SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
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 24, 2000
IMAGENETIX, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 33-24138-D 87-0463772
-------- ---------- ----------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) I.D. Number)
1635 West Bernardo Drive, Suite 101
San Diego, California 92127
--------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (858) 323-1688
Capital Growth, Inc.
55 West 200 North
Provo, Utah 84601
-------------------------------------------------------------
(Former name and former address, if changed since last report)
1
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
As a result of the Agreement and Plan of Reorganization with Imagenetix,
Inc., a Colorado corporation, described in Item 2, below, the Registrant's sole
executive officer and director resigned and the following individuals were
elected to the offices set forth opposite their names:
Name Position
---- --------
William P. Spencer Chief Executive Officer, President and
Director
Debra L. Spencer Secretary, Treasurer and Director
Patrick S. Millsap, Ph.D. Vice President-Marketing
Derek C. Boosey Vice President-International
Charles L. Cochran, D.C. Director
Peter H. Antoniou, M.D. Director
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 24, 2000, the Registrant completed the acquisition of
Imagenetix, Inc., a Colorado corporation ("Imagenetix"), pursuant to an
Agreement and Plan of Reorganization (the "Agreement") whereby 6,550,000 shares
of Capital Growth's unregistered common stock were issued in exchange for all
6,500,000 outstanding shares of Imagenetix. The Imagenetix Warrant and Option
Holders also exchanged all 2,790,000 warrants and 525,000 options outstanding
for a like number of warrants and options of the Registrant.
After taking into account the cancellation of 22,500,018 of the 24,500,018
outstanding shares of the Registrant's common stock and 5,731,250 of the
6,125,000 outstanding warrants of the Registrant by certain principal
stockholders and others, there are now 8,550,000 outstanding shares of common
stock of the reorganized Registrant, together with 3,183,750 outstanding
warrants and 525,000 outstanding options of the Registrant.
On October 25, 2000, the Registrant changed its name to "Imagenetix, Inc."
Imagenetix develops, formulates and markets leading edge nutritional
supplements and skin care products primarily to network marketing companies.
ITEM 6. RESIGNATION OF REGISTRANT'S DIRECTORS.
See Item 1, above.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) (1) The Registrant has provided herewith the proforma
financial statements required in connection with
the transaction set forth in Item 2.
(b) Exhibits:
10.01 Agreement and Plan of Reorganization (Previously Filed)
3
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
IMAGENETIX, INC.
(Registrant)
By /s/ William P. Spencer
---------------------------------------
William P. Spencer
Chief Executive Officer
Dated: January 9, 2001
4
<PAGE>
IMAGENETIX, INC
(Formerly Capital Growth, Inc.)
AND
IMAGENETIX, INC. & SUBSIDIARY
PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[Unaudited]
The following unaudited proforma condensed combined balance sheet aggregates
the balance sheet of Imagenetix, Inc (formerly Capital Growth, Inc.) ("PARENT")
as of September 30, 2000 and the balance sheet of Imagenetix, Inc & Subsidiary
("SUBSIDIARY") as of September 30, 2000, accounting for the transaction as a
recapitalization of SUBSIDIARY with the issuance of shares for the net assets
of PARENT (a reverse acquisition) and using the assumptions described in the
following notes, giving effect to the transaction, as if the transaction had
occurred as of the end of the period. The transaction was not completed as of
September 30, 2000.
The following unaudited proforma condensed combined statement of operations
combines the results of operations of PARENT for the six months ended September
30, 2000 and the results of operations of SUBSIDIARY for the six months ended
September 30, 2000 as if the transaction had occurred as of the beginning of
the period.
The following unaudited proforma condensed combined statement of operations
also combines the results of operations of PARENT for the year ended March 31,
2000 and the results of operations of SUBSIDIARY for the year ended March 31,
2000 as if the transaction had occurred as of the beginning of the period.
The proforma condensed combined financial statements should be read in
conjunction with the separate financial statements and related notes thereto of
PARENT and SUBSIDIARY. These proforma financial statements are not necessarily
indicative of the combined financial position, had the acquisition occurred on
the date indicated above, or the combined results of operations which might
have existed for the periods indicated or the results of operations as they may
be in the future.
<PAGE>
IMAGENETIX, INC
(Formerly Capital Growth, Inc.)
AND
IMAGENETIX, INC. & SUBSIDIARY
PROFORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 2000
ASSETS
Imagenetix,
Inc.
(Formerly Imagenetix
Capital Inc. and
Growth Inc.) Subsidiary
September September
30, 30, Proforma
2000 2000 Increase Proforma
[Parent] [Subsidiary] (Decrease) Combined
___________ ___________ ___________ ___________
ASSETS:
Cash $ 7,859 $ 1,514,459 - $ 1,522,318
Accounts receivable - 804,553 - 804,553
Inventory - 619,228 - 619,228
Receivable - employees - 45,727 - 45,727
Current tax assets - 33,523 - 33,523
Property and equipment, net - 146,299 - 146,299
Other assets - 64,014 - 64,014
___________ ___________ ___________ ___________
$ 7,859 $ 3,227,803 $ - $ 3,235,662
___________ ___________ ___________ ___________
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES:
Accounts payable $ 3,278 $ 635,965 - $ 639,243
Accrued liabilities and payroll - 152,364 - 152,364
Interest payable - related
party - 45,262 - 45,262
Income tax payable - 33,006 - 33,006
Notes payable - related
party 12,000 984,500 [c](300,000) 696,500
Capital lease - 14,004 - 14,004
Deferred tax liabilities - 7,947 - 7,947
___________ ___________ ___________ ___________
Total Liabilities 15,278 1,873,048 (300,000) 1,588,326
___________ ___________ ___________ ___________
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock - - - -
[A] (22,500)
[B] (425)
[C] 300
Common stock 24,500 6,575 [D] 100 8,550
[A] 22,500
[B] 425
[C] 299,700
Par value in excess of [D] 99,900
Contributed capital 86,602 1,325,025 [E](218,521) 1,615,631
[D](100,000)
Retained earning (deficit) (118,521) 23,155 [E] 218,521 23,155
___________ ___________ ___________ ___________
Total Stockholders'
Equity (Deficit) (7,419) 1,354,755 300,000 1,647,336
___________ ___________ ___________ ___________
$ 7,859 $ 3,227,803 $ - $ 3,235,662
___________ ___________ ___________ ___________
See Notes To Unaudited Proforma Condensed Financial Statements.
<PAGE>
IMAGENETIX, INC
(Formerly Capital Growth, Inc.)
AND IMAGENETIX, INC. & SUBSIDIARY
PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
[Unaudited]
Imagenetix,
Inc.
