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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
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1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1999
OR
___ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____ to _____
Commission File No. 0-18438
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VITAFORT INTERNATIONAL CORPORATION
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(Name of Small Business Issuer in its Charter)
Delaware 68-0110509
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1800 Avenue of the Stars, Suite 480, Los Angeles, California 90067
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(Address of Principal Executive Offices) (Zip Code)
(310) 552-6393
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
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None None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.0001
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(Title of Class)
Check whether the issuer: (1) Filed all reports required to be filed by Section
13 or 14(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.
Yes X No ____
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $2,451,531.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the average bid and asked prices of such stock on April 11, 2000
was $3,144,300.
The number of shares outstanding of the issuer's common stock as of April 11,
2000 was 18,411,977.
Transitional Small Business Disclosure Format (check one): Yes ___ No X
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PART I
Certain statements contained in this Annual Report on Securities and Exchange
Commission ("SEC") Form 10-KSB ("Form 10-KSB") constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements involve known and unknown risks, uncertainties and
other factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different than any
expressed or implied by these forward-looking statements. These statements may
be contained in our filings with the Securities and Exchange Commission, press
releases, and written or oral presentations made by our representatives to
analysts, rating agencies, stockholders, news organizations and others. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "intend", "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "continue," or the negative of these terms
or other comparable terminology. Although we believe that the expectations in
the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements.
ITEM 1. DESCRIPTION OF THE BUSINESS
GENERAL
Vitafort International Corporation (The "Company" or "Vitafort" or "Registrant")
was formed as a California corporation in 1986, and reincorporated as a Delaware
corporation in 1989 prior to its initial public offering. We were originally
formed to develop value added foods and beverages for third parties. In 1993
Vitafort changed its strategic direction and began developing, distributing and
marketing proprietary healthy snacks under Company owned brands. This business
model has continued throughout the 1990's as we introduced numerous product
lines to thousands of stores and many of the leading retailers throughout the
country such as; Wal-Mart, Costco, Sam's Club, Kroger, Albertsons, Food Lion,
Winn Dixie, Ahold, Eckerd's, along with many others.
Vitafort continues to develop, market and distribute snacks to the retail
grocery trade, however the Company has created a wholly owned subsidiary,
Visionary Brands, Inc., to execute this strategy. Visionary Brands is in the
business of creating brands and products in the grocery industry, and
manufacturing and distributing the same. These products are marketed under
Company-developed brands such as "Peanut Squeeze" or licensed brands procured by
the Company such as "The Wizard of OZ" marshmallows. The Company markets these
licensed brands through its wholly owned subsidiary, Hollywood Partners. The
Company develops these products from the actual conception of the product idea
to the shipment of the product to the retailer. Over the last year the Company
has focused on its two primary product lines, "Peanut Squeeze" and "The Wizard
of Oz" marshmallows, a Hollywood Partners brand under license from Warner Bros.
Juliette's chocolate truffles have been reintroduced as a smaller 2-pack
purchase with a portion of the proceeds supporting breast cancer research. The
new package will be more affordable and lends itself to a much broader target of
consumers.
Visionary Brands' newest product is called the "Gravity Bar," a Hollywood
Partners.com license from eMap Publishing, Inc. The Gravity Bar represents an
entry into one of the fastest growing categories in the food industry, energy
bars (up 48% in 1999, source: A.E. Neilsen). The addition of the Gravity Bar
allows entry into entirely different classes of trade such as sporting goods
stores and health clubs.
On September 13, 1999, pursuant to a share Exchange and Reorganization
Agreement, the Company exchanged all the issued and outstanding shares of
Hollywood Partners, Inc., a California corporation ("Operating Company") that
previously operated as a wholly owned subsidiary of Vitafort International
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Corporation. In consideration for the shares of Hollywood Partners, the Company
received an aggregate of 5,000,000 shares of a reporting shell which changed its
name to Hollywood Partners.com, Inc. ("HP.com"). HP.com common stock is now
traded on the OTC BB. (Symbol: HLYP). Vitafort is currently the majority
shareholder of HP.com, holding 4.62 million shares of the 8,036,000 shares, or
57%, of outstanding common stock.
HP.com is a direct marketing and promotions company which designs and implements
creative client solutions on the Internet. HP.com uses pre-packaged and
customized initiatives to enable clients to drive traffic, enhance branding and
sell product. The company uses online and in-store sweepstakes promotions and
original Hollywood content to attract and target visitors who register to take
part in current and future promotions. HP.com obtains revenues from many sources
including sweepstakes sponsorship, Website sponsorship and directly marketing
goods and services to registered members who have granted their permission. In
addition, HP.com will continue to develop licensed snack foods that will be
distributed through Visionary Brands under contractual distribution agreements
between the two companies. Visitors can enter sweepstakes and view current
promotions at www.hollywoodpartners.com. HP.com uses Visionary Brands'
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facilities for manufacturing and distribution of certain products and pays it
fees.
With the spin out of Hollywood Partners.com and the transition to Visionary
Brands as the grocery food and marketing company, Vitafort is now positioned to
announce its new strategic direction. Upon shareholder approval, Vitafort
International Corporation will change its name to Visionary Holdings, Inc. to
reflect its transformation into a holding company. This new entity currently
owns 100% of Visionary Brands and 57% of Hollywood Partners.com. Management is
also involved in discussions with additional entities that could potentially
fall under the umbrella of Visionary Holdings.
The Company's wholly owned subsidiary, Global International Sourcing, Inc.
("Global") continues to source products in Mexico and throughout the United
States for both Visionary Brands and HP.com. During 1999, Global successfully
sourced the manufacturing and product development of the Gravity Bar and looks
to develop additional products in the next year.
VISIONARY BRANDS
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MANUFACTURING & WAREHOUSING
The Company manufacturers its products by entering into agreements ("Co-Packer
Agreements") with established food manufacturers ("co-packers"), who have the
facilities, staff, quality assurance and process control programs for the
production of their own products, as well as the Company's products. Co-packer
relations are intended to enable the Company to secure the expertise of
qualified food manufacturers with respect to the development, manufacture and
packaging of the product. This arrangement is intended to achieve economies of
scale in production and staffing requirements, while providing production
flexibility to meet changes in product mix demanded by customers that the
Company could not achieve on its own. Additionally, the Company benefits from
the production experience and expertise of these companies while avoiding the
capital outlays, staffing requirements, quality control, legal process
requirements and other manufacturing costs and delays that the Company would
encounter were it to attempt to manufacture its products utilizing its own
facility. However, there can be no assurance that co-packers will meet their
obligations and the Company has been materially affected in the past by problems
with its co-packers.
The Company has worked diligently to establish strong manufacturing
relationships for its products. The most significant development in this
initiative is the sourcing of product from Mexico. Global International
Sourcing, the product procurement arm of Vitafort, has established manufacturing
relationships in Mexico to supply Hollywood Partners.com with all of the
confection products for "The Wizard of Oz" brand.
In 1998, the Company changed its primary public warehouse location from Laredo,
TX to Quincy, IL. This change was implemented to reduce outbound trucking costs
by consolidating the shipment of the Company's two primary brands: "Peanut
Squeeze", produced in Chicago and "The Wizard of Oz" marshmallows, produced in
Mexico. This central location will lower these costs by reducing the outbound
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trucking mileage and increasing critical mass of Visionary Brands' products,
thereby capturing transportation synergies and reducing costs.
The Gravity Bar was developed by one of the leading product developers in the
energy bar industry. The product is currently being manufactured in Northern
California and is warehoused at the Company's warehousing facilities in Southern
California.
DISTRIBUTION AGREEMENT
In October 1999, the Company entered into a Distribution Agreement ("Agreement")
with Hollywood Partners.com that allows Visionary Brands to continue to
distribute HP.com licensed products to retailers across the country. "The
Wizard of Oz" brand confection snacks are currently distributed in thousands of
stores through Visionary Brands. The "Gravity Bar," the most recently licensed
product from HP.com, has been added to the products being distributed through
this Agreement and the Visionary Brands sales reps are currently presenting the
product to retailers and distributors throughout the country.
THE RETAIL TRADE
The Company's retail distribution strategy is to target the following classes of
trade: Supermarkets, mass merchandisers, drug stores, warehouse clubs,
convenience stores, natural food stores, military commissaries and exchanges,
and now sporting goods, health clubs, coffee houses and gourmet distributors.
Due to the consolidation in the industry, it is extremely important to maintain
strong relationships with the leading retailers. Over the past year, the sales
team has gained new distribution for both "Peanut Squeeze" and "The Wizard of
Oz" marshmallows to thousands of grocery stores across the country. These
products are currently being sold at leading chains such as: Bi-Lo (Ahold,
Inc), Albertsons (CA, FL& TX), Atlantic & Pacific Tea Co. (A&P New Orleans),
Food Lion, Wakefern (Shop-Rite), Winn Dixie (New Orleans), Albertsons
(OR)(TX)(FL), Randalls/Tom Thumb, Vons and Safeway Denver (all Safeway
divisions), Ingles & Lowes (NC), Winn Dixie (Tampa), Grand Union (NJ) and other
leading retailers.
MARKETING
The Company also launched "Peanut Squeeze," the first product in the peanut
butter category that can be dispensed from a squeezable bottle. The initial
product launch placed the product in over 5,000 stores. Market acceptance during
this introductory phase is critical to market success. The market introduction
was negatively impacted by defective product. "The Wizard of Oz" line of
Marshmallows continues to be marketed as a value added brand in the 125 million
dollar marshmallow category; however, the Company has added a vanilla flavored
white marshmallow to strengthen the brand. The Company will continue to market
its "Toast `N Jammers" to Natural Foods stores across the country. The good
tasting, good-for-you section of the grocery store is becoming a high growth
emerging segment.
Visionary Brands competitively exists in mainstream grocery retail, but now has
a focus on several different classes of trade. This diversified approach allows
for balance of synergies and profits.
INTELLECTUAL PROPERTY RIGHTS PROTECTION AND TRADEMARKS
The Company believes that its trademarks do afford it some degree of protection
from competition and do allow it to differentiate its products from those of its
competitors through brand loyalty and identity. There are, however, no
assurances that such trademarks may offer significant protection from
competitors or that the Company would be successful should litigation to protect
such trademarks become necessary. The Company relies upon non-disclosure,
secrecy agreements and its common law rights in order to protect its proprietary
formulae, procedures, and other information. No assurance can be given that
such steps will adequately protect the Company against competing products or
that the Company will be able to adequately enforce its
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rights against third parties who may be utilizing the Company's proprietary
formulae, procedures and other information. If the Company is advised by counsel
that any of its formulae, processes, procedures or other techniques are
patentable, then it may seek appropriate patent protection.
The Company has co-developed several proprietary formulations for its products.
While these formulations may or may not be protected under the U.S. Patent laws,
they may have value inasmuch as they provide Visionary Brands with its unique
competitive edge. The table below highlights each of the Company's active
trademarks.
TRADEMARKS DESCRIPTION AND STATUS
Vitafort This is an active trademark currently being used on all
Company material; however, the Company is in the process
of setting up all industry communications through
Visionary Brands.
Visionary Brands The name of the wholly owned subsidiary that is currently
marketing all products for the Company.
Peanut Squeeze Brand is in current distribution in thousands of
supermarket peanut butter sections across the country.
Auburn Farms Trade name acquired in May 1996 with existing presence in
the natural foods class of trade. Brand is being utilized
on a very limited basis in natural foods.
Natures Warehouse Trade name acquired in May 1996 with existing presence in
the natural food class of trade. Brand is being utilized
on a very limited basis in natural foods.
Toast `N Jammers A repositioned brand name with specialty grocery and
natural food presence.
Jammers One of the all-natural fat free cookie brands in natural
food class of trade. Brand is being utilized on a very
limited basis in natural foods.
Juliette's Private Trade name used for both low fat cookies and low fat
Collection chocolate truffles.
GOVERNMENTAL REGULATION
In general, production, packaging, processing and labeling of food and
beverage products are subject to various federal and state regulations. The
Company relies upon the experience and expertise of its co-packers to assure
compliance with applicable federal and state regulations. The Company believes
that it is in compliance with all applicable governmental regulations.
RESEARCH AND DEVELOPMENT
The Company has modified its research and development strategies from prior
years. In the past, the Company retained highly trained technical support
professionals to independently develop formulations and work with contract
manufacturers to bring the products to market readiness. The strategy moving
forward in 1999 and beyond is to work with manufacturers from the outset and
utilize their internal research and technical staff to develop new products.
