operations focused on
refining the packaging process. The Company continues this process in the second
quarter of 2000. Hundreds of thousands of pounds of potatoes were processed in
order to refine the packaging process. The Company was able to test different
plastic bagging materials and selected the materials deemed most compatible the
Company's machinery.
During this same time, Management was able to test packaging materials
with a view to increasing the "shelf life" of the processed product. The Company
believes that most of its customers (restaurant chains) will desire a shelf life
of 30 days. Though its testing program, the Company has been able to extend the
shelf life of its products from 2 days to approximately 35 days. Optimally, the
Company would like to see a shelf life of 45 days for its products. Such a goal
may be limited, however, by limitations of available bagging materials. The
Company is attempting to reach its shelf life goal without the use of
preservatives or other chemicals which would complicate the Company's processing
line.
The Company also has been able to test boxing materials for the storage
and delivery of its bagged potato products. Once suitable boxing materials were
found, management designed artwork for its boxes and bags.
First quarter efforts also were focused on reducing the number of
defective fries created while processing potatoes. By the end of March 2000 the
Company was able to process potatoes in fries with a ratio of 10,000 usable
fries to every 1 unusable fry. The Company hopes to improve this ratio to
100,000 to 1. Management believes that such a ratio in necessary to successfully
market the Company's products.
One of byproducts of the Company's potato processing is starch in the
waste water created. The Company has created a de-starching equipment which has
been added to the Company's facilities. The Company recovers the starch from the
waste water and intends to sell that starch. The treated water is then reused in
the processing facility. This recycling process, along with attention to
recycling other wastes created, earned the Company certification by the Ohio EPA
as an environmentally friendly company.
2
<PAGE>
The move to full production in 2000 has been hampered by problems with
the Company's well water system. In December 1999, management noticed that a
large amount of sand was coming from one of its high-volume industrial well
water systems. The Company hired a professional well-testing company which
determined that the sell had developed major holes in its casing and that part
of the well had collapsed. The Company contracted with a well-drilling company
to replace the casing and install a new deep-well filter and a new industrial
high-volume pumping system. Work on this problem was not completed until May of
2000.
During the first and second quarters of 2000, the Company's sales staff
gave numerous tours to prospective customers. Some restaurant chains have
expressed interest in test marketing the Company's products. During the second
and third quarters of 2000, the Company's sales staff will attempt to enter into
test marketing agreements and complete such test marketing.
When the Company is in full operations, including a complete sales
staff, management anticipates that the Company will employ approximately 32
individuals to serve as clerical and operations staff and eight (8) individuals
to work as sales staff. Management expects to deliver and invoice product to
restaurant customers during the third quarter of 2000.
At the same time, management anticipates expanding processing
operations. Such operations will require additional personnel to work in the
Company's product control laboratory and operate the Company's processing and
storage facilities. Management anticipates operating its facilities with a total
of approximately 40 people, which includes sales, production and administrative
personnel. During the second quarter of 2000, the Company began hiring and
training personnel to work in the Company's processing facility.
Management intends to fund operations in the fourth quarter of 2000 and
the first quarter of 2001 with cash on hand and cash from a line of credit the
Company has obtained. If additional cash is required, the Company will obtain
such cash either through conventional financing or loans from existing
shareholders. Management intends to continue to limit further private sales of
the Company's securities.
Given the fact that the Company's facilities and equipment are
unencumbered, management believes that continued financing will be available.
Indeed, on June 21, 2000, management obtained a line of credit in the amount of
$500,000 at the Fifth Third Bank in Columbus, Ohio. This line of credit is
secured by the Company's accounts receivable and its inventory of processed
goods. Management has the ability to draw down on this line of credit as it
deems necessary. In this regard, the Fifth Third Bank will extend a dollar-for-
dollar credit on the Company's raw potato inventory and finished processed
potato inventory. The Company's equipment and real property have not been used
as security in connection with this line of credit.
Until the Company's operations generate revenue, management will be
able to use this line of credit to operate the Company. Management believes that
this line of credit will be sufficient to fund the Company's operations until
revenues are generated through sales. The Company has sufficient cash flow to
meet the day-to- day requirements for the next quarter.
Fifth Third Bank also has had discussions with the management team that
once the Company is operational for a short period of time it intends to
increase the line of credit to One Million Dollars ($1,000,000.00). The Fifth
Third Bank also signed an agreement with management of the Company stating that
it has the first right to match or better any financial deal the Company has in
the next three years. Of course, it is possible that such addition funds may not
be made available though such a line of credit. The Company's success and
ability to generate revenues may not be as favorable as management assumes they
will be. Under such circumstances additional funds from a line of credit may not
be available.