(Formerly Imagenetix
Capital Inc. and
Growth Inc.) Subsidiary
September September
30, 30, Proforma
2000 2000 Increase Proforma
[Parent] [Subsidiary] (Decrease) Combined
___________ ___________ ___________ ___________
NET SALES AND SERVICES $ - $ 2,711,317 $ - $ 2,711,317
COST OF SALES AND SERVICES - (2,003,885) - (2,003,885)
___________ ___________ ___________ ___________
GROSS PROFIT - 707,432 - 707,432
EXPENSES:
General and administrative 2,442 759,600 - 762,042
___________ ___________ ___________ ___________
Total expenses 2,442 759,600 - 762,042
___________ ___________ ___________ ___________
(LOSS) FROM OPERATIONS (2,442) (52,168) - (54,610)
___________ ___________ ___________ ___________
OTHER (EXPENSE) - (13,456) - (13,456)
___________ ___________ ___________ ___________
(LOSS) FROM OPERATIONS
BEFORE PROVISION FOR TAXES (2,442) (65,624) - (68,066)
INCOME TAXES (BENEFIT) EXPENSE - (21,825) - (21,825)
___________ ___________ ___________ ___________
NET (LOSS) $ (2,442)$ (43,799)$ - $ (46,241)
___________ ___________ ___________ ___________
BASIC NET (LOSS) PER COMMON SHARE $ (.01)
___________
See Notes To Unaudited Proforma Condensed Financial Statements.
<PAGE>
IMAGENETIX, INC
(Formerly Capital Growth, Inc.)
AND IMAGENETIX, INC. & SUBSIDIARY
PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
[Unaudited]
Imagenetix,
Inc.
(Formerly Imagenetix
Capital Inc. and
Growth Inc.) Subsidiary
For the For the
Year Ended Year Ended
March 31, March 31, Proforma
2000 2000 Increase Proforma
[Parent] [Subsidiary] (Decrease) Combined
___________ ___________ ___________ ___________
NET SALES AND SERVICES $ - $ 2,914,977 $ - $ 2,914,977
COST OF SALES AND SERVICES - (1,923,878) - (1,923,878)
___________ ___________ ___________ ___________
GROSS PROFIT - 991,099 - 991,099
EXPENSES:
General and administrative 9,287 763,193 - 772,480
___________ ___________ ___________ ___________
Total expenses (9,287) 763,193 - 772,480
___________ ___________ ___________ ___________
INCOME (LOSS) FROM OPERATIONS (9,287) 227,906 - 218,619
___________ ___________ ___________ ___________
OTHER (EXPENSE) - (111,544) - (111,544)
___________ ___________ ___________ ___________
INCOME (LOSS) FROM
OPERATIONS BEFORE
PROVISION FOR TAXES (9,287) 116,362 - (107,075)
CURRENT TAX (BENEFIT) EXPENSE - 33,006 - 33,006
DEFERRED TAX (BENEFIT) EXPENSE - (3,750) - (3,750)
___________ ___________ ___________ ___________
NET INCOME (LOSS) $ (9,287)$ 87,106 $ - $ 77,819
___________ ___________ ___________ ___________
BASIC NET (LOSS) PER COMMON SHARE $ .01
___________
See Notes To Unaudited Proforma Condensed Financial Statements.
<PAGE>
IMAGENETIX, INC
(Formerly Capital Growth, Inc.)
AND
IMAGENETIX, INC. & SUBSIDIARY
NOTES TO PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[Unaudited]
NOTE 1 - IMAGENETIX, INC
Imagenetix, Inc (Formerly Capital Growth, Inc.)[Parent] a Nevada
corporation, was organized on March 28, 1988. The Company has not
commenced planned principal operations and has been seeking business
ventures which will allow for long-term growth. Further, the Company is
considered a development stage company as defined in SFAS No. 7 and has
not, thus far, engaged in business activities of any kind. Its principal
activities since inception have consisted of the offer and sale of common
stock and the engagement of legal counsel and other professionals in
connection with a proposed public offering of additional common shares.
The company has, at the present time, not paid any dividends and any
dividends that may be paid in the future will depend upon the financial
requirements of the Company and other relevent factors. Simlutaneous to
the Closing of the merger agreement the Parent change the name to
Imagenetix, Inc.
NOTE 2 - IMAGENETIX, INC AND SUBSIDIARY
Imagenetix, Inc & Subsidiary [Subsidiary], represent the accounts of
Imagenetix, Inc. organized under the laws of the State of Colorado on July
26, 1996 and Imagenetix organized under the laws of the State of
California on January 7, 1999. On March 23, 1999 Imagenetix is a wholly
owned subsidiary of Imagenetix, Inc. The Company is engaged in the
business of developing and marketing nutritional supplements and skin
care products.
NOTE 3 - PROFORMA ADJUSTMENTS
During October, 2000, Subsidiary stockholders contributed and cancelled
425,000 common shares of the subsidiary. The Subsidiary also issued
100,000 common shares in payment of legal fees related to the merger and
300,000 common shares in payment of $300,000 in notes payable. The
Subsidiary transferred to the PARENT all 6,550,000 common shares
outstanding in the Subsidiary for 6,550,000 common shares of the Parent.
The Subsidiary's warrant and option holders shall exchange the 2,790,000
warrants and 525,000 options for like warrants and options of the Parent.
The Parent will cancel 22,500,018 of the 24,500,018 outstanding common
shares of the Parent and 5,731,250 of the 6,125,000 warrants of the
Parent. After giving effect to the preceding transactions the Parent
will have 8,575,000 common shares, 3,183,750 warrants and 525,000
options to purchase common shares of the Parent outstanding post
merger. The ownership interests of the former owners of
Subsidiary in the combined enterprise will be greater than the ongoing
shareholders of Parent and, accordingly, the management of Subsidiary will
assume operating control of the combined enterprise. Consequently, the
acquisition is accounted for as the recapitalization of Subsidiary,
wherein Subsidiary purchased the assets of PARENT and accounted for the
transaction in a manner simular to a "Reverse Purchase" for accounting
purposes.
Proforma adjustments on the attached financial statements include the
following:
[A]To record the contribution and cancellation of 22,500,018 shares of
PARENT'S common stock.
<PAGE>
IMAGENETIX, INC
(Formerly Capital Growth, Inc.)
AND
IMAGENETIX, INC. & SUBSIDIARY
NOTES TO PROFORMA CONDENSED COMBINED FINANCIAL STATEMENTS
[Unaudited]
NOTE 3 - PROFORMA ADJUSTMENTS [Continued]
[B]To record the contribution and cancellation of 425,000 shares of
Subsidiary's common stock.
[C]To record the issuance of 300,000 shares of stock in payment of $300,000
in notes payable.