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COMPETITION
The Company is engaged in the highly competitive grocery food marketplace.
There are numerous companies with financial and business resources far greater
than Vitafort's who are currently marketing competitive products. The Company
seeks to compete based on the unique taste, texture and quality of its products
and by obtaining recognition for its trademarks and licenses.
The Company's brands compete within different categories and with different
products depending upon the class of trade and placement within retail outlets.
The chart below details the Company's product lines and identifies the
competitors within the classes of trade.
<TABLE>
<CAPTION>
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VITAFORT BRAND CLASS OF TRADE PRINCIPAL COMPETITION MARKET NICHE
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<S> <C> <C> <C>
Juliette's Private Grocery stores, There is no known direct Appeal to those consumers who
Collection mass merchandise, drug competition for boxed are not willing to sacrifice
Chocolate Truffles and gourmet industries low fat chocolate cream the taste of real chocolates,
candies. but demand a nutritional
profile that provides lower
fat than traditional
chocolates.
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Juliette's Private Natural foods and Westbrae, Appeal to consumers who want
Collection grocery stores. Pepperidge Farms, a premium cookie with great
Super Premium Cookies Barbara's, taste and just the right
Pamela's amount of fat to ensure great
taste.
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Toast `N Jammers Low Natural food stores, Health Valley Healthy Toast `N Jammers has a
Fat Toaster Pastries grocery stores and Tarts, and Natures' competitive edge in taste and
club stores. Choice Toaster Pastries all natural ingredients that
consumers are responding to.
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Gravity Bar Mass merchandisers, Power Bar, Balance Bar& A great tasting bar offering
grocery stores, drug Cliff Bar are the major the attributes of energy
stores mom & pop competitors enhancement and no after
stores and club stores. taste.
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Peanut Squeeze Mass merchandisers, Skippy, Jif & Peter Pan The only squeezable product
grocery stores, drug in the peanut butter section
stores mom & pop of the grocery stores.
stores and club stores.
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The Wizard of Oz Grocery, mass None flavored Flavored marshmallow snack to
Marshmallows merchants, club and Favorite Brands be used as an ingredient or
discount drug stores International Home Foods everyday snack.
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</TABLE>
ENVIRONMENTAL REGULATION AND SEASONALITY
Management believes that the costs associated with compliance with
environmental regulations do not at this time impose a significant burden upon
the Company's operations. Any change in that burden, however, could adversely
impact the Company. Management does not believe that the Company's business is
seasonal to any significant extent.
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EMPLOYEES
As of April 12, 2000, the Company had 9 employees of whom 3 were executive
officers, 1 was engaged in sales and marketing, and 5 were clerical and
administrative.
HOLLYWOOD PARTNERS.COM
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In late September 1999, HP.com launched its initial Website at
www.hollywoodpartners.com. This Website has been used to post and manage a
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number of sweepstakes contests for the benefit of various customers and
partners, coming from industries such as food manufacturing, entertainment,
publishing, sporting goods and concert promotion. In the second quarter of
2000, HP.com will re-launch its Internet offerings with two new Websites under a
Hollywood Partners.com brand umbrella:
PlanetFree.com - a new sweepstakes Website replacing current sweepstakes
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functions of the current Hollywood Partners.com Website that will initially
host up to 20 sweepstakes at one time. This Website is designed to host
sweepstakes and promotions for retailers and manufacturers who HP.com
believes are seeking a higher level of branding and capability to educate
than generally offered on other sweepstakes Websites.
BigTimeHollywood.com - a new e-magazine offering original content plus
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news, games and reference information about the entertainment industry,
primarily focused toward movies and television. The features and other
information provided on this Website are aimed to both entertain and inform
the visitor about the entertainment industry, how it works and why.
As part of the mission, HP.com will strive to be a socially responsible company.
In the normal course of business, HP.com will attempt to integrate environmental
organizations and charitable causes into the content. For example,
PlanetFree.com will contain links to environmental organizations and many of the
sweepstakes are expected to have tie-ins to charities.
HP.com intends to use the Hollywood Partners.com brand as an "umbrella" to
build, partner or acquire additional complementary Websites that offer unique
content for its visitors. As this group of associated Websites builds, HP.Com
plans to increase the relationship it has with its visitors, which should
increase its ability to effectively conduct direct marketing activities with
them.
Revenues to date have been minimal for HP.com's new business model. To date,
HP.com has used its Website as a demonstration to prove the capabilities to
successfully conduct sweepstakes promotions, to collect registration information
from its visitors and to refer visitors to information or e-commerce
opportunities. The companies that have worked with or who have committed to
working with HP.com in the next twelve months as sweepstakes licensors,
sweepstakes or product sponsors include Rite-Aid, Johnson & Johnson, eMap
Publishing, Warner Bros., Jam Productions, GiftCertificates.com(TM), S3 and
Vitafort International Corporation, an affiliated company.
PROPOSED HP.COM OPERATIONS
Hollywood Partners.com is building a family of Websites offering content,
community and commerce. Its second quarter 2000 launch of PlanetFree.com and
BigTimeHollywood.com will be the first Internet Website offerings of many HP.com
plans to offer to its visitors under a broad entertainment theme.
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Management believes that visitors and registered users, who are called
"Members," will benefit from the opportunity to access a group of related
Websites where they may receive unique experiences, including:
. Winning prizes through sweepstakes promotions or contests
. Finding original content about the entertainment industry
. Customizing a list of preferences for offers that may be sent to them
according to the permission granted by the Member
There is no charge to view information on HP.com's Websites. Registration is
required for certain privileges such as entry into sweepstakes on the
PlanetFree.com Website or posting bulletin board messages on the
BigTimeHollywood.com Website.
HP.com plans to implement a common registration system for PlanetFree.com and
BigTimeHollywood.com. A Website visitor who registers as a Member of one Website
will automatically become a Member of the other Website, and receive Member
benefits from the other Website. As additional Websites are added under the
Hollywood Partners.com brand, it intends to extend this registration system to
include the new Websites. HP.com believes a universal registration system will
increase the ease of use for its Members across its Websites and increases its
overall traffic for its family of Websites.
HP.com is a "permission" marketer - Members do not receive any announcements or
offers unless they have given their permission. HP.com maintains a strict
privacy policy which provides that all personal information provided to the
company remains confidential unless it is authorized to provide it to a third
party.
Management believes that marketers may benefit from using HP.com's
"permissioned" access to its registered Members to acquire customers more
efficiently than through other means of direct marketing. Since many of its
registered Members have provided information regarding their interests and
demographic profile, marketers can target subgroups of HP.com's registered users
where they believe they will have the highest rates of success. Further, HP.com
is able to offer fee structures to marketers for access to its Members based
upon the results achieved for the marketer, thereby minimizing the risk to use
the service. These potential benefits to marketers will only be realized if the
company develops a large database of registered Members who have given the
company permission to bring them offers from third parties.
PROPOSED SWEEPSTAKES ACTIVITIES
HP.com's PlanetFree.com Website is planned to have neither banner ads nor any
other form of advertisement other than display of its brands. On
PlanetFree.com, the company provides pages dedicated only to providing the
information a sponsor desires the Website visitor to view without the typical
distracting clutter of banners, buttons and other offerings typically found on a
sweepstakes Website. Management believes the value and effectiveness of a
sponsor's offering is greatly increased without these distractions.
HP.com also provides the capability to manage a sweepstakes for a client both on
the Internet and in stores, broadening the traditional method of conducting
sweepstakes in stores. HP.com believes many clients are more willing to move
into the Internet sweepstakes promotion as an extension of their prior
experience with the in-store model.
Marketers may also choose to serve as a sponsor or advertiser on HP.com's
BigTimeHollywood.com Website. The visitors to this Website are pre-qualified to
the extent that they have already demonstrated their interest in the
entertainment industry, enhancing the likelihood they will purchase
entertainment-related products and services.
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Hollywood Partners.com was launched as a sweepstakes Website on September 30,
1999. The intent for this initial Website was to demonstrate various
sweepstakes methodologies, registration systems and various methods of
conducting these promotions. Examples of sweepstakes conducted included:
The Wizard of Oz(TM) - Presented under license from Warner Bros., this
sweepstakes offered a tie-in e-commerce opportunity to Gift
Certificates.com allowing visitors to this contest to "surf off" to a co-
branded page where they received a discount offer good at over 100
retailers.
Gravity Games(TM) - Presented under license from eMap USA, this sweepstakes
offered prizes and offers for free magazine subscriptions.
Newsboys Concert Tour - This sweepstakes, launched in February 2000, offers
the ability to enter for VIP tickets to over 60 separate concert dates.
Visitors must register as Members to win prizes. HP.com's registration process
will have a mandatory information section, an optional information section and
"opt-in" questions regarding the Member's permission to send additional
information. The mandatory information will include basic information required
to send prizes to Members, including name, address, email address and age. The
optional information includes information such as music and movie genres
preferred, categories of interest for further offers, preferred grocery shopping
location, income level, level of education and size of household. "Opt-in"
questions determine the desire of the Member to have us send additional
information about new sweepstakes or new features and special offers on the
Website. Once consumers register by providing at least the required demographic
information, they become lifetime Members and can enter additional sweepstakes
without having to resubmit this information.
HP.com sweepstakes run continuously, typically providing consumers with the
opportunity to enter each day to win. Sweepstakes typically run from 30-90
days, and may range from a single winner to hundreds of winners or more. To
date, the company has managed fulfillment to winners either in-house or through
prize sponsors who send the prizes directly to the winners.
HP.com offers a full range of sweepstakes management services for its
PlanetFree.com sweepstakes sponsors to manage the technology and creative
processes for both online and for in-store promotions. Its services include:
. Advisory services regarding concept development and promotion strategy
. Prize selection and acquisition
. Design of the online sweepstakes
. Design of point of purchase materials for in-store displays
. Delivery of announcements to "permissioned" Members
. Management of systems to collect on-line sweepstakes entries
. Management of processes to collect in-store or other offline entries, if
included
. Selection of sweepstakes winners
. Confirmation of eligibility of sweepstakes winners
. Prize fulfillment to confirmed winners
As its registered user database grows, HP.com plans to add significant
capabilities so as to market opportunities to companies that desire to market to
the Members in its permissioned database. HP.com will allow business to
determine the specific base of users they desire to target with an offer. For
example, a business could specifically address all persons who have already
expressed an interest in "Rock and Roll" music who are between ages 18 and 29.
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Basic operations of PlanetFree.com will remain similar to the prior sweepstakes
Website hosted as HollywoodPartners.com. The company intends, however, to
increase significantly the quality of design, the number, the depth and the
breadth of its sweepstakes. The HollywoodPartners.com Website becomes an entry
point though which a visitor may access all of the Websites under the Hollywood
Partners.com brand.
E-MAGAZINE ACTIVITIES
Also during the second quarter, HP.com will launch BigTime, its entertainment-
themed e-magazine at www.BigTimeHollywood.com. This Website will contain
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entertainment-themed features, news, statistics, games and other information.
The features will substantially be original content, focused on the workings of
Hollywood from "behind the scenes" and first person stories of Hollywood
experiences. Visitors will be able to read all information on the Website for
free, but they will be required to register as Members if they desire to post
information on bulletin boards, enter chat sessions, or participate in other
activities to be designated.
STRATEGY
HP.com's goal is to become a preeminent entertainment-themed family of Websites
on the Internet, using its Hollywood-oriented entertainment theme to combine
content, community and commerce attributes to create an attractive destination
for visitors. HP.com believes the combination of content and sweepstakes
promotions, combined with its Website promotion activities, will generate high
interest from Internet users. Through this family of Websites, the company
intends to develop and offer content and services across these Websites and to
cross-market the Websites to the visitors.
For example, a sweepstakes offering a set of Hollywood-oriented prizes on
PlanetFree.com may be of interest to a visitor on the BigTimeHollywood.com
Website, and that visitor may then register as a Member and begin to enter other
contests on the PlanetFree.com Website. As many of these users become registered
Members and receive more benefits from the Hollywood Partners.com branded
Websites, Management believes it will be able to form a relationship whereby its
Members will be more receptive to purchase from a Hollywood Partners.com branded
Website or a third party marketer who is associated with Hollywood Partners.com.
HP.com's plan is designed to develop multiple sources of revenue for the Company
in a phased approach. It believes that these revenues will develop substantially
from both "brick and mortar" and Internet companies, providing a broad base of
opportunities and lessening dependence on any single category source of revenue.