Management believes that it has had, and will continue to have, strong
shareholder support for its operations and that any additional cash necessary to
commence operations will be available. With this line of credit and shareholder
support, management believes that it has the ability to fund operations during
the next twelve months.
Once operations are under way, management of the Company intends to add
staff, equipment and continued research and development with revenues generated
from sales. Once the Company's facilities are in full commercial production,
management believes that it can satisfy the Company's cash requirements for the
next 12 months with its revenues from sales.
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Management has attempted to limit the negative of effect of potential
supply problems. On July 1, 2000, the Company signed a full potato marketing
agreement with the State of Idaho (Idaho Potato Commission) to market its
premium potato product under the Idaho name and logo. This also means that the
Company now has the right to use any or all of the millions of dollars in camera
ready artwork of potatoes that the State of Idaho has developed. This agreement
will save the Company hundreds of thousands of dollars in marketing and sales
promotions program materials.
The Company now holds the following four licenses which enable it to
haul bulk semi-loads of potatoes out of the State of Idaho without the four
following licenses:
1. The Idaho Potato Promotions Board License.
2. The Idaho Potato Growers License under the Easter Oregon Idaho
rate 544.
3. The Idaho Grower Commissions Board License.
4. The U.S.D.A.. P.A.C.A. License
Management believes the Company's ability to obtain potatoes from Idaho broadens
the Company's supply base.
Nonetheless, the Company's cash flow could be negatively impacted by
unforeseen events, such as the collapse of the chasing on one of Company's water
wells as described above. Such events may create cash needs beyond the Company's
current ability to meet such needs. In addition, the Company's ability to
generate sales could be impacted upon by such factors as availability of raw
potatoes and other supplies provided by third parties over which the Company has
no control. Delays or failures on the part of such third-party suppliers to meet
their obligations to the Company could cause the Company to fall behind in
meeting any obligations it may have to its customers. Given the fact that the
Company has not operated in full production with on going sales, it is difficult
for management to predict with any certainty the degree to which such problems
could exist and the magnitude of the impact of such problems upon the Company's
ability to operate.
During the fourth quarter of 2000, the Company will focus on initiating
production and generating revenues. Production is expected to limited at first
and the Company's facility likely will not operate at full capacity. It is
anticipated that revenues will be limited as well. Nonetheless, revenue
generation will be a primary focus for the last quarter of 2000 and the first
quarter of 2000.
Factors which could limit the Company's ability to operate and generate
revenues include the availability of product for processing and demand for the
product processed. The Company cannot control the availability of potatoes from
growers, though a shortage is not anticipated for the following quarter. Also,
the Company currently does not have an established base of purchasers for its
processed products. Sales likely will be slow while the Company develops
relationships with purchasers and the demand the Company's products develops.
Another factor which could impact on the Company's operations is the
cost of transportation of product. Rising gasoline prices will increase the
costs of delivered goods. It is anticipated that such costs will impact on the
entire market in which the Company will compete, though it may easier for well
established competitors to absorb such increases in costs than it will be for a
new entry into the market, such as the Company.
4
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PART II
Other Information
ITEM 1: Legal Proceedings
The Company is not a party to, and none of the Company's property is
subject to, any pending or threatened legal, governmental, administrative or
judicial proceedings.
ITEM 2: Changes in Securities and Use of Proceeds
None.
ITEM 3: Defaults Upon Senior Securities
None.
ITEM 4: Submission of Matters to a Vote of Security Holders
No matters have been submitted to a vote of the security holders during
the period covered by this report through the solicitation of proxies or
otherwise.
ITEM 5: Other Information
None.
ITEM 6: Exhibits and Reports on Form 8-K
A. Exhibits
(2) Plan of acquisition, reorganization, liquidation or succession:
NONE.
(3) (i) Articles of Incorporation *
(ii) By-laws *
* Incorporated by reference from the Registrant's Form 10-SB.
B. Reports on Form 8-K.
The Registrant did not file reports on Form 8-K during the quarter
covered by this report.
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SIGNATURES
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In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: November 18, 2000.
NATIONAL FRUIT AND VEGATABLE TECHNOLOGY CORPORATION
By /s/ Daniel K. Cashman
---------------------
Daniel K. Cashman
President