[D]To record the issuance of 100,000 shares of stock issued at $1.00 per
share for costs incurred in completing the reorganization which consist
primarily of legal fees.
[E]To eliminate the prior retained deficit of parent and parent's legal
expense related to the merger.
NOTE 4 - PROFORMA INOMCE (LOSS) PER SHARE
The proforma inomce (loss) per share is computed based on the number of
shares outstanding, after adjustment for shares issued in the acquisition
and the limited offering, as though all shares issued in the acquisition
and limited offering had been outstanding from the beginning of the
periods presented.
For the Year For the Six
Ended Months Ended
March 31, September 30,
2000 2000
Proforma Proforma
Combined Combined
_____________ ______________
Weighted average shares
considered to be outstanding 7,150,000 8,550,000
_____________ ______________
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
CONTENTS
PAGE
Independent Auditors' Report 1
Consolidated Balance Sheet, March 31, 2000 2
Consolidated Statements of Operations, for
the year ended March 31, 2000 and from
inception on January 7, 1999 through
March 31, 1999 3
Consolidated Statement of Stockholders' Equity,
from inception on January 7, 1999 through
March 31, 2000 4
Consolidated Statements of Cash Flows,
for the year ended March 31, 2000 and from
inception on January 7, 1999 through
March 31, 1999 5 - 6
Notes to Consolidated Financial Statements 7 - 15
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
IMAGENETIX, INC. AND SUBSIDIARY
San Diego, California
We have audited the accompanying consolidated balance sheet of
Imagenetix, Inc. and Subsidiary at March 31, 2000, and the
related statements of operations, stockholders' equity and cash
flows for the year ended March 31, 2000 and from inception on
January 7, 1999 through March 31, 1999. 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.
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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements audited by
us present fairly, in all material respects, the consolidated
financial position of Imagenetix, Inc. and Subsidiary as of March
31, 2000, and the results of its operations and its cash flows
for the year ended March 31, 2000 and for the period from
inception on January 7, 1999 through March 31, 1999, in
conformity with generally accepted accounting principles.
/S/PRITCHETT, SILER & HARDY, P.C.
June 9, 2000
Salt Lake City, Utah
1
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
March 31,
2000
___________
CURRENT ASSETS:
Cash in bank $ 117,945
Account receivable 710,107
Inventory 386,740
Prepaid expenses 53,065
___________
Total Current Assets 1,267,857
PROPERTY AND EQUIPMENT, net 67,033
DEFERRED TAX ASSET 8,997
OTHER ASSETS 3,666
___________
$1,347,553
____________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 354,951
Accrued liabilities 18,803
Interest payable - related party 40,601
Income tax payable 33,006
Notes payable - related party 739,500
Current portion of capital leases 6,033
___________
Total Current Liabilities 1,192,894
LONG TERM LIABILITIES:
Capital lease liabilities,
less current portion 10,857
DEFERRED TAX LIABILITY 5,247
___________
Total Liabilities 1,208,998
___________
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value,
5,000,000 shares authorized, no shares
issued and outstanding -
Common stock, $.001 par value, 50,000,000
shares authorized, 5,175,000 shares issued
and outstanding 5,175
Capital in excess of par value 66,425
Retained earnings 66,955
___________
Total Stockholders' Equity 138,555
___________
$1,347,553
____________
The accompanying notes are an integral part of this consolidated
financial statement.
2
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
From Inception
For the on January 7,
Year Ended 1999 Through
March 31, March 31,
2000 1999
___________ ___________
NET SALES $2,914,977 $ 84,986
COST OF GOODS SOLD 1,923,878 68,596
___________ ___________
GROSS PROFIT 991,099 16,390
___________ ___________
EXPENSES:
General and administrative 763,193 36,486
___________ ___________
Total Expenses 763,193 36,486
___________ ___________
INCOME (LOSS) FROM OPERATIONS 227,906 (20,096)
___________ ___________
OTHER INCOME (EXPENSE):
Interest expense - related party (39,725) (55)
Costs of unsuccessful stock offering (71,927) -
Other income 107 -
___________ ___________
Total Other (Expense) (111,544) (55)
___________ ___________
INCOME (LOSS) BEFORE INCOME TAXES 116,362 (20,151)
CURRENT TAX EXPENSE 33,006 -
DEFERRED TAX EXPENSE (BENEFIT) (3,750) -
___________ ___________
NET INCOME (LOSS) $ 87,106 $ (20,151)
___________ ___________
EARNINGS (LOSS) PER COMMON SHARE $ .01 $ (.00)
___________ ___________
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION ON JANUARY 7, 1999
THROUGH MARCH 31, 2000
Preferred Stock Common Stock Capital in
_________________ ___________________ Excess of Retained
Shares Amount Shares Amount Par Value Earnings
________ ________ _________ __________ __________ _________
BALANCE,
January 7, 1999 - $ - - $ - $ - $ -
Issuance of
3,900,000 shares
of common stock
for cash January,
2000 at $.017 per
share, net of
$5,000 stock
offering costs - - 3,900,000 3,900 59,042 -
Effect of
recapitalization
of subsidiary,
March, 1999 - - 1,500,000 1,500 (1,500) -
Net loss for the
period ended
March 31, 1999 - - - - - (20,151)
________ ________ _________ __________ __________ _________
BALANCE,
March 31, 1999 - - 5,400,000 5,400 57,542 (20,151)
Issuance of
499,500 shares
of common stock
for services
rendered June
1999, at $.017
per share - - 499,500 500 8,158 -
Cancellation of
724,500 shares
of common stock
June 1999 - - (724,500) (725) 725 -
Net income for
the year ended
March 31, 2000 - - - - - 87,106
________ ________ _________ __________ __________ _________
BALANCE,
March 31, 2000 - $ - 5,175,000 $ 5,175 $ 66,425 $ 66,955
________ ________ _________ __________ __________ _________
The accompanying notes are an integral part of this consolidated
financial statement.