The company anticipates revenues from the following categories:
. Sweepstakes promotion sponsorship revenues from companies seeking to
enhance their Internet branding or to generate leads for e-commerce
offerings - a significant component of this revenue is anticipated to
originate from "brick and mortar" companies
. Sponsorships and advertising of our e-magazine, including sales of various
forms of banner, button and text link advertising
. Direct marketing revenues from direct or referred opportunities to Members
. E-commerce opportunities offered directly from a store or other area on
one or more of the company's Websites
Revenues in the first two quarters of year 2000 are anticipated to be minimal.
They are anticipated to come primarily from the first two categories of revenue
above. Revenues for the last two categories are anticipated to develop to a
significant level during the following years. However, there is no guarantee
that any of these categories will develop significant revenue for the company
during the Year 2000 or beyond.
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HP.com also anticipates receiving a small amount of revenue from the sale of
licensed food products. The company currently has products in distribution
through a majority owner from its licensing business, including The Wizard of Oz
marshmallow products under license from Warner Bros. and the Gravity Games
Energy Bar under license from eMap USA. The company earns royalties from these
products but it does not engage in any manufacturing or distribution activities,
nor does it carry any inventories.
MARKETING
HP.com's marketing efforts are directed to both Website visitors and potential
promotion sponsors.
HP.com intends to implement a number of measures to drive additional visitors to
its Websites and to increase the time spent on its Websites by each visitor. To
attract new visitors, the company will use online and traditional advertising
programs, by purchasing access to Members of complementary Websites, through
"viral" marketing such as allowing a user to "send a story to a friend" and
other methods.
To encourage repeat visitation, HP.com sends emails to Members who have given
their permission for the company to send updates to them of new contests,
features and opportunities.
HP.com has also tied in its Hollywood Partners.com brand in a number of
promotions that have been intended to maximize impressions at a minimum of cost.
The company has designed and implemented promotions such as inclusion of its Web
address on a Warner Bros. recent release of The Wizard of Oz video to direct
purchasers of the video to the Hollywood Partners.com Website. HP.com is
planning promotions that include in-store campaigns in addition to the Internet
sweepstakes. These sweepstakes have the capability to place HP.com's brand in
front of millions of people in thousands of stores.
HP.com has implemented a sales program to national and regional retailers and
manufacturers, and intends to add significantly to its sales force. In
addition, further sponsorship opportunities will be available for advertising on
its BigTimeHollywood.com Website, which it believes will be appealing to
companies seeking branding or referrals from an entertainment-related Website.
HP.com believes it is critical to keep improving and expanding its offerings in
order to retain its current traffic and to attract new visitors. For example,
after the launch of PlanetFree.com, it intends to improve the number of
sweepstakes and the dollar value of the prizes offered. After the launch of
BigTimeHollywood.com, it intends to expand the content offered and continuously
research and focus to the areas of greatest interest to its Members.
HP.com also intends to increase the depth and the breadth of its offerings
through the addition of Websites consistent with its brand and visitor
strategies. These additions may be made through the company's decision to build
an additional Website and provide the content from internal resources, through a
strategic partnership to bring the content of another Website under the
Hollywood Partners.com brand, or through an acquisition of an existing Website.
SALES
HP.com sells its sweepstakes services through direct sales, managed by its own
employees and in conjunction with consultants retained to extend its range of
contacts. The company typically targets its sales efforts at senior marketing
executives within a major retailer or manufacturer. In a typical sales process,
the company will spend time learning the needs of the potential client to
determine their relative needs in areas such as branding, target demographics,
and customer acquisition. HP.com then presents and proposes sweepstakes
promotions to them according to their preferences.
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Customer service after the sale is a critical factor in HP.com's long-term
success. For each promotion, a customer service manager is assigned to ensure
that daily activities are conducted to client expectations, and to resolve any
issues that arise.
TECHNOLOGY AND OPERATIONS
HP.com currently outsources its Website design, computer programming efforts and
hosting requirements. The company has primarily used two design and programming
companies as contractors. To date, HP.com believes the quality and timeliness
of these services has been satisfactory.
For its initial HollywoodPartners.com sweepstakes Website, the company used
shared services hosted at a third party service provider located in Los Angeles,
California. For the period of demonstration that is now coming to an end, this
was sufficient for its requirements. With the launch of its new Websites,
PlanetFree.com and BigTimeHollywood.com, the Company is moving to a standalone
server solution and moving our hosting to a third party service provider based
in San Jose, California. The facility has uninterruptible power supplies and
other systems designed to provide power to the systems within seconds of a power
outage.
Research and development expenditures during 1999 were minimal. The company
plans to increase its research and development expenditures to build its in-
house technology staff, to expand its service capacity and to increase its
capabilities to offer additional services to its sponsors and Members.
COMPETITION
The Internet marketing services and entertainment-themed content businesses are
highly fragmented. A large number of companies provide services or products to
the market for both sweepstakes promotions and entertainment-themed content, and
the competition is intense. Many of these competitors have substantially
greater financial resources. There are also minimal barriers to entry for new
entrants in either of these areas.
HP.com also competes with offline promotion companies, large Internet
publishers, search engine and other portal companies, a variety of Internet
advertising networks and other companies that facilitate the marketing of
products and services and the provision of content on the Internet.
Current competitors include:
. Sweepstakes and game Websites such as Promotions.com, iwin.com and
iwon.com.
. Direct marketing, specialty lead generation and loyalty Websites such
as Freeshop.com, Yesmail.com, Exactis.com, Mypoints.com,
Netcentives.com, Netcreations.com, Engage Technologies, Inc. and
Cybergold.com.
. Content Websites such as portals with entertainment themed sections such
as Yahoo! Entertainment, entertainment content Websites such as
Hollywood.com, Entertaindom.com, and Websites offered by the major
Hollywood studios such as Warnerbros.com.
INTELLECTUAL PROPERTY
HP.com protects its technology and proprietary rights through a combination of
copyright, trade secret and trademark law. HP.com has filed for a number of
trademarks and service marks, including pending
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registrations for the Hollywood Partners, PlanetFree, BigTime and BigTime
Hollywood trademarks in the United States. The company's trademark registration
applications may not be approved.
HP.com generally enters into confidentiality or license agreements with its
employees, consultants and corporate partners, and generally control access to
and distribution of its technologies, documentation and other proprietary
information. Despite efforts to protect its proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose, obtain or use
HP.com's proprietary rights. HP.com cannot be certain that the steps it has
taken will prevent misappropriation of its proprietary rights, particularly in
foreign countries where the laws or law enforcement may not protect its
proprietary rights as fully as in the United States.
HP.com's technology collects and utilizes data derived from user activity on the
HollywoodPartners.com Website, and it expects to continue to use this and
successor versions of its technology to collect similar information from the
company's future Websites. Although HP.com believes that it has the right to
compile and use this data, there can be no assurance that any trade secret,
copyright or other protection will be available for this information. In
addition, others may claim rights to this information, the technology that the
company uses to collect this information, or the technology it uses to use this
information to create offerings for its clients.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal executive office consists of a portion of 4,759
rentable square feet located at 1800 Avenue of the Stars, Los Angeles,
California, which the Company subleases from Hollywood Partners.com, Inc. under
a two year lease at a rate of $4,753 per month. The Company believes its
current facilities are suitable for its needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth
quarter of 1999.
13
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The table below sets forth the high and low closing bid prices for the common
stock, redeemable warrants and units during the period January 1, 1998 to March
31, 2000, as reported on the Electronic Bulletin Board. The Company's redeemable
warrants expired on October 31, 1998 and there were no quotations for the
warrants or units after such date. The quotations represent inter-dealer
quotations without adjustment for retail mark-ups, mark-downs or commissions and
may not represent actual transactions:
Period Common Stock Warrants Units
High Low High Low High Low
1/st/ Quarter 1998 $1.468 $0.687 $ 0.010 * $0.500 $0.500
2/nd/ Quarter 1998 $1.437 $0.828 $ 0.010 * $0.500 $0.500
3/rd/ Quarter 1998 $1.000 $0.250 $ 0.010 * $0.500 $0.500
4/th/ Quarter 1998 $0.250 $0.080 $0.000** * ** **
1/st/ Quarter 1999 $ 0.90 $ 0.34 $0.000** * ** **
2/nd/ Quarter 1999 $ 0.53 $ 0.33 $0.000** * ** **
3/rd/ Quarter 1999 $ 0.59 $ 0.33 $0.000** * ** **
4/th/ Quarter 1999 $ 0.82 $ 0.25 $0.000** * ** **
1/st/ Quarter 2000 $ 0.77 $ 0.31 $0.000** * ** **
* Less than $ 0.010
** The Company's redeemable warrants expired on October 31, 1998 and there
were no quotations for the warrants after such date. There were no quotations
for the units in the fourth quarter of 1998.
The above amounts have been retroactively adjusted for a 1 for 20 reverse stock
split, which occurred on October 4, 1996.
On April 11, 2000, the closing bid price for the common stock, as
reported by the Over The Counter Electronic Bulletin Board, was $0.33.
At the close of business on April 11, 2000, there were approximately 513
holders of record of the common stock.
The Company has not paid any dividends on the common stock since
inception and intends to retain any future earnings for the development of its
business. Future dividends on the common stock, if any, will be dependent upon
the Company's earnings, financial condition, the dividend priority of any
preferred shares and other relevant factors as determined by its Board of
Directors.
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No dividends were paid on Series B Convertible Preferred Stock during 1998
or 1999. Cumulative unpaid dividends on the Series B Convertible Preferred Stock
as of December 31, 1999 totaled $42,500. All unpaid dividends on the preferred
stock must be paid before dividends can be paid on the Common Stock.
15
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ITEM 6. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement for Purposes of "Safe Harbor Provisions" of the Private
Securities Litigation Reform Act of 1995.
Certain statements contained in this Annual Report on Securities and Exchange
Commission ("SEC") Form 10-KSB ("Form 10-KSB") constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements involve known and unknown risks, uncertainties and
other factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different than any
expressed or implied by these forward-looking statements. These statements may
be contained in our filings with the Securities and Exchange Commission, press
releases, and written or oral presentations made by our representatives to
analysts, rating agencies, stockholders, news organizations and others. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"will," "should," "intend", "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," "continue," or the negative of these terms
or other comparable terminology. Although we believe that the expectations in
the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements.
YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------
RESULTS OF OPERATIONS
The past year has been a year of transition for the Company. Vitafort has
created its new food marketing entity, Visionary Brands, which continues to
focus on the marketing and distributing of new innovative foods to the grocery
industry. In addition, management has spent considerable energy on the spin out
of its wholly owned subsidiary, Hollywood Partners, Inc. Upon completion of this
transaction in September, the name of the entity was changed to Hollywood
Partners.com, Inc. and new management was recruited to execute the direct
marketing Internet business model (See Item 1: Description of Business -
Hollywood Partners.com).
Visionary Brands introduced two new products in 1999. The initial product
launched was "Peanut Squeeze," the first product in the peanut butter category
that can be dispensed from a squeezable bottle. This innovative snack was seen
by over 6 million viewers in a 48-hour span after the product was introduced at
the Food Marketing Institute Convention in Chicago in May. Since this initial
media exposure, the product has been placed in over 5,000 stores across the
country.
In conjunction with Hollywood Partners.com, Visionary Brands introduced its
latest product, "Gravity Games Energy Bar." This snack was unveiled at the
Gravity Winter Games held at Mammoth Mountain, California in January 2000. The
Gravity Games is a joint venture between NBC Sports Ventures, the business unit
of NBC Sports, and eMap Petersen, Inc., the largest special interest publisher
in the United States with more than 160 publications.
Visionary Brands began distribution of the Gravity Bar in February 2000.
This new entry into the Energy Bar nutritional category is targeted to the
younger consumer (12-24 years of age) and the license with the Gravity Games
that also targets similar demographics. Gravity Bars come in two flavors,
Chocolate Peanut and Chocolate Fudge, both with Ginseng, 12 grams of protein and
35% R.D.A. of certain vitamins.
Management believes that the manufacturing and product development aspects
of the Company have been improved over the past year with the relationships
established in Mexico and in the United States. These manufacturers have
provided the Company with a promising product mix with improved margins. The
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Company will continue to seek to source additional suppliers and products from
around the world in the upcoming year in its efforts to increase quality, lower
costs and increase revenue.