4
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
For the From Inception
Year Ended on January 7,
March 31, 1999 through
2000 March 31, 1999
____________ _______________
Cash Flows from Operating Activities:
Net income $ 87,106 $ (20,151)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation & amortization expense 8,156 138
Services paid by stock issuance 8,658 -
Changes in assets and liabilities:
(Increase) in account receivable (710,107) -
(Increase) in inventory (384,909) (1,831)
(Increase) in prepaid expenses (53,065) (855)
(Increase) in deferred tax asset (8,997) -
Increase in accounts payable 351,937 3,014
Increase in accrued liabilities 14,174 4,629
Increase in interest payable -
related party 40,601 -
Increase in income tax payable 33,006 -
Increase in deferred tax liability 5,247 -
____________ _______________
Net Cash (Used) by Operating
Activities (608,193) (15,056)
____________ _______________
Cash Flows from Investing Activities:
Acquisition of office equipment (51,546) (6,732)
Acquisition of other assets (2,920) -
____________ _______________
Net Cash (Used) by Investing
Activities (54,516) (6,732)
____________ _______________
Cash Flows from Financing Activities:
Proceeds from notes payable -
related party 643,500 100,000
Payments on notes payable -
related party (4,000) -
Proceeds from common stock issuance, net - 62,942
____________ _______________
Net Cash Provided by Financing
Activities 639,500 162,942
____________ _______________
Net Increase (Decrease) in Cash (23,209) 141,154
Cash at Beginning of Period 141,154 -
____________ _______________
Cash at End of Period $ 117,945 $ 141,154
____________ _______________
[Continued]
5
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
For the From Inception
Year Ended on January 7,
March 31, 1999 through
2000 March 31, 1999
____________ _______________
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest $ - $ -
Income taxes $ - $ -
Supplemental Schedule of Noncash Investing and Financing
Activities:
For the Period Ended March 31, 2000
The Company issued 499,500 shares of common stock for services
rendered valued at $8,658.
For the Period Ended March 31, 1999
During March, 1999 the Company effected a recapitalization
wherein Parent issued 3,900,000 shares of common stock to
acquire all the outstanding stock of Subsidiary. Parent had
1,500,000 shares of common stock outstanding at the time of
the recapitalization.
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - The accompanying consolidated financial statements
represent the accounts of Imagenetix, Inc. ["Parent"] organized
under the laws of the State of Colorado on July 26, 1996
(formerly Internet International Business Management, Inc.) and
Imagenetix ["Subsidiary"] organized under the laws of the State
of California on January 7, 1999, ["The Company"]. The Company is
engaged in the business of developing and marketing nutritional
supplements and skin care products.
On March 23, 1999, Parent completed an exchange agreement with
Subsidiary wherein Parent issued 3,900,000 shares of its common
stock in exchange for all of the outstanding common stock of the
Subsidiary. The Acquisition was accounted for as a
recapitalization of the Subsidiary as the shareholders of the
Subsidiary controlled the combined Company after the acquisition.
There was no adjustment to the carrying values of the assets or
liabilities of the Parent or Subsidiary as a result of the
recapitalization [See Note 7].
The Company has, at the present time, not paid any dividends and
any dividends that may be paid in the future will depend upon the
financial requirements of the Company and other relevant factors.
Consolidation - All significant intercompany transactions between
the Parent and Subsidiary have been eliminated in consolidations.
Cash and Cash Equivalents - For purposes of the financial
statements, the Company considers all highly liquid debt
investments purchased with a maturity of three months or less to
be cash equivalents.
Organization Costs - Costs of approximately $2,000 that were
incurred to organize the Company have been expensed.
Trademarks - Costs of purchasing trademarks are amortized on a
straight-line basis.
Property and Equipment - Property and equipment are stated at
cost. Expenditures for major renewals and betterments that
extend the useful lives of property and equipment are
capitalized, upon being placed in service. Expenditures for
maintenance and repairs are charged to expense as incurred.
Depreciation is computed for financial statement purposes using
the straight-line method over the estimated useful lives of the
assets.
Inventory - Inventory is carried at the lower of cost or market
method of valuation.
Earnings (Loss) Per Share - The computation of earnings (loss)
per share is based on the weighted average number of shares
outstanding during the period presented in accordance with
Statement of Financial Accounting Standards ["SFAS"] No. 128,
"Earnings (Loss) Per Share" [See Note 9].
Revenue Recognition - Revenue is recognized when the product is
shipped.
7
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Advertising Costs - Costs incurred in connection with advertising
and promotion of the Company's products are expensed as incurred.
Such costs amounted to approximately $4,000 for the year ended
March 31, 2000.
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the
reported amounts of assets and liabilities, the disclosures of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimated by management.
Recently Enacted Accounting Standards - Statement of Financial
Accounting Standards (SFAS) No. 132, "Employer's Disclosure about
Pensions and Other Postretirement Benefits", SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities",
SFAS No. 134, "Accounting for Mortgage-Backed Securities.", SFAS
No. 135, "Rescission of FASB Statement No. 75 and Technical
Corrections", SFAS No. 136, "Transfers of Assets to a not for
profit organization or charitable trust that raises or holds
contributions for others", and SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - deferral of the
effective date of FASB statement No. 133 ( an amendment of FASB
Statement No. 133.)," were recently issued. SFAS No. 132, 133,
134, 135, 136 and 137 have no current applicability to the
Company or their effect on the financial statements would not
have been significant.
NOTE 2 - INVENTORIES
Inventory is carried at the lower of cost or market value.
Inventory consists of the following:
March 31,
2000
__________
Raw Materials $ 386,740
__________
Total Inventory $ 386,740
__________
NOTE 3 - TRADEMARKS
During the year ended March 31, 2000 the Company recorded $3,776
to register trademark names for its products. The trademarks are
being amortized on a straight-line basis over 17 years. For the
year ended March 31, 2000 amortization expense was $109.
8
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT
The following is a summary of equipment, at cost, less
accumulated depreciation:
March 31,
2000
_________
Office Equipment $ 75,218
Less accumulated depreciation (8,185)
_________
$ 67,033
_________
Depreciation expense for the periods ended March 31, 2000 and
1999 was $8,047 and $138.
NOTE 5 - NOTES PAYABLE - RELATED PARTY
The following is summary of notes payable to related parties, as
of March 31, 2000:
10% unsecured demand notes
to shareholders due
March 31, 2001 $ 100,000
10% unsecured demand note
to an officer/shareholder,
due May 25, 2000 100,000
10% unsecured demand note
to an officer/shareholder,
due July 20, 2000 90,000
10% unsecured demand note
to an officer/shareholder,
due July 28, 2000 75,000
10% unsecured demand note
to an officer/shareholder,
due September 10, 2000 19,500
10% unsecured demand note
to a shareholder, due
September 16, 2000 30,000
10% unsecured demand note
to a shareholder, due
September 22, 2000 200,000
10% unsecured demand note
to a shareholder, due
March 15, 2001 125,000
__________
739,500
Less current portion (739,500)
__________
Long-term portion $ -
__________
9
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - LEASE OBLIGATIONS
Capital Lease - During the year ended March 31, 2000, the
Company entered into a capital lease for computer equipment
which expires in December 2001. The asset and liability under
the capital lease was recorded at $21,341. Depreciation
expense for the year ended March 31, 2000 amounted to $184.