NET SALES
In 1999 the net sales of the Company were $2,451,531 compared to $2,861,392
in 1998. This decrease of $409,861 or 14.3% was primarily due to lower sales of
The Wizard of Oz marshmallows due to delays in shipping our newly developed "The
Wizard of Oz" marshmallow packaging that was shipped in the second quarter of
1999. In addition, the Company did not enjoy the strong fourth quarter revenue
it received in 1998 tied to the re-release of the motion picture "The Wizard of
Oz," and the shipment of collectors' tins to Wal-Mart.
In 1999, Peanut Squeeze sales were $661,603, or 27.0% of sales, and The
Wizard of Oz marshmallow sales were $1,019,156, or 41.6% of sales. In 1998, the
Wizard of Oz marshmallows represented $1,739,559, or 60.8% of sales.
GROSS PROFIT
Gross profit in 1999 was $539,855 or 22% of sales, compared to a gross
profit of $985,073 in 1998 or 34.4% of sales. This decrease of $445,218 was due
to two significant factors. The first factor being the reduced sales levels of
the "The Wizard of Oz" brand products, which have a high profit margin and
second being the start-up production costs of "Peanut Squeeze".
OPERATING EXPENSES
Research and Development
In 1999, product development expenses were $104,615 compared to $362,770 in
1998, a decrease of $258,155, or 71.2%. The reduction was primarily due to the
Company's decision to curtail expenses in 1999 by closing its research and
development department and utilize the research and development capacity of its
manufacturers.
Sales and Marketing
Sales and marketing expenses were $2,152,665 in 1999 as compared to
$2,035,125 in 1998. The increase of $117,540 was primarily due to promotional
expenses related to the introduction of the "Peanut Squeeze" line of products in
1999.
General and Administrative
General and Administrative costs in 1999 were $2,576,844, compared to costs
in 1998 of $2,557,890. This $18,954 or 1% increase is primarily due to the
decision to change the strategy of the Company, the associated costs to support
the separation of the Company and to hire additional personnel.
INCOME TAXES
As of December 31, 1999, the Company had unused Federal and California net
operating loss carryforwards of approximately $24,932,000 and $11,732,000,
respectively, available to offset future Federal taxable income and future
California taxable income. The unused net operating loss and credit
carryforwards expire in various amounts through the year 2019. In contrast to
Federal net operating losses, only 50% of the California net operating losses
incurred subsequent to December 31, 1986 may be carried forward. The California
net operating losses will expire in various amounts through the year 2004.
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Net deferred tax assets of approximately $8,829,000 resulting from net
operating losses have been offset by a valuation allowance since management
cannot determine whether it is more likely than not such assets will be
realized.
Due to restrictions imposed by the Internal Revenue Code regarding
substantial changes in ownership of companies with loss carryforwards, the
utilization of the above-mentioned net operating losses may be limited as a
result of changes in stock ownership. The annual utilization of these losses is
limited to an amount equal to the estimated fair value (for income tax purposes)
of the Company at the point of stock ownership change, multiplied by the long-
term tax-exempt rate then in effect. The annual limitation has not been
quantified at this time.
OTHER INCOME AND EXPENSE
Interest expense was $366,609 in 1999 compared to $221,547 in 1998. The
increase of $145,062 or 65.5% relates to the cost of borrowings to fund the
operation.
In August 1999, the Company entered into a litigation settlement with
Barbara's Bakery/New Life (Refer to Litigation Recovery, Net of Costs, Note 16).
The Company received $1,260,000 of net proceeds after paying attorneys and
outside investors who funded the litigation.
During the year ended December 31, 1999, the Company renegotiated certain
accounts payable and notes payable resulting in a reduction of $242,359 of the
amount due. Additionally, the Company repaid certain notes payable through the
issuance of stock which had a fair market value of $143,250 less than the debt
extinguished. Therefore, the Company recognized a gain on extinguishments of
debt of $385,609.
LIQUIDITY AND CAPITAL RESOURCES December 31,
1999 1998
------------- ------------
Net Cash Used In Operations $(1,866,148) $(3,569,962)
Net Cash Used in Investing Activities (470,076) (282,164)
Net Cash Provided By Financing Activities 2,551,728 2,556,739
Working Capital (Deficit) 1,406,258 (615,028)
At December 31, 1999 the Company had cash of $1,119,153 as compared to
$903,649 in 1998. This increase is due primarily to additional investment
received by the Company as part of the spin off of its subsidiary Hollywood
Partners.com. Of the cash on hand, $1,086,585 was held by Hollywood
Partners.com.
The Company is continuing to seek to improve its relationships with its
food brokers and customers (distributors), but the effort must be focused in
accelerating the sales process to the Company to a break-even position. Although
the vendor relationships are more stable, the Company may again jeopardize this
area should the liquidity problem continue.
During March and April 2000, the Company entered into a series of
settlement agreements and releases with certain lenders to resolve all
outstanding issues between them. The agreements were effective as of December
31, 1999, whereunder the Company resolved its outstanding issues with certain
lenders by satisfying an aggregate of $1,510,560 of indebtedness, inclusive of
accrued interest, through the issuance of an aggregate of 377,640 shares of
restricted stock of its partially owned subsidiary, Hollywood Partners.com, Inc.
These transactions were recorded in the Company's consolidated financial
statements of December 31, 1999. See Note 6. Two of the lenders agreed to make
market purchases of an aggregate of 900,000 shares of the Company's common
stock, during the period ended May 31, 2000, but in no event more than a
combined total purchase of $750,000. The agreements require the lenders not to
sell any of the shares until after they have purchased the entire amount of
shares as required pursuant to the terms of the agreements. The two lenders also
agreed not to sell, in any calendar month, more than 25% of the shares they
purchased. Notwithstanding this 25% restriction, the lenders are not precluded
from taking any action that would be necessary for them to meet their fiduciary
responsibilities owed to their investors and/or shareholders.
The Company has suffered recurring losses from operations as of December
31, 1999. Although the Company received a cash settlement of $1,256,632 from the
Barbara's litigation (see Note 16 to the Consolidated Financial Statements), it
has not generated sufficient revenue-producing activity to sustain its
operations. The Company's independent certified public accountants have included
a modification to their opinion which indicates there is substantial doubt about
the Company's ability to continue as a going concern. See Note 2 to the
Consolidated Financial Statements for additional information. The Company is
attempting to raise additional capital to meet future working capital
requirements, but may not be able to do so. Should the Company not be able to
raise additional capital, it may have to severely curtail operations.
CREDIT FACILITY
In June 1999, the Company paid off its previous line of credit, but the
assets are still collateralized. As of December 31, 1999, the Company does not
have an institutional credit facility.
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YEAR 2000
The Company's accounting software currently does not utilize a four digit
year field; however, the Company has been assured by the software manufacturer
and independent consultants that all necessary modifications for the year 2000
were made and tested timely. The Company was advised by a consultant that the
hardware was modified timely. The cost of these modifications did not have a
significant effect on its financial position or results of operations. The
Company currently does not interact electronically with either customers,
suppliers or other entities that could be impacted by Year 2000 issues. The
Company has not experienced any Year 2000 issued through the date of this
report. Should any of the Company's internal systems fail in the future, the
Company's business and results of operations could be adversely impacted.
ITEM 7. FINANCIAL STATEMENTS
SEE "INDEX TO CONSOLIDATED FINANCIAL STATEMENTS" BEGINNING ON PAGE F-1
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The directors and executive officers of the Company are as follows:
Name Age Positions Held
----------------------- --- --------------
Mark Beychok 43 Chairman of the Board
John Coppolino 39 President and a Director
Benjamin Tabatchnick 47 Director
Valerie A. Broadbent 61 Secretary
Fred Rigaud 55 Acting CFO
Mark Beychok was elected Chairman of the Board in December 1999. Mr.
------------
Beychok served as President and Director of the Company from September of 1993,
until he resigned as President in December 1999. Mr. Beychok was also Chief
Executive Officer from 1995 until his resignation from that position in February
2000. Mr. Beychok was also elected as Chairman of the Board of Hollywood
Partners.com, Inc. in September 1999. Mr. Beychok is a private investor with
twenty years experience in the food industry as an owner and operator of various
food manufacturing, marketing and distribution companies. Mr. Beychok graduated
in 1979 from the Haas Business School at the University of California
(Berkeley).
John Coppolino was elected a Director in February 1999 and was elected
--------------
President in December 1999. Mr. Coppolino began with the Company as Director of
Sales in 1994 and became Executive Vice President in September 1997. Mr.
Coppolino also serves as a Director of Hollywood Partners.com, Inc. Mr.
Coppolino has over fifteen years experience in the food industry, including
experience as a food broker and in product manufacturing. Mr. Coppolino
graduated from the Pennsylvania State University School of Business in 1983 with
a degree in Business Logistics.
Benjamin Tabatchnick was elected a Director of the Company in February
--------------------
1997. Since January 1990, Mr. Tabatchnick has owned and operated Tabatchnick's
Fine Foods (and predecessors), a privately held concern, which manufactures and
distributes its own trademarked line of frozen soups, and manufactures frozen
and refrigerated foods for others on a contract basis.
Valerie A. Broadbent was elected as Secretary of the Company in February
--------------------
1999. Ms. Broadbent began as Assistant to the COO/CFO in October 1997 and became
Executive Administrator in February 1999. Ms. Broadbent also serves as Corporate
Secretary of Hollywood Partners.com, Inc. Ms. Broadbent has over 25 years
experience working in corporate administration and as executive assistant to
senior management for both public and private companies.
Fred Rigaud has over 25 years of experience in finance and accounting with
-----------
multinational companies in consumer products, entertainment and the Internet.
Mr. Rigaud received a Bachelor's degree in Liberal Arts from the University of
Montreal in 1964 and is a graduate of Queens College with a B.A. in Finance and
Accounting. From 1996 to 1998, Mr. Rigaud was Chief Financial Officer of Luckman
Interactive, Inc., a developer and marketer of Internet software. From 1987 to
1996, he was associated with Million Dollar Enterprise, a division of
Metropolitan Theatres, Inc., as Vice President of Finance.
ITEM 10: EXECUTIVE COMPENSATION
In September 1997, Mr. Beychok entered into a new employment agreement
("Agreement") with the Company for three years. Under the Agreement, Mr.
Beychok receives an annual base salary of $150,000 and was granted options for
450,000 shares of stock at an exercise price of $0.87 per share, all of which
are currently vested. In September 1997 Mr. Beychok was given a successful
litigation reward of $51,535 plus
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100,000 shares of common stock at fair market value of $1.00. In November 1998
the price of all options other than those related to the private placement were
repriced to $0.10. In August 1999, Mr. Beychok was given a successful litigation
reward of $75,000. In October 1999 Mr. Beychok was granted a new Board of
Director package of an option to purchase 500,000 shares at an exercise price of
$.25 per share, vesting 166,667 shares on October 22, 1999, 166,667 shares on
October 22, 2000 and 166,666 shares on October 22, 2001. In October 1999, the
Board granted Mr. Beychok an option for 900,000 shares at an exercise price of
$.25 per share, vesting 450,000 on October 22, 1999, 225,000 on October 22,
2000, and 225,000 on October 22, 2001. In December 1999 Mr. Beychok was elected
Chairman of the Board and will receive an increase in salary to $185,000 per
year effective January 1, 2000.
In September 1997, Mr. Coppolino entered into an employment agreement with
the Company for two years. Under the Agreement, Mr. Coppolino receives an
annual base salary of $120,000, and was granted options for 300,000 shares of
stock at an exercise price of $0.87 per share, all of which are currently
vested. In September 1997, Mr. Coppolino was given a successful litigation
reward of $25,000, forgiveness of debt of $25,000, plus 25,000 shares of common
stock at $1.00, being the fair market value at the date of the award. In
November 1998 the price of all options were repriced to $0.10. In August 1999,
Mr. Coppolino was given a successful litigation reward of $50,000. In October
1999 Mr. Coppolino was granted a Board of Director package of an option to
purchase 375,000 shares at an exercise price of $.25 per share, vesting 125,000
shares on October 22, 1999, 125,000 shares on October 22, 2000 and 125,000
shares on October 22, 2001. In October 1999, the Board granted Mr. Coppolino an
option for 750,000 shares at an exercise price of $.25 per share, vesting
375,000 on October 22, 1999, 187,500 on October 22, 2000, and 187,500 on October
22, 2001. In December 1999, the Company entered into a new employment agreement
("Agreement") with Mr. Coppolino for three years. Under the Agreement, Mr.
Coppolino receives an annual base salary of $150,000 effective January 1, 2000.