Total future minimum lease payments, executory costs and
current portion of capital lease obligations are as follows:
Future minimum lease payments for the years ended March 31:
Year ending March 31, Lease Payments
_____________________ ______________
2001 $ 8,060
2002 6,923
2003 3,375
2004 2,268
______________
Total future minimum lease payments $ 20,626
Less: amounts representing interest
and executory costs (3,736)
______________
Present value of the future
minimum lease payments 16,890
Less: current portion (6,033)
______________
Capital lease obligations - long-term $ 10,857
______________
Operating Lease - The Company has entered into a building
lease for its office. The lease on the facility expires on
December 31, 2002, and may be extended by mutual agreement on
a year-to-year basis. Lease expense for the years ended March
31, 2000 amounted to $42,115. Following is a schedule of
minimum annual rental payments for the next five years.
Year Ending Minimum Annual
arch 31, Rental Payments
__________ _____________
2001 $ 163,619
2002 122,717
2003 -
2004 -
_____________
$ 286,336
_____________
10
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - CAPITAL STOCK AND RECAPITALIZATION
Effect of Recapitalization of Subsidiary - During January, 1999,
in connection with its organization, the Subsidiary issued
3,900,000 shares of its previously authorized, but unissued
common stock. Total proceeds from the sale of stock amounted to
$67,942 (or $.052 per share). During March 1999, in connection
with its Exchange Agreement with the Subsidiary, the Parent
issued 3,900,000 shares of its previously authorized, but
unissued common stock in exchange for previously issued
Subsidiary stock. The operations of Parent are included only
from the date of recapitalization. Accordingly, the previous
operations and retained deficits of Parent prior to the date of
recapitalization have been eliminated. In connection with the
recapitalization, Parent effected a forward stock split on the
basis of 100 shares issued for each 1 share previously
outstanding. The former shareholders of Parent retained
1,500,000 shares of common stock immediately after the exchange
of stock.
Preferred Stock - The Company has authorized 5,000,000 shares of
preferred stock, $.001 par value, with such rights, preferences
and designations and to be issued in such series as determined by
the Board of Directors. No shares are issued and outstanding at
March 31, 2000.
Stock Bonus Plan - During the year ended March 31, 2000 the Board
of Directors of the Company adopted a stock bonus plan. The plan
provides for the granting of awards of up to 724,500 shares of
common stock to officers, directors consultants and employees.
Awards under the plan will be granted as determined by the board
of directors. At present, 499,500 shares have been granted under
the plan. An officer and majority shareholder has returned and
canceled 724,500 shares of common stock so that the common shares
issued through the stock bonus plan will not further dilute the
public shareholders of the company.
Forward Split - On March 7, 2000 the board of directors and
shareholders approved a 3 for 1 forward stock split. The
financial statements for all periods presented have been re-
stated to reflect the common stock split.
11
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - CAPITAL STOCK AND RECAPITALIZATION [CONTINUED]
The financial statements of Parent prior to the recapitalization
of the Company have not been included because the Parent's
operations have been eliminated in the recapitalization. However
the following information summarizes the Stockholders' equity of
the Parent prior to the recapitalization of subsidiary:
IMAGENETIX, INC.
(Formerly Internet International Business Management, Inc.)
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE DATE OF INCEPTION ON JULY 26, 1996 THROUGH MARCH 23, 1999
Deficit
Accumulated
Preferred Stock Common Stock Capital in During the
_________________ ___________________ Excess of Development
Shares Amount Shares Amount Par Value Stage
________ ________ _________ __________ __________ ___________
BALANCE,
July 26, 1996 - $ - - $ - $ - $ -
Issuance of
5,000 shares
of common
stock for
cash, July,
1996 at $.01
per share - - 5,000 5 45 -
Net loss for
the period
ended December 31,
1996 - - - - - (4)
________ ________ _________ __________ __________ ___________
BALANCE,
December 31,
1996 - - 5,000 5 45 (4)
Net loss for
the period
ended
December 31,
1997 - - - - -
(10)
________ ________ _________ __________ __________ ___________
BALANCE,
December 31,
1997 - - 5,000 5 45 (14)
Net loss for
the period
ended
December 31,
1998 - - - - - (10)
________ ________ _________ __________ __________ ___________
BALANCE,
December 31,
1998 - - 5,000 5 45 (24)
Capital
contribution,
March, 1999 - - - - 5,000 -
100 for 1
forward stock
split March,
1999 - - 495,000 495 (495) -
Net loss for
the period
ended March 23,
1999 - - - - - (5,026)
________ ________ _________ __________ __________ ___________
BALANCE,
March 23,
1999 - $ - 500,000 $ 500 $ 4,550 $ (5,050)
________ ________ _________ __________ __________ ___________
12
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109. SFAS
109 requires the Company to provide a net deferred tax asset of
liability equal to the expected future tax benefit or expense of
temporary reporting differences between book and tax accounting
and any available operating loss or tax credit carryforwards.
At March 31, 2000 and 1999, the totals of all deferred tax assets
were $8,997 and $0, respectively. The totals of all deferred tax
liabilities were $5,248 and $0, respectively. The amount of and
ultimate realization of the benefits from the deferred tax assets
for income tax purposes is dependent, in part, upon the tax laws
in effect, the Company's future earnings, and other future
events, the effects of which cannot be determined.
Year Ended
March 31,
_____________________
2000 1999
_________ __________
Current income tax expense:
Federal $ 21,876 $ -
State 11,130 -
_________ __________
Net current tax expense $ 33,006 $ -
_________ __________
Deferred tax expense (benefit)
resulted from:
Excess of tax over financial accounting
depreciation $ 5,247 $ -
Related party interest accrual (8,997) -
_________ __________
Net deferred tax (benefit) $ (3,750) $ -
_________ __________
Deferred income tax expense results primarily from the reversal of
temporary timing differences between tax and financial statement
income.
The reconciliation of income tax from continuing operations
computed at the U.S. federal statutory tax rate to the Company's
effective rate is as follows:
Year Ended
March 31,
_____________________
2000 1999
__________ _________
Computed tax at the expected
federal statutory rate 34.00% 34.00
State income taxes, net of federal
benefit 5.83 5.83
NOL carryovers (6.49) -
Difference in statutory rate (10.10) -
Other 1.90 -
__________ _________
Effective income tax rates 35.14% 39.83
__________ _________
13
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES [Continued]
The temporary differences gave rise to the following deferred tax
asset (liability):
March 31, March 31,
2000 1999
_________ _________
Excess of tax over financial
accounting depreciation $(5,247) -
Related party interest 8,997 -
NOTE 9 - EARNINGS (LOSS) PER SHARE
The following data show the amounts used in computing earnings
(loss) per share and the effect on income and the weighted
average number of shares of dilutive potential common stock for
the period presented:
From Inception
on January 7,
For the year 2000 Through
ended March 31, March 31,
2000 1999
______________ ____________
Income (loss) from continuing
operations available
to common shareholders (Numerator) $ 87,106 $ (20,151)
______________ ____________
Weighted average number of common
shares outstanding used in loss per
share during the period (Denominator) 5,231,250 5,400,000
______________ ____________
Dilutive earnings (loss) per share was not presented, as its
effect is anti-dilutive.
NOTE 10 - CONCENTRATION OF CREDIT RISK
During the year ended March 31, 2000, the Company had three major
customers who had 29%, 25% and 20% of sales. The Company's
largest customer, 29% of sales, is related in to the Company's
president which owns 15% of the outstanding shares of the
customer.
NOTE 11 - CONTINGENCIES
The Company is involved in litigation from time to time in the
normal course of business. Management believes there are no such
claims, which would have a material effect on the financial
position of the Company.
On or about April 6, 2000, the Company was named in a cross-
complaint, in response to a suit filed by the President of the
Company against his former employer. The cross-complaint does
not specifically demand any amounts in which the Company owes,
therefore the exposure to the Company is undeterminable.
Management believes the cross complaint is without merit and
intends to vigorously defend the Company's interest in this
matter.
14
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SUBSEQUENT EVENTS
Proposed Acquisition and Private Placement - On August 7, 2000
the Company entered into a letter of intent with Capital Growth,
Inc. for a stock for stock exchange. The exchange is contingent
upon the Company completing a private placement offering by
offering units that consist of 1/2 warrant and 1 share of common
stock at the price of $1.00 per unit for a minimum of $500,000
and a maximum of $1,400,000 in equity funds which shall be
escrowed until the minimum is raised. Also, at closing, all
options of the Company will be exchanged for options in the
merged company.
Notes Payable - During July and August 2000, a company owned by a
shareholder loaned the Company a total of $400,000. In
connection with the loans, 400,000 warrants to purchase stock at
$1.00 and 700,000 warrants to purchase stock at $1.10 were given.
Options - During August 2000 the Company granted an
officer/shareholder of the Company 225,000 options to purchase
common stock at an exercise price of $1.00 per share.
15
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
CONTENTS
PAGE
Unaudited Consolidated Balance Sheet,
September 30, 2000 1
Unaudited Consolidated Statement of Operations,
for the six months ended September 30, 2000 2
- Unaudited Consolidated Statement of Cash Flows,
for the six months ended September 30, 2000 3 - 4
- Notes to Unaudited Consolidated Financial
Statements 5 - 12
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEET
ASSETS
September 30,
2000
____________
CURRENT ASSETS:
Cash in bank $1,514,459
Account receivable 804,553
Inventory 619,228
Receivables - employees 45,727
Current tax asset 33,523
____________
Total Current Assets 3,017,490
PROPERTY AND EQUIPMENT, net 146,299
OTHER ASSETS 64,014
____________
$3,227,803
____________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 635,965
Accrued payroll and payroll taxes 12,364
Other accrued liabilities 140,000
Interest payable - related party 45,262
Income tax payable 33,006
Notes payable - related party 984,500
Current portion of capital leases 5,036
____________
Total Current Liabilities 1,856,133
LONG TERM LIABILITIES:
Capital lease liabilities, less current portion 8,968
DEFERRED TAX LIABILITY 7,947
____________
Total Liabilities 1,873,048
____________
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 5,000,000 shares
authorized, no shares issued and outstanding -
Common stock, $.001 par value, 50,000,000 shares
authorized, 6,575,000 shares issued and outstanding 6,575
Capital in excess of par value 1,325,025
Retained earnings 23,155
____________
Total Stockholders' Equity 1,354,755
____________
$3,227,803
____________
The accompanying notes are an integral part of this unaudited consolidated
financial statement.
-1-
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
For the Six
Months Ended
September 30,
__________________________
2000 1999
________________________
NET SALES $2,711,317 $ 781,138
COST OF GOODS SOLD 2,003,885 529,274
________________________
GROSS PROFIT 707,432 251,864
EXPENSES:
General and administrative 759,600 751,318
________________________
OPERATING INCOME (LOSS) (52,168) (499,454)
________________________
OTHER INCOME (EXPENSE):
Interest income 4,882 -
Other income 25,347 462
Interest (expense) (43,685) (2,249)
Interest (expense) - related party - (12,250)
________________________
Total Other Income (Expense) (13,456) (14,037)
________________________
INCOME BEFORE INCOME TAXES (65,624) (513,491)
CURRENT TAX EXPENSE - -
DEFERRED TAX EXPENSE (BENEFIT) (21,825) -
________________________
NET INCOME $ (43,799) $(513,491)
________________________
EARNINGS PER COMMON SHARE $ (.01) $ (.29)
________________________
The accompanying notes are an integral part of this unaudited consolidated
financial statement.
-2-
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
For the Six
Months Ended
September 30,
__________________________
2000 1999
________________________
Cash Flows from Operating Activities:
Net income (loss) $ (43,799) $(513,491)
Adjustments to reconcile net loss to
net cash used by operating activities:
Non-cash expense - 499,500
Depreciation & amortization expense 10,494 3,600
Deferred taxes 11,697 -
Changes in assets and liabilities:
(Increase) in account receivable (94,446) (413,038)
Decrease (increase) in inventory (232,488) (360,227)
(Increase) in receivable - employee (45,727) -
(Increase) in current tax asset (33,523) -
Decrease in prepaid rent 53,065 (30,000)
(Increase) in other assets (60,349) -
(Increase) in accounts payable 281,014 271,126
(Increase) in accrued payroll ax 12,364 -
(Increase) in interest payable 4,661 -
Increase in accrued expenses 121,197 16,989
Increase in customer deposits - 83,025
________________________
Net Cash Provided by Operating
Activities (15,840) (442,456)
________________________
Cash Flows from Investing Activities:
Acquisition of office equipment (18,887) (7,039)
Payments for leasehold improvement (70,873) (1,015)
________________________
Net Cash (Used) by Investing
Activities (89,760) (8,054)
________________________
Cash Flows from Financing Activities:
Proceeds from notes payable - related party245,000 507,250
Payments on notes payable - related party - -
Payments on capital leases (2,886) (2,253)
Proceeds from common stock 1,260,000 -
Payments for stock offering costs - (12,323)
________________________
Net Cash (Used) by Financing
Activities 1,502,114 492,674
________________________
Net Increase (Decrease) in Cash 1,396,514 42,164
Cash at Beginning of Period 117,945 141,154
________________________
Cash at End of Period $1,514,459 $ 183,318
________________________
[Continued]
-3-
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
For the Six
Months Ended
September 30,
__________________________
2000 1999
________________________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 43,685 $ 1,057
Income taxes $ $ -
Supplemental Schedule of Noncash Investing and Financing Activities:
For the period ended September 30, 2000:
None
For the period ended September 30, 1999:
None
The accompanying notes are an integral part of this unaudited consolidated
financial statement.