The following table sets forth certain information with respect to the
compensation paid by the Company to Messrs. Beychok, Coppolino and Rigaud (the
"named individuals") during 1999, 1998 and 1997:
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
Principal Position All Other Annual Securities Underlying
& Name Year Salary Other Compensation Options/SARs
<S> <C> <C> <C> <C> <C>
Chairman of the Board (*)
Mark Beychok 1999 $150,000 - $ 99,588 (1) 1,400,000
1998 150,000 - 28,317 (2) -
1997 150,000 $12,500 (3) 102,467 (4) 650,000
President
John Coppolino 1999 $120,000 - $ 66,850 (5) 1,125,000
1998 120,000 - 19,003 (6) -
1997 120,000 $20,750 (7) 59,000 (8) 400,000
Acting CFO
Fred Rigaud 1999 $ 96,750 $ 5,000 (9) $ 7,846 (10) 150,000
1998 - - - -
1997 - - - -
</TABLE>
(*) Mr. Beychok served as President and CEO until his resignations as President
in December 1999 and as CEO in February 2000.
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(1) Comprised of $15,600 car allowance, accrued vacation of $8,988 and $75,000
as a successful litigation reward.
(2) Comprised of $15,600 car allowance and accrued vacation of $12,717.
(3) A portion of Mr. Beychok's salary was deferred in 1996 and paid in 1997.
(4) Comprised of $9,584 car allowance, accrued vacation of $41,348, plus
$51,535 as a successful litigation reward.
(5) Comprised of $9,000 car allowance, accrued vacation of $8,988 and $50,000
as a successful litigation reward.
(6) Comprised of $9,000 car allowance and accrued vacation of $10,003.
(7) A portion of Mr. Coppolino's salary, $15,500, and car allowance, $5,250,
were deferred in 1996 and paid in 1997.
(8) Comprised of $9,000 car allowance and $50,000 as a successful litigation
reward.
(9) A portion of Mr. Rigaud's salary was deferred in 1999 and used to exercise
50,000 options at $.10 per share in 2000.
(10) Comprised of $3,000 car allowance and accrued vacation of $4,846.
STOCK OPTION PLAN
In 1995, the Company adopted the 1995 Stock Option Plan (the "1995 Plan")
pursuant to which 2,000,000 shares of Common Stock were reserved for issuance
upon the exercise of options. Under the terms of the Plan, all directors,
officers and key employees of, and consultants to, the Company and all its
subsidiaries are eligible for option grants. The Board determines, at its
discretion, which persons will receive option grants, the number of shares
subject to each option, the exercise price, which may not be less than the par
value of the shares subject to the option, except that in the case of ISO's, the
exercise price must be at least one hundred percent (100%) of the fair market
value of the optioned shares on the date of grant, or one hundred and ten
percent (110%) of such fair market value if the optionee is the owner of more
than ten percent (10%) of the total combined voting power of all classes of
voting stock of the Company (a "10% Holder"), and the term (which may not be
more than ten (10) years from the date of grant, or five (5) years in the case
of an ISO granted to a 10% holder) thereof. The Plans permit options granted
thereunder to be exercised by the tender of shares of common stock having a fair
market value equal to the exercise price of such option.
Options granted under the Plan may, at the discretion of the Board, be
exercisable upon the tender of cash equal in amount to the aggregate par value
of the shares covered by such options, together with a one-year note bearing
interest at the "applicable federal rate" (as defined in the Code) and providing
for a required prepayment upon any disposition of the acquired shares.
During 1995 Mr. Beychok was granted an aggregate of 687,500 options under
the Plan with an exercise price of $3.00. The exercise price of these options
was reduced to $0.91 in May 1997. In November 1998, the Company reduced the
exercise price of all outstanding options held by officers and directors to
$.10, the then market price of the Company's common stock.
The following chart sets forth the options granted to directors and
officers in 1999:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Number of Percent of Potential realized value
securities total at assumed annual rate of
underlying options/SARs Exercise appreciation for option
options/ granted to of base term
SARs employees in price Expiration
Name granted fiscal year ($/Share) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Mark Beychok 1,400,000 39% $0.25 10/21/04 $93,153 $205,138
- -----------------------------------------------------------------------------------------------------------------
John Coppolino 1,125,000 31% $0.25 10/21/04 $74,855 $164,843
- -----------------------------------------------------------------------------------------------------------------
Benjamin Tabatchnick 375,000 9% $0.25 10/21/04 $24,952 $ 54,948
- -----------------------------------------------------------------------------------------------------------------
Valerie Broadbent 100,000 2% $0.25 10/21/04 $ 9,411 $ 20,606
- -----------------------------------------------------------------------------------------------------------------
Valerie Broadbent 300,000 7% $0.25 10/21/04 $19,961 $ 43,953
- -----------------------------------------------------------------------------------------------------------------
Fred Rigaud 150,000 4% $0.25 10/21/02 $ 9,981 $ 21,979
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
The following chart sets forth certain information with respect to
options/warrants exercised during 1999 and outstanding at December 31, 1999 to
the named individuals:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Number of Value of Unexercised
Securities In-the-Money
Underlying Options/SAR's at
Unexercised FY-End
Shares Options/SARs at FY- Exercisable/
Acquired on Value End Exercisable/ Unexercisable
Name Exercise Realized Unexercisable
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mark Beychok 500,000 $-0- 1,497,292 / 783,333 $1,152,915 / $ 603,166
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
John Coppolino 350,000 $-0- 718,750 / 625,000 $ 553,438 / $ 481,250
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Benjamin Tabatchnick 250,000 $-0- 125,000 / 250,000 $ 96,250 / $192,500
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Valerie Broadbent 50,000 $-0- 275,000 / 150,000 $ 250,250 / $ 77,000
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Fred Rigaud -0- $-0- 175,000 / 75,000 $ 134,750 / $ 57,750
- -------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the ownership of the common stock by each
director and by entities or persons known to the Company to own beneficially in
excess of 5% of such stock and by all officers and directors as a group, as of
December 31, 1999. Except as otherwise indicated, all stockholders have sole
voting and investment power with respect to the shares listed as beneficially
owned by them, subject to the rights of spouses under applicable community
property laws.
Name and Address Number of Shares Percentage of
of Beneficial Owner of Common Stock Beneficial
Identity of Group Beneficially Owned Ownership
- ----------------- ------------------ ---------
Mark Beychok (1) 2,087,292 (2) 7.5 %
John Coppolino (1) 908,750 (3) 3.3 %
Benjamin Tabatchnick (1) 375,000 (4) 1.4 %
Valerie A. Broadbent (1) 325,000 (5) 1.2 %
Fred Rigaud (1) 125,000 (6) .4 %
Terra Healthy Living, Ltd. 7,813,795 (7) 28.0 %
All directors and officers as a group.
(5 persons) (2)(3)(4)(5) and (6) 3,821,042 13.8 %
(1) The address of these persons is 1800 Avenue of the Stars, Suite 480, Los
Angeles, California 90067.
23
<PAGE>
(2) Includes (i) 100,000 shares underlying a currently exercisable option with
an exercise price of $0.10 per share expiring on September 15, 2003; (ii)
130,625 shares underlying a currently exercisable option, expiring December 16,
2003, which has an exercise price of $0.10 per share; (iii) 100,000 shares
underlying a currently exercisable option with an exercise price of $0.10 which
expires on June 16, 2005; (iv) 100,000 shares underlying a currently exercisable
option with an exercise price of $.10 which expires on December 31, 2005; (v)
450,000 shares underlying a currently exercisable option with an exercise price
of $0.10 per share expiring September 1, 2005; (vi) 166,667 shares underlying a
currently exercisable option with an exercise price of $.25 per share, expiring
October 21, 2004, and does not include 333,333 shares underlying options which
are not currently exercisable, expiring October 21, 2004; (vii) 450,000 shares
underlying a currently exercisable option with an exercise price of $.25 per
share, expiring October 21, 2004, and does not include 450,000 shares underlying
options which are not currently exercisable, expiring October 21, 2004; and
(viii) 590,000 shares currently issued through the exercise of options.
(3) Includes (i) 188,750 shares underlying a currently exercisable option with
an exercise price of $0.10 per share expiring on September 1, 2002; (ii) 125,000
shares underlying a currently exercisable option with an exercise price of $.25
per share expiring on October 21, 2004, and does not include 250,000 shares
underlying an option with an exercise price of $0.25 per share, which are not
currently exercisable, expiring October 21, 2004; and (iii) 375,000 shares
underlying a currently exercisable option with an exercise price of $.25 per
share expiring October 21, 2004, and does not include 375,000 shares underlying
an option with an exercise price of $0.25 per share, which are not currently
exercisable, expiring October 21, 2004; and (iv) 220,000 shares currently issued
through the exercise of options.
(4) Includes (i) 125,000 shares underlying a currently exercisable option with
an exercise price of $0.25 per share granted in 1999, which expires October 21,
2004; and (ii) 250,000 shares issued through the exercise of options at $.10 per
share in 1999. It does not include (iii) 250,000 shares underlying an option,
which are not currently exercisable, with an exercise price of $.25 per share
expiring October 21, 2004.
(5) Includes (i) 25,000 shares underlying a currently exercisable option
with an exercise price of $0.085 per share, expiring on January 29, 2003; (ii)
50,000 shares underlying a currently exercisable option with an exercise price
of $0.33 expiring on July 1, 2004; (iii) 100,000 shares with a currently
exercisable price of $0.25 per share expiring on October 21, 2004; (iv) and
100,000 shares with a currently exercisable price of $0.25 per share expiring on
October 21, 2004; (v) 50,000 shares issued through the exercise of options. It
does not include: (vi) 50,000 shares underlying an option with an exercise
price of $.33 per share, which are not currently exercisable, expiring July 1,
2004 and (vii) 100,000 shares underlying an option with an exercise price of
$.25, which are not currently exercisable, expiring October 21, 2004.
(6) Includes (i) 75,000 shares underlying a currently exercisable option with
an exercise price of $.25 per share expiring October 21, 2002; (ii) 50,000
shares issued through the exercise of options. It does not include 75,000 shares
underlying an option with an exercise price of $.25 per share, which are not
currently exercisable, expiring October 21, 2002.
(7) The number of shares beneficially owned is based on the most recent
communication with the shareholder. Includes 2,000,000 shares which are subject
to redemption by the Company pursuant to an agreement. See "Certain
Relationships and Related Transactions."
The following table sets forth the ownership of the Series B Preferred
Stock by each director and by each entity or person known to the Company to own
beneficially in excess of 5% of such class of stock and by all officers and
directors as a group. To the Company's knowledge, all stockholders have sole
voting and investment power with respect to the shares listed as owned by them,
subject to applicable community property laws.
24
<PAGE>
<TABLE>
<CAPTION>
Title of Class Name and Address of Number of Percentage
Beneficial Owner Shares Owned Of Class
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Thomas Von Ledersteger
Series B Preferred Stock 23 Chemin des Meandres 500 50%
CH-1287 Laconnex/GE, Switzerland
- ------------------------------------------------------------------------------------------------------------
Pictet et CIE
Series B. Preferred Stock 29 Boulevard Georges Favon 500 50%
CH-1211 Geneva, Switzerland
- ------------------------------------------------------------------------------------------------------------
All officers and directors as a group
Series B Preferred Stock (5 persons) 0 0%
- ------------------------------------------------------------------------------------------------------------
1997 Series A All officers and directors as a group
Preferred Stock (5persons) 0 0%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has employment agreements with Mark Beychok and John Coppolino,
and had employment agreements, consulting agreements and settlement agreements
with certain of its former officers. See "Management - Executive Compensation."
On January 22, 1999, the Company completed the Closing under a series of
agreements including a Common Stock Purchase Agreement (the "CSPA"), dated as of
December 30, 1998, by and among the Company; Terra Healthy Living, Ltd, a B.V.I.
corporation ("Terra"); Sovereign Partners, a Connecticut limited partnership
("Sov"); and Dominion Capital Fund, Ltd., a Bahamian corporation ("Dom"). All
of the transactions contemplated by the CSPA were deemed to have occurred on
December 31, 1998. Pursuant to the CSPA:
Terra acquired 2,712,843 shares of the Company's common stock from Sov and
Dom for $235,000. Such shares were issued upon the conversion by Sov and Dom of
an aggregate of 235 shares of the Company's 1997 Series A Convertible Preferred
Stock ("Series A Preferred").
The Company borrowed $2,065,000 from Terra pursuant to a Promissory Note
With Warrant and Registration Rights (the "Terra Note"). The Terra Note is a
five year note bearing interest at 6% per annum. Interest on the Terra Note is
payable annually. The Terra Note provided for the issuance to Terra of a five
year warrant (the "Terra Warrant") for the purchase of 500,000 shares of the
Company's common stock at $.25 per share. The Terra Note further provides that
the first year's interest on the Terra Note shall be applied to the partial
exercise of the Terra Warrant. The Company and Terra have entered into a
Registration Rights Agreement requiring the registration under the Securities
Act of 1933, as amended (the "Act") of the securities issuable upon exercise of
the Terra Warrant.
The Company applied the $2,065,000 proceeds of the Terra Note to redeem all
1,351 remaining shares of Series A Preferred held by Sov and Dom as well as a
convertible debenture in the amount of $548,352 held by Dom pursuant to an
Agreement and Consent to Redeem Series A Preferred Stock and Debentures (the
"Redemption Agreement").
The aggregate of $2,300,000 paid by Terra in connection with its purchase
of the 2,712,843 shares of the Company's common stock from Sov and Dom and in
connection with the Terra Note was satisfied through the delivery to Sov and Dom
of marketable securities having a value of $2,300,000. Under the CSPA, Terra
made certain assurances to Sov and
25
<PAGE>
Dom and assumed certain obligations to assure that Sov and Dom would realize
$2,300,000 on the sale of the marketable securities including the delivery of
additional securities to them.
The Company borrowed $300,000 from each of Sov and Dom pursuant to a non-
negotiable nine month promissory note bearing interest at 8% per annum (the "Sov
Note" and the "Dom Note"). These notes provide for their repayment, at the
option of the Company, in free trading registered common stock which shall be
valued at the then market for such stock. The Sov Note and the Dom Note provide
for the issuance to each of Sov and Dom of 60,000 warrants which expire on
December 31, 2003, half of which are exercisable at $.40 and half of which are
exercisable at $.25. If the Company repays the Sov Note or the Dom Note with
common stock, then the exercise price of the $.25 warrant is reduced to $.01.
The Company entered into a Registration Rights Agreement with Sov and Dom.
The CSPA granted the Company the right to redeem up to 2,000,000 of the
shares of its common stock acquired by Terra through June 30, 2000 based upon a
formula related to the market price of the common stock at the time of
conversion.
The Company issued 571,232 shares of its common stock to Sov in connection
with the prior conversion of 40 shares of Series A Preferred Stock.
In December 1998, the Company sold 1,000,000 shares to Terra Healthy
Living, Ltd., a principal stockholder, for $250,000 (or $.25 per share) which
was paid by delivery to the Company of marketable securities. The Company
believes that the price paid for such shares was no less favorable to the
Company than that which would have been paid by an unaffiliated purchaser.
26
<PAGE>
PART IV
ITEM 13: EXHIBITS LIST
-------------
(a) The following exhibits are submitted herewith:
3.l Certificate of Incorporation of Registrant(i)
3.2 By-laws of Registrant(i)
3.3 Agreement and Plan of Merger between the Registrant and
Vitafort International Corporation, a California corporation(i)
3.4 Certificate of Designation - Series A Preferred Stock(v)
3.5 Certificate of Designation - Series B Preferred Stock(v)
3.6 Certificate of Amendment to the Certificate of Incorporation,
November 1991(v)
3.7 Certificate of Designation - Series C Preferred Stock(v)
3.8 Certificate of Amendment to the Certificate of Incorporation, filed
February 8, 1994 (vi)
3.9 Certificate of Designation - Series D Preferred Stock(vi)
3.10 Certificate of Amendment to the Registrant's Certificate of
Incorporation, filed November, 1995. Incorporated by reference to
Exhibit 4.10 filed with the Registrant's Registration Statement on
Form S-8 filed January 25, 1996 File Number 33-300435 (the " January
1996 S-8").
3.11 Certificate of Elimination - Series A Preferred Stock. Incorporated
by reference to Exhibit 4.24 to the Registrant's Registration
Statement on Form S-8 Filed May 22, 1996 File Number 333-04271 (the
"May 1996 S-8").
3.12 Certificate of Elimination - Series D Preferred Stock. Incorporated
by reference to Exhibit 4.25 to the May 1996 S-8.
3.13 Certificate of Amendment to the Registrant's Certificate of
Incorporation, filed October 4, 1996. Incorporated by reference to
Exhibit 4.29 to the Registrant's Registration Statement on Form S-8
Filed December 12, 1996, File Number 333-17763 (the "December 1996
S-8").
3.14 Amended Certificate of Designation of the Registrant's 1997 Series A
Preferred Stock filed May 1997 (ix)
3.15 Amended Certificate of Designation of the Registrant's 1997 Series A
Preferred Stock filed March 1998 (xii)
3.16 Amended Certificate of Designation of the Registrant's 1997 Series A
Preferred Stock filed October 1998 (xiii)
3.17 Convertible Debenture dated August 1998 (xiii)
4.1 Specimen Stock Certificate. Incorporated by reference to Exhibit 4.1
Filed with the Registrant's Annual Report on Form 10K-SB for the
Year ended December 31, 1996 (the "1996 10K-SB")
4.2 Specimen Redeemable Common Stock Purchase Warrant(i)
4.3 Form of Warrant Agreement(i)
4.4 Proposed form of Underwriters Warrant Agreement(i)
4.5
4.6 Warrant Extension Agreement, December 18, 1992(v)
4.7 Warrant Extension Agreement, December 18, 1994(vi)
4.8 Warrant Extension Agreement, January 18, 1995(vi)
4.9 Warrant Extension Agreement, April 3, 1995(vi)
4.10 Warrant Extension Agreement, May 3, 1995. Incorporated by reference
to Exhibit 4.18 to the January 1996 S-8.
4.11 Warrant Extension Agreement, June 15, 1995. Incorporated by
reference to Exhibit 4.19 to the January 1996 S-8.
4.12 Warrant Extension Agreement, July 17, 1995. Incorporated by
reference to Exhibit 4.20 to the January 1996 S-8.
27
<PAGE>
4.13 Warrant Extension Agreement, August 16, 1995. Incorporated by
reference to Exhibit 4.21 to the January 1996 S-8.
4.14 Warrant Extension Agreement, December 31, 1995. Incorporated by
reference to Exhibit 4.21 to the January 1996 S-8.
4.15 Warrant Extension Agreement, April 30, 1996. Incorporated by
reference to Exhibit 4.23 to the May 1996 S-8.
4.16 Warrant Extension Agreement, July 31, 1996. Incorporated by
reference to Exhibit 4.26 to the December 1996 S-8.
4.17 Warrant Extension Agreement, September 30, 1996. Incorporated by
reference to Exhibit 4.27 to the December 1996 S-8.
4.18 Warrant Extension Agreement, November 11, 1996. Incorporated by
reference to Exhibit 4.28 to the December 1996 S-8.
4.19 Warrant Extension Agreement, April 15, 1997. Incorporated by
reference to Exhibit 4.19 to the 1996 10K-SB.
4.20 Warrant Extension Agreement, October 31, 1997.(x)
10.1 Loan Agreement, dated August 19, 1988, between the Registrant and
Bishop Capital, L.P. and promissory note in the principal amount of
$150,000(i)
10.2 License Agreement, dated April 25, 1986, between the Registrant and
Crystal Geyser Water Registrant and amendment, dated January 7,
1988(i)
10.3 Demand Promissory Note, dated July 10, 1987, from Registrant to
Joseph R. Daly in the principal amount of $300,000 and Modification,
dated October 11, 1989(i)
10.4 License Agreement, dated as of October 9, 1987, between the
Registrant and Good Health Beverage, Inc. and amendment, dated
November 23, 1988(i)
10.5 Product Development Agreement, dated as of January 21, 1988, between
the Registrant and International Multifoods, Inc.(i)
10.6 Beverage Agreement, dated as of October 31, 1988, between the
Registrant and PowerBurst Corporation(i)
10.7 Amended and Restated Agreement, dated August 2, 1989, between the
Registrant and Vitafort Far East Co., Ltd.(i)
10.8 Agreement, dated August 11, 1989, between Barry Saltzman, MD. and
Yoshio Tanaka(i)
10.9 Lease, dated June 13, 1988, between Registrant and Shelterpoint
Equities, Ltd. for offices at 591 Redwood Highway, Mill Valley,
California(i)
10.10 Agreement, dated July 25, 1989, between Nutrifish Corporation and
Mt. Lassen Trout Farms(i)
10.11 Salmon Rondelles Joint Development and Marketing Agreement, dated as
of September 18, 1989, between Nutrifish Corporation and
Norwegian Seafoods, Inc.(i)
10.12 Whole Salmon Joint Development and Marketing Agreement, dated as of
September 26, 1989, between Nutrifish Corporation and Norwegian
Seafoods, Inc.(i)
10.13 Employment Agreement, dated September 13, between the Registrant and
Barry K. Saltzman(i)
10.14 Employment Agreement, dated September 13, between the Registrant
and Jeffrey Lewenthal(i)
10.15 The Registrant's 1989 Stock Option Plan(i)
10.16 Stock Option Agreement, dated as of July 17, 1989 between the
Registrant and Jeffrey Lewenthal(i)
10.17 Secrecy Agreement, dated as of May 2, 1986, between the Registrant
and Hoffman-LaRoche, Inc.(i)
10.18 Joint Venture Agreement, dated September 29, 1989, between the
Registrant and Agrolife Technologies, Inc.(i)
10.19 Consulting Agreement, dated September 13, 1989, between the
Registrant and Randall S. Reis(i)
10.20 Loan Agreement, dated June 15, 1989, between Union Bank and Joseph
R. Daly(i)
10.21 Form of Employee Confidentiality Agreement.(ii)
10.23 Form of Escrow Agreement by and among the Registrant, Gilford
Securities Corp., and certain stockholders of Registrant(i)
28
<PAGE>
10.24 Promissory Note, made November 21, 1989, by Nutrifish Corporation
and payable to Joseph R. Daly(i)
10.25 Right of First Refusal Agreement, dated November 21, 1989, between
Nutrifish Corporation and Joseph R. Daly(i)
10.26 Production License Agreement for Nutrifish Norwegian Salmon, dated
February 2, 1990, between Nutrifish Corporation and Norwegian
Seafoods, Inc.(ii)
10.27 Test Market Agreement, dated December 19, 1989, between
International Multifoods Corporation and the Registrant.(ii)
10.28 Amendment, dated as of December 19, 1989, to the Product
Development Agreement between International Multifoods
Corporation and the Registrant.(ii)
10.29 Consulting Agreement, dated February 21, 1990, between the
Registrant and Joseph R. Daly.(ii)
10.30 License Agreement between the Registrant and Nulaid Foods, Inc.,
dated April 30, 1990.(ii)
10.31 License Agreement between the Registrant and Vitafort Latin America,
dated July 30, 1990.(ii)
10.32 Termination Agreement between the Registrant and Jeffrey D.
Lewenthal, dated September 12, 1990.(ii)
10.33 Settlement Agreement and Full Release between Nicholas J. Caputo and
Registrant, dated October 4, 1990.(ii)
10.34 Employment Agreement between the Registrant and Stephen D. Clow,
dated December 1, 1990.(ii)
10.35 Employment Agreement between the Registrant and Frank A. Corsini,
dated January 2, 1991.(ii)
10.36 Stock Option Agreement between the Registrant and Stephen D. Clow,
dated January 2, 1991.(ii)
10.37 Stock Option Agreement between the Registrant and Frank A. Corsini,
dated January 2, 1991.(ii)
10.38 Letter Agreement, dated February 1, 1991, amending Consulting
Agreement between the Registrant and Joseph R. Daly.(ii)
10.39 Letter Agreement, dated March 12, 1991, between the Registrant and
Joseph R. Daly regarding debt reorganization.(ii)
10.40 Consulting Agreement between Norman Kretchmer, MD., Ph.D., and the
Registrant, dated December 20, 1988.(ii)
10.41 Settlement Agreement between the Registrant and PowerBurst
Corporation, dated September 23, 1991.(ii)
10.42 Subscription Agreement between the Registrant and Societe Anonyme
Financier Industrielle et Garantie, dated November 1, 1991.
Incorporated by reference to Exhibit 1 to the Registrant's Report on
Form 8-K dated November 1, 1991.