-4-
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - The accompanying Unaudited Consolidated financial statements
represent the accounts of Imagenetix, Inc. ["Parent"] organized under the laws
of the State of Colorado on July 26, 1996 (formerly Internet International
Business Management, Inc.) and Imagenetix ["Subsidiary"] organized under the
laws of the State of California on January 7, 1999, ["The Company"]. The
Company is engaged in the business of developing and marketing nutritional
supplements and skin care products.
On March 23, 1999, Parent completed an exchange agreement with Subsidiary
wherein Parent issued 3,900,000 shares of its common stock in exchange for all
of the outstanding common stock of the Subsidiary. The Acquisition was
accounted for as a recapitalization of the Subsidiary as the shareholders of
the Subsidiary controlled the combined Company after the exchange There was no
adjustment to the carrying values of the assets or liabilities of the Parent
or Subsidiary as a result of the recapitalization.
The Company has, at the present time, not paid any dividends and any dividends
that may be paid in the future will depend upon the financial requirements of
the Company and other relevant factors.
Proposed Acquisition and Private Placement - On August 7, 2000 the Company
entered into a letter of intent with Capital Growth, Inc. for a stock for
stock exchange. The exchange is contingent upon the Company completing a
private placement offering by offering units that consist of 1/2 warrant and 1
share of common stock at the price of $1.00 per unit for a minimum of $500,000
and a maximum of $1,400,000 in equity funds which shall be escrowed until the
minimum is raised. Also, at closing, all options of the Company will be
exchanged for options in the merged company.
Consolidation - All significant intercompany transactions between the Parent
and Subsidiary have been eliminated in consolidations.
Cash and Cash Equivalents - For purposes of the financial statements, the
Company considers all highly liquid debt investments purchased with a maturity
of three months or less to be cash equivalents.
Organization Costs - Costs of approximately $2,000 that were incurred to
organize the Company have been expensed.
Trademarks - Costs of purchasing trademarks are amortized on a straight-line
basis.
Property and Equipment - Property and equipment are stated at cost.
Expenditures for major renewals and betterments that extend the useful lives
of property and equipment are capitalized, upon being placed in service.
Expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is computed for financial statement purposes using the straight-
line method over the estimated useful lives of the assets ranging from five to
seven years.
Inventory - Inventory is carried at the lower of cost or market method of
valuation.
-5-
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Earnings Per Share - The computation of earnings per share is based on the
weighted average number of shares outstanding during the period presented in
accordance with Statement of Financial Accounting Standards ["SFAS"] No. 128,
"Earnings Per Share" [See Note 9].
Revenue Recognition - Revenue is recognized when the product is shipped.
Advertising Costs - Costs incurred in connection with advertising and
promotion of the Company's products are expensed as incurred.
Accounting Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities, the disclosures of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimated
by management.
Recently Enacted Accounting Standards - Statement of Financial Accounting
Standards (SFAS) No. 135, "Rescission of FASB Statement No. 75 and Technical
Corrections", SFAS No. 136, "Transfers of Assets to a not for profit
organization or charitable trust that raises or holds contributions for
others", and SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - deferral of the effective date of FASB statement No. 133 ( an
amendment of FASB Statement No. 133.)," were recently issued. SFAS No. 135,
136 and 137 have no current applicability to the Company or their effect on
the financial statements would not have been significant.
NOTE 2 - INVENTORIES
Inventory is carried at the lower of cost or market value.
Inventory consists of the following:
September 30,
2000
_________
Finished Goods $644,228
Reserve for obsolescence (25,000)
_________
$619,228
__________
NOTE 3 - TRADEMARKS
During the period ended September 30, 2000 the Company recorded $10,437 to
register trademark names for its products. The trademarks are being amortized
on a straight-line basis over 17 years. For the period ended September 30,
2000 amortization expense was $130.
-6-
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT
The following is a summary of equipment, at cost, less accumulated
depreciation:
September 30,
2000
_________
Office Equipment $160,711
Less accumulated depreciation (14,412)
_________
$146,299
__________
Depreciation expense for the period ended September 30, 2000 was $6,226.
NOTE 5 - RELATED PARTY TRANSACTIONS
Notes Payable - The following is summary of notes payable to related parties,
as of September 30, 2000:
10% unsecured demand notes
to shareholders due March 31, 2001 $100,000
10% unsecured demand note
to an officer/shareholder, due May 25,
2000 100,000
10% unsecured demand note
to an officer/shareholder, due July 20,
2000 90,000
10% unsecured demand note
to an officer/shareholder, due July 28,
2000 75,000
10% unsecured demand note
to an officer/shareholder, due September 10,
2000 19,500
10% unsecured demand note
to a shareholder, due September 22,
2000 200,000
8% unsecured demand note to a shareholder 200,000
8% unsecured demand note to a shareholder 200,000
__________
984,500
Less current portion (984,500)
__________
Long-term portion $ -
__________
During July and August 2000, a company, owned by a shareholder of the Company,
loaned the Company a total of $400,000. In connection with the loans, 400,000
warrants to purchase stock at $1.00 and 700,000 warrants to purchase stock at
$1.10 were given.
-7-
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - RELATED PARTY TRANSACTIONS [continued]
Options - During August 2000 the Company granted an officer/shareholder of the
Company 225,000 options to purchase common stock at an exercise price of $1.00
per share.
NOTE 6 - LEASE OBLIGATIONS
Capital Lease - During the year ended September 30, 2000, the Company entered
into a capital lease for computer equipment which expires in December 2001.
The asset and liability under the capital lease was recorded at $21,341.
Depreciation expense for the period ended September 30, 2000 amounted to
$1,474.
Total future minimum lease payments, executory costs and current portion of
capital lease obligations are as follows:
Future minimum lease payments for the periods ended September 30:
Periods ending September 30, Lease Payments
_____________________ ______________
2001 $ 7,719
2002 4,851
2003 2,268
2004 1,512
2005 -
______________
Total future minimum lease payments $ 16,350
Less: amounts representing interest and
executory costs (2,346)
______________
Present value of the future minimum lease
payments 14,004
Less: current portion (5,036)
______________
Capital lease obligations - long-term $ 8,968
________________
Operating Lease - The Company has entered into a building lease for its
office. The lease on the facility expires on December 31, 2002, and may be
extended by mutual agreement on a year-to-year basis. Lease expense for the
period ended September 30, 2000 amounted to $83,688.