10.43 Exclusive Distribution Agreement between Registrant and Chicago Fish
House, dated June 13, 1991.(ii)
10.44 Larry Lucas Settlement Agreement, dated March 25, 1993.(v)
10.45 Frank Corsini, Separation Agreement, dated May 18, 1993.(v)
10.46 Agreement dated October 5, 1993 between the Registrant and Second
Nature Technologies, Inc.(iii)
10.47 Food and Beverage Technology Agreement(iii)
10.48 Asset Purchase and Sale Agreement, dated as of June 7, 1993 by and
among Crystal Clear Farms, Inc., a Maine corporation, the Registrant
and Salmon Distribution Subsidiary, Inc. a Maine corporation which
was formerly known as Crystal Clear Farms, Inc.(iv)
10.49 Temporary Operating Agreement dated June 7, 1993 by and among Samuel
L. Thompson & Associates, Inc., a Maine corporation, the Registrant
and Crystal Clear Farms, Inc. a Maine corporation (now known as
Salmon distribution Subsidiary, Inc.)(iv)
10.50 Non-Competition Agreement dated July 27, 1993 by and between the
Registrant and Crystal clear farms, Inc., a Maine corporation.(iv)
29
<PAGE>
10.51 Employment Agreement dated as of November 29, 1993, between the
Registrant and Steven Westlund. Incorporated by reference to exhibit
99.01 to Form S-8 filed by the Registrant on March 4, 1994 (the
"1994 S-8").
10.52 Stock Option Agreement dated as of November 29, 1993 between the
Registrant and Steven Westlund. Incorporated by reference to exhibit
99.02 to the 1994 S-8.
10.53 Stock Option Agreement dated as of September 15, 1993 between the
Registrant and Steven Westlund. Incorporated by reference to exhibit
99.03 to 1994 S-8.
10.54 Employment Agreement dated as of November 29, 1993 between the
Registrant and Peter Benz. Incorporated by reference to exhibit
99.04 to 1994 S-8.
10.55 Stock Option Agreement dated as of November 29, 1993 between the
Registrant and Peter Benz. Incorporated by reference to exhibit
99.05 to 1994 S-8.
10.56 Employment Agreement dated as of November 29, 1993 between the
Registrant and Mark Beychok. Incorporated by reference to exhibit
99.06 to the 1994 S-8.
10.57 Stock Option Agreement dated as of November 29, 1993 between the
Registrant and Mark Beychok. Incorporated by reference to exhibit
99.07 to the 1994 S-8.
10.58 Stock Option Agreement dated as of September 15, 1993 between the
Registrant and Mark Beychok. Incorporated by reference to exhibit
99.08 to the 1994 S-8.
10.59 Consulting Agreement dated as of November 29, 1993 between the
Registrant and Herman Jacobs. Incorporated by reference to
exhibit 99.09 to the 1994 S-8.
10.60 Stock Option Agreement dated as of November 29, 1993 between the
Registrant and Herman Jacobs. Incorporated by reference to
exhibit 99.10 to the 1994 S-8.
10.61 Vitafort International Corporation 90 Day Operating Plan.
Incorporated by reference to exhibit 99.21 to the 1994 S-8.
10.62 Stock Option Agreement, dated September 15, 1993, between the
Registrant and Stanley J. Pasarell. Incorporated by reference to
exhibit 99.22 to the 1994 S-8.
10.63 Separation and Release Agreement, dated as of December 1, 1994,
between the Registrant and Peter Benz.(vi)
10.64 Letter Agreement, dated September 14, 1995, between the Registrant
and Peter T. Benz. Incorporated by reference to the like numbered
exhibit to the Registrant's Form 10-KSB for the year ended December
31, 1995.
10.65 Consulting Agreement and Mutual Release, dated as of March 1, 1995,
between the Registrant and Steven R. Westlund. Incorporated by
reference to the like numbered exhibit to the Registrant's Form 10-
KSB for the year ended December 31, 1995.
10.66 Letter Agreement, dated November 30, 1995, between the Registrant
and Steven Westlund. Incorporated by reference to the like numbered
exhibit to the Registrant's Form 10-KSB for the year ended December
31, 1995.
10.67 The Vitafort International Corporation 1995 Stock Option Plan.
Incorporated by reference to exhibit 99.01 to the January 1996 S-8.
10.68 Form of Option granted to directors under The Vitafort International
Corporation 1995 Stock Option Plan and schedule of grants to
directors. Incorporated by reference to exhibit 99.02 to the January
1996 S-8.
10.69 Employee Option granted to Mark Beychok under The Vitafort
International Corporation 1995 Stock Option Plan. Incorporated by
reference to exhibit 99.03 to the January 1996 S-8.
10.70 Amendment, dated December 16, 1995, to the Employment Agreement
between the Registrant and Mark Beychok. Incorporated by reference
to exhibit 99.10 to the January 1996 S-8.
10.71 Option Agreement, dated December 16, 1995, between the Registrant
and Mark Beychok. Incorporated by reference to exhibit 99.11 to the
January 1996 S-8.
10.72 Conversion Agreement, dated as of December 30, 1995, between the
Registrant and Mark Beychok. Incorporated by reference to exhibit
99.20 to the January 1996 S-8.
10.73 Class A Option Agreement, dated as of December 30, 1995, between the
Registrant and Mark Beychok. Incorporated by reference to exhibit
99.21 to the January 1996 S-8.
10.74 Class B Option Agreement, dated as of December 30, 1995, between the
Registrant and Mark Beychok. Incorporated by reference to exhibit
99.22 to the January 1996 S-8.
30
<PAGE>
10.75 Conversion Agreement, dated as of March 26, 1996, between the
Registrant and John Coppolino. Incorporated by reference to
Exhibit 9.18 to the May 1996 S-8.
10.76 Class A Option Agreement, dated as of March 26, 1996, between the
Registrant and John Coppolino. Incorporated by reference to
Exhibit 9.19 to the May 1996 S-8.
10.77 Class B Option Agreement, dated as of March 26, 1996, between the
Registrant and John Coppolino. Incorporated by reference to
Exhibit 9.20 to the May 1996 S-8.
10.78 Employment Agreement, between the Registrant and John Coppolino.
Incorporated by reference to Exhibit 10.78 to the 1996 Form 10-
KSB.
10.79 Foreclosure Purchase Agreement related to the Acquisition of
assets of Auburn Farms, Inc. Incorporated by reference to Exhibit
1 to the Registrant's Form 8-K, dated May 2, 1996.
10.80 Loan and Security Agreement, dated August 15, 1996, between the
Registrant and Coast Business Credit, a division of Southern
Pacific Thrift & Loan Association. Incorporated by reference to
Exhibit 1 to the Registrant's Form 8-K, dated August 15, 1996.
10.81 Agreement, dated as of July 10, 1996, between the Registrant and
Second Nature Technologies, Inc. Incorporated by reference to
Exhibit 10.81 to the 1996 Form 10-KSB.
10.82 Employment Agreement dated June 16, 1997 between Jack Spencer and
the Registrant. Incorporated by reference to Exhibit 10.12 of the
Registrant's Form SB-2 filed July 23,1997
10.83 Agreement, dated April 1997, between the Registrant and ATCOLP
Investment Partners, a California Limited Partnership.
Incorporated by reference to the Registrant's Form SB-2 filed July
23, 1997
10.84 Employment Agreement dated September 1997 between the Registrant
and Mark Beychok. (x)
10.85 Employment Agreement dated September 1997 between the Registrant
and John Coppolino.(x)
10.86 Subscription Agreement with Global International Sourcing, Inc., a
Nevada corporation (xii)
10.87 Administrative Services Agreement dated October 1, 1999 between
the Registrant and Hollywood Partners.com, Inc. (filed herewith)
10.88 Distribution Agreement dated October 1, 1999 between the
Registrant and Hollywood Partners.com, Inc. (filed herewith)
22. Subsidiaries of the Registrant: Global International Sourcing,
Inc. (xii)
23.1 Consent of BDO Seidman, LLP (filed herewith)
27. Financial Data Schedule (filed herewith)
(i) Incorporated by reference to the same numbered exhibit to the
Registrant's Registration Statement on Form S-18, file number 33-31883.
(ii) Incorporated by reference to the same numbered exhibit to the
Registrant's December 31, 1990 and 1989 Form 10-K's.
(iii) Incorporated by reference to exhibits 1 & 2 to the Registrant's September
30, 1993 Form 10-QSB.
(iv) Incorporated by reference to exhibits 1 through 4 to the Registrant's
August 7, 1993 Form 8-K.
(v) Incorporated by reference to the same numbered exhibit to the
Registrant's December 31, 1993 Form 10-KSB.
(vi) Incorporated by reference to the same numbered exhibit to the
Registrant's December 31, 1994 Form 10-KSB.
(vii) Incorporated by reference to the same numbered exhibit to the
Registrant's December 31, 1995 Form 10-KSB.
(viii) Incorporated by reference to the same numbered exhibit to the
Registrant's December 31, 1996 Form 10-KSB.
(ix) Incorporated by reference to the same numbered exhibit to the
Registrant's December 31, 1997 Form 10-KSB.
(x) Incorporated by reference to the same numbered exhibit to the
Registrant's January 14, 1998 Form SB-2/A.
31
<PAGE>
(xi) Incorporated by reference to the same numbered exhibit to the
Registrant's June 24, 1998 Form SB-2/A.
(xii) Incorporated by reference to the same numbered exhibit to the
Registrant's August 14, 1998 Form SB-2/A.
(xiii) Incorporated by reference to the same numbered exhibit to the
Registrant's November 12, 1998 Form SB-2/A.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the fourth quarter ended
December 31, 1998.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereby, duly authorized.
VITAFORT INTERNATIONAL CORPORATION
By: /s/ John Coppolino
------------------------------
John Coppolino, President
Los Angeles, California
Date: April 14, 2000
Pursuant to the requirements of the Exchange Act, this report has been duly
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title(s) Date
- -----------------------------------------------------------------------------------------
<S> <C> <C>
/s/ Mark Beychok Chairman of the Board April 14, 2000
- -----------------------------
Mark Beychok
/s/ John Coppolino Director and President April 14, 2000
- -----------------------------
John Coppolino (Principal Executive Officer)
/s/ Fred Rigaud Acting Chief Financial Officer April 14, 2000
- -----------------------------
Fred Rigaud (Principal Accounting Officer)
/s/ Benjamin Tabatchnick Director April 14, 2000
- -----------------------------
Benjamin Tabatchnick
</TABLE>
33
<PAGE>
VITAFORT INTERNATIONAL CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets - December 31, 1999 and 1998 F-3
Consolidated Statements of Operations -
Years Ended December 31, 1999 and 1998 F-5
Consolidated Statements of Stockholders' Equity (Deficit) -
Years Ended December 31, 1999 and 1998 F-6
Consolidated Statements of Cash Flows -
Years Ended December 31, 1999 and 1998 F-7
Summary of Accounting Policies F-8
Notes to Consolidated Financial Statements F-11
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
VITAFORT INTERNATIONAL CORPORATION
Los Angeles, California
We have audited the accompanying consolidated balance sheets of Vitafort
International Corporation and Subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the two years then ended. 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 audits.