During July 2000, the Company entered into a building lease that expires on
June 30, 2001. The lease expense for the period ended September 30, 2000
amounted to $2,985.
During the period ended September 30, 2000 the company had entered into three
operating leases for vehicles. The leases are for 38 months, 36 months, and
48 months requiring monthly payments of $721, $691 and $369, respectively.
-8-
<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - LEASE OBLIGATIONS [Continued]
The following is a schedule of minimum annual payments on operating leases for
the next five years:
Periods Ending Minimum Annual
September 30, Rental Payments
__________ _____________
2001 $197,383
2002 188,428
2003 59,321
2004 3,423
2005 -
_____________
$448,554
_______________
NOTE 7 - CAPITAL STOCK AND RECAPITALIZATION
Preferred Stock - The Company has authorized 5,000,000 shares of preferred
stock, $.001 par value, with such rights, preferences and designations and to
be issued in such series as determined by the Board of Directors. No shares
are issued and outstanding at June 30, 2000.
Common Stock - During August 2000, the Company issued 1,400,000 shares of its
previously authorized but unissued common stock for $1,400,000 cash, or $1.00
per share, less $140,000 in stock offering costs.
Stock Bonus Plan - During the year ended March 31, 2000 the Board of Directors
of the Company adopted a stock bonus plan. The plan provides for the granting
of awards of up to 724,500 shares of common stock to officers, directors
consultants and employees. Awards under the plan will be granted as
determined by the board of directors. At present, 499,500 shares have been
granted under the plan. An officer and majority shareholder has returned and
canceled 724,500 shares of common stock so that the common shares issued
through the stock bonus plan will not further dilute the public shareholders
of the company.
Forward Split - On March 7, 2000 the board of directors and shareholders
approved a 3 for 1 forward stock split. The financial statements for all
periods presented have been re-stated to reflect the common stock split.
Options - During August 2000, the Company granted an officer/shareholder of
the Company 225,000 options to purchase common stock at an exercise price of
$1.00 per share.
In August 2000, the Company adopted a Stock Option Plan which provides for the
granting of stock options intended to qualify as "incentive stock options" and
"nonqualified stock options" within the meaning of Section 422 of the United
States Internal Revenue Code of 1986. Stock options may be issued to any
officer, director, key employee or consultants.
In August 2000, the Company granted 300,000 options to employees to purchase
common stock at an exercise price of $2.00 per share.
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<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109. SFAS 109 requires the Company
to provide a net deferred tax asset of liability equal to the expected future
tax benefit or expense of temporary reporting differences between book and tax
accounting and any available operating loss or tax credit carryforwards.
At September 30, 2000, the total of all deferred tax assets was $33,523. The
total of all deferred tax liabilities was $7,947. The amount of and ultimate
realization of the benefits from the deferred tax assets for income tax
purposes is dependent, in part, upon the tax laws in effect, the Company's
future earnings, and other future events, the effects of which cannot be
determined.
Period
Ended
September 30,
2000
__________
Current income tax expense:
Federal $ -
State -
__________
Net current tax expense $ -
__________
Deferred tax expense (benefit) resulted from:
Excess of tax over financial accounting
depreciation $ 2,700
Contribution carryover (398)
Related party interest accrual 7,242
Inventory Revenue (9,959)
Net operating loss carryover (21,410)
__________
Net deferred tax (benefit) $(21,825)
__________
Deferred income tax expense results primarily from the reversal of temporary
timing differences between tax and financial statement income.
The reconciliation of income tax from continuing operations computed at the
U.S. federal statutory tax rate to the Company's effective rate is as follows:
Period Ended
June 30,
2000
_________
Computed tax at the expected
federal statutory rate 34.00%
State income taxes, net of federal benefit 5.83
Other (6.57)
_________
Effective income tax rates 33.26%
_________
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<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES [Continued]
The temporary differences gave rise to the following deferred tax asset
(liability):
June 30,
2000
_________
Excess of tax over financial
accounting depreciation $ (7,948)
Related party interest 1,756
Inventory Reserve 9,959
Contribution carryover 398
Net operating loss carryover 2,141
NOTE 9 - EARNINGS PER SHARE
The following data show the amounts used in computing earnings per share and
the effect on income and the weighted average number of shares of dilutive
potential common stock for the period presented:
For the Six
Months Ended
September 30,
2000
_____________
Income from continuing operations available
to common shareholders (Numerator) $ (43,799)
_____________
Weighted average number of common
shares outstanding used in loss per
share during the period (Denominator) 5,175,000
_____________
NOTE 10 - SIGNIFICANT CUSTOMERS
During the six months ended September 30, 2000, the Company had four
significant customers who had 33%, 23%, 18% and 10% of sales. The Company's
third largest customer, 18% of sales, is related in to the Company's president
who owns 15% of the outstanding shares of the customer.
NOTE 11 - CONTINGENCIES
The Company is involved in litigation from time to time in the normal course
of business. Management believes there are no such claims, which would have a
material effect on the financial position of the Company.
On or about April 6, 2000, the Company was named in a cross-complaint, in
response to a suit filed by the President of the Company against his former
employer. The cross-complaint does not specifically demand any amounts in
which the Company owes, therefore the exposure to the Company is
undeterminable. Management believes the cross complaint is without merit and
intends to vigorously defend the Company's interest in this matter.
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<PAGE>
IMAGENETIX, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - SUBSEQUENT EVENTS
Conversion of Notes Payable - Subsequent to September 30, 2000, the Company
converted $300,000 of notes payable into $300,000 shares of common stock, or
$1.00 per share. Along with the common stock 300,000 warrants to purchase
common stock at $1.00 per share were granted.
Reverse Merger - During October 2000, the Company entered into an definitive
merger agreement and plan of reorganization with Capital Growth, Inc., a
publicly traded Nevada corporation. In connection with the merger shareholders
of the Company contributed and cancelled 425,000 shares of common stock. The
Company issued 100,000 shares of common stock for legal fees. The agreement
required the shareholders to exchange 6,550,000 shares of common stock for a
like number of common shares of Capital Growth and the shareholders of Capital
Growth, Inc. to cancel 22,500,018 of the 24,500,018 shares of common stock
outstanding. Capital Growth also cancelled 5,731,250 of the 6,125,000
outstanding warrants. These transactions were accounted for as a
recapitalization of the Company, wherein the Capital Growth became a wholly
owned subsidiary of the Company.
After giving effect to the preceding transaction, Capital Growth, Inc. had
8,550,000 shares of common stock, 3,183,750 warrants, and 525,000 option
outstanding. In connection with the merger, Capital Growth, Inc. changed its
name to Imagenetix, Inc.
-12-
<PAGE>