We conducted our audits 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Vitafort
International Corporation and Subsidiaries at December 31, 1999 and 1998, and
the consolidated results of their operations and their cash flows for each of
the two years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations,
including a loss of $1,058,591 for the year ended December 31, 1999. These
losses and other factors raise substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ BDO SEIDMAN, LLP
Los Angeles, California
April 10, 2000
F-2
<PAGE>
VITAFORT INTERNATIONAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 1,119,153 $ 903,649
Marketable securities 536,667 250,000
Accounts receivable, less allowance
for doubtful accounts of $63,782 and $41,775 139,137 929,006
Other receivables 47,383 -
Inventories 585,407 196,603
Prepaid expenses and other current assets 676,753 132,509
----------- -----------
Total Current Assets 3,104,500 2,411,767
----------- -----------
Equipment
Manufacturing equipment 106,019 19,881
Furniture and office equipment 109,654 105,160
Computer equipment 270,588 209,574
----------- -----------
486,261 334,615
Less accumulated depreciation 305,434 271,411
----------- -----------
Net Equipment 180,827 63,204
----------- -----------
Other Assets
Intangible assets, net of accumulated amortization
of $96,297 and $66,236 526,856 911,684
Other assets 138,006 875
----------- -----------
Total Other Assets 664,862 912,559
----------- -----------
Total Assets $ 3,950,189 $ 3,387,530
============ ===========
</TABLE>
See accompanying summary of accounting policies and notes to the consolidated
financial statements
F-3
<PAGE>
VITAFORT INTERNATIONAL CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Current Liabilities
Notes payable - bank $ - $ 283,689
Notes payable - other 392,209 958,724
Convertible notes payable - 600,000
Accounts payable 836,500 1,054,079
Accrued expenses 469,533 130,303
------------- ------------
Total Current Liabilities 1,698,242 3,026,795
------------- ------------
Long-term debt due a shareholder - 2,065,000
Notes payable - other, less current portion 26,331 -
------------- ------------
Total Long-term Liabilities 26,331 2,065,000
Minority Interest 654,151 -
Stockholders' Equity (deficit)
Series B, 10% cumulative convertible preferred
stock, $.01 par value; authorized 110,000 shares;
issued and outstanding 1,000 shares, aggregate
liquidation preference of $50,000 10 10
Series C, convertible preferred stock, $.01 par value;
authorized 450 shares; issued and outstanding 50 Shares, 1 1
aggregate liquidation preference of $50,000
Common stock, $.0001 par value; authorized 30,000,000
shares; issued and outstanding 17,487,288 and 12,056,428 1,749 1,206
shares
Additional paid-in-capital 28,398,646 24,064,868
Accumulated deficit (26,828,941) (25,770,350)
------------- ------------
Total Stockholders' Equity (Deficit) 1,571,466 (1,704,265)
------------- -------------
Total Liabilities and Stockholders' Equity (Deficit) $ 3,950,189 $ 3,387,530
============= =============
</TABLE>
See accompanying summary of accounting policies and notes to the consolidated
financial statements
F-4
<PAGE>
VITAFORT INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
December 31,
1999 1998
------------ ------------
<S> <C> <C>
Net revenues $ 2,451,531 $ 2,861,392
Cost of sales 1,911,676 1,876,319
------------ ------------
Gross profit 539,855 985,073
------------ ------------
Operating expenses
Research and development 104,615 362,770
Sales and marketing 2,152,665 2,035,125
General and administrative 2,576,844 2,557,890
------------ ------------
Total operating expenses 4,834,124 4,955,785
------------ ------------
Loss from operations (4,294,269) (3,970,712)
Other income (expense)
Interest income 8,239 39,591
Litigation recovery, net of costs 1,256,632 --
Gain on exchange of subsidiary stock 1,521,482 --
Minority interest in net loss of consolidated subsidiary 364,341 --
Loss on disposal of assets -- (42,246)
Other income (expense) 69,518 (59,684)
Interest expense (366,609) (221,547)
------------ ------------
Total other income (expense) 2,853,603 (283,886)
------------ ------------
Loss before income tax expense (1,440,666) (4,254,598)
State income tax expense 3,534 3,407
------------ ------------
Loss before extraordinary item (1,444,200) (4,258,005)
Extraordinary gain on extinguishment of debt 385,609 --
------------ ------------
Net loss (1,058,591) (4,258,005)
Deemed dividend to preferred shareholders -- (629,148)
------------ ------------
Net loss allocable to common shareholders (1,058,591) (4,887,153)
============ ============
Basic and diluted net loss per common share:
Loss before extraordinary item (0.10) (0.66)
Extraordinary gain on extinguishment of debt 0.03 --
------------ ------------
Basic and diluted net loss per common share $ (0.07) $ (0.66)
============ ============
Basic and diluted weighted average shares of common stock 14,465,803 7,348,093
============ ============
</TABLE>
See accompanying summary of accounting policies and notes to the consolidated
financial statements
F-5
<PAGE>
VITAFORT INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Series A Series B Series C
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock
------------------- ------------------- -------------------
Shares Amount Shares Amount Share Amount
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 750 $ 8 1,000 $ 10 50 $ 1
Series A Preferred issued in connection with
a private placement, net of expenses 500 5
Stock issued as settlement of contract disputes
Exercise of stock options
Stock issued for acquisition of marketing contract
Stock issued for services
Issuance of common stock in private placement
Conversion of Series A Preferred Stock (350) (4)
Redemption of Series A Preferred Stock (1,351) (13)
Issuance of warrants
Preferred stock dividends 451 4
Net loss
-------- ------- -------- ------- ------- ---------
Balance, December 31, 1998 - - 1,000 10 50 1
Exercise of stock options
Issuance of common stock for debt
Issuance of options
Contribution to paid-in capital of Hollywood
Partners.com, Inc.
Contribution to paid-in capital by shareholder
Net loss
-------- ------- -------- ------- ------- ---------
Balance, December 31, 1999 $ - 1,000 $ 10 50 $ 1
======== ======= ======== ======= ======= =========
<CAPTION>
Common Stock Additional
------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
-------- -------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1998 6,683,853 $ 668 $23,160,507 $(20,883,197) $2,277,997
Series A Preferred issued in connection with
a private placement, net of expenses 498,995 499,000
Stock issued as settlement of contract disputes 115,000 12 94,176 94,188
Exercise of stock options 239,500 24 213,634 213,658
Stock issued for acquisition of marketing contract 60,000 6 43,118 43,124
Stock issued for services 436,500 44 402,149 402,193
Issuance of common stock in private placement 1,000,000 100 249,900 250,000
Conversion of Series A Preferred Stock 3,521,575 352 (348) -
Redemption of Series A Preferred Stock (1,505,007) (1,505,020)
Issuance of warrants 278,600 278,600
Preferred stock dividends 629,144 (629,148) -
Net loss (4,258,005) (4,258,005)
---------- -------- ------------ ------------ -----------
Balance, December 31, 1998 12,056,428 1,206 24,064,868 (25,770,350) (1,704,265)
Exercise of stock options 3,698,687 370 552,336 552,706
Issuance of common stock for debt 1,732,173 173 680,839 681,012
Issuance of options 423,306 423,306
Contribution to paid-in capital of Hollywood
Partners.com, Inc. 1,376,372 1,376,372
Contribution to paid-in capital by shareholder 1,300,925 1,300,925
Net loss (1,058,591) (1,058,591)
---------- -------- ------------ ------------ -----------
Balance, December 31, 1999 17,487,288 $ 1,749 $ 28,398,646 $(26,828,941) $ 1,571,465
========== ======== ============ ============ ===========
</TABLE>
See accompanying summary of accounting policies and notes to the consolidated
financial statements
F-6
<PAGE>
VITAFORT INTERNATIONAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31,
1999 1998
--------------------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net loss $ (1,058,591) $ (4,258,005)
Adjustments to reconcile net loss to cash and cash equivalents used in operating activities
Gain on exchange of subsidiary stock (1,521,482)
Extraordinary gain on extinguishment of debt (385,609) -
Depreciation and amortization 63,463 237,410
Allowance for doubtful accounts 43,479 16,032
Write-off of related party receivable - 104,290
Loss on disposal of fixed assets - 42,559
Minority interest in net loss of consolidated subsidiary (364,341) -
Stock and options issued for services 564,594 261,706
Other (102,060) (37,859)
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable, net 746,391 (210,204)
Inventories (388,805) 56,008
Prepaid expenses and other current assets (255,345) 152,618
Other assets (160,175) (875)
Increase (decrease) in
Accounts payable 243,338 66,358
Accrued expenses 708,995 -
----------------------------
Cash and cash equivalents used in operating activities (1,866,148) (3,569,962)
----------------------------
Cash flows from investing activities
Purchase of equipment (151,646) (35,884)
Proceeds from disposal of equipment - 73,516
Customer acquisition costs - (109,872)
Advances to Global International - (285,386)
Purchase of marketable securities (1,000,000) -
Proceeds from sale of marketable securities 681,570 -
Cash acquired through acquisition of Global International Sourcing - 75,462
----------------------------
Cash and cash equivalents used in investing activities (470,076) (282,164)
----------------------------
Cash flows from financing activities:
Proceeds from issuance of stock 125,000 499,000
Contribution to equity of subsidiary by a shareholder 2,000,000 -
Proceeds from redemption of preferred stock - (1,505,020)
Proceeds from issuance of subsidiary preferred stock 300,000 -
Proceeds from convertible note payable 375,000 600,000
Repayment of convertible note payable (375,000) -
Proceeds from notes payable-bank - 2,025,818
Repayment of notes payable-bank (283,690) (1,802,886)
Proceeds from long-term debt - 2,065,000
Proceeds from notes payable-other 822,553 1,047,262
Repayments of notes payable-other (412,135) (372,435)
----------------------------
Cash and cash equivalents provided by financing activities 2,551,728 2,556,739
----------------------------
Increase (decrease) in cash and cash equivalents 215,504 (1,295,387)
Cash and cash equivalents, beginning of period 903,649 2,199,036
----------------------------
Cash and cash equivalents, end of period $ 1,119,153 $ 903,649
============================
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 366,609 $ 175,079
Income taxes 3,534 3,407
Supplemental disclosure of non-cash operating, investing and financing activities
Stock issued for accounts and notes payable $ 208,197 $ 132,988
Stock issued for prepaid consulting services 38,619 7,500
Options issued for prepaid consulting services 140,753 -
Stock issued for repayment of debt 543,775 -
Stock issued upon cashless exercise of options - 213,658
Stock issued as settlement of contract dispute - 94,188
Stock issued for acquisition of marketing contract - 43,124
Stock issued in exchange for marketable securities - 250,000
Write-off of noncash financing charge 220,300 -
Stock exchanged in repayment of debt 1,521,225 -
Acquisition of Global International Sourcing:
Assets acquired, net of cash - 535,786
Liabilities assumed, including $522,328 due to Vitafort - 829,461
Contribution to equity of subsidiary by shareholders allocated to minority interest 1,018,492 -
</TABLE>
See accompanying summary of accounting policies and notes to the consolidated
financial statements.
F-7
<PAGE>
VITAFORT INTERNATIONAL CORPORATION AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements of Vitafort
International Corporation (the "Company") include the accounts of the Company
and its subsidiaries: Visionary Brands, Inc., Hollywood Partners.com, Inc.
(57.5% owned); Global International Sourcing, Inc. (Global) (100% owned);
Nutrifish Corporation (90.5% owned); and Crystal Clear Farms (100% owned).
Nutrifish Corporation and Crystal Clear Farms are inactive subsidiaries. All
material intercompany accounts and transactions have been eliminated.
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 amounts of assets and liabilities and
disclosure 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 estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are investments with original maturities of three
months or less and short-term, highly liquid investments that are both readily
convertible to known amounts of cash and are so near their maturity that they
present insignificant risk of changes in value because of changes in interest
rates.
MARKETABLE SECURITIES
The Company has classified its entire investment portfolio as available-
for-sale in accordance with the provisions of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Available-for-sale
securities are stated at fair value with unrealized gains and losses included in
shareholders' equity. The amortized cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Realized gains and losses are
included in other income (expense). The cost of securities sold is based on the
specific identification method.
INVENTORY
Inventory consists of merchandise available for sale, packaging supplies
and raw materials, and are stated at the lower of cost (first-in, first-out) or
market.
EQUIPMENT
Equipment is comprised of manufacturing equipment, furniture, office
equipment and computer equipment and is recorded at cost. Depreciation is
computed on a straight-line basis over the estimated useful life not in excess
of five years.
ADVERTISING
General costs are expenses as incurred or prepaid until the advertisement
is published, at which time the related costs are expensed.
F-8
<PAGE>
OTHER INTANGIBLE ASSETS
Intangible assets are composed of acquisition costs of Auburn Farms and
Natures Warehouse trademarks, debt issuance costs and customer acquisition costs
and are recorded at cost. The acquisition costs associated with trademarks are
being amortized on a straight-line basis over twenty years. All other
intangible assets are being amortized on a straight-line basis over periods not
exceeding five years.
These costs are reviewed by management periodically and written down if
necessary to the value of the future benefit expected to be derived.
REVENUE RECOGNITION
Product sales and related costs are recognized when the Company's products
are shipped from the commercial warehouse used by the Company or the contract
manufacturer to the customer.
IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS No. 121") establishes guidelines regarding when impairment losses on
long-lived assets, which include plant and equipment and certain identifiable
intangible assets, should be recognized and how impairment losses should be
measured. The Company periodically reviews such assets for possible impairment
and expected losses, if any, are recorded currently.
INCOME (LOSS) PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128") provides for the calculation of basic and diluted earnings per
share. Basic earnings (loss) per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution of securities that could share in the earnings
of an entity, such as stock options, warrants or convertible debentures.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. A valuation allowance is provided when management
cannot determine whether or not it is more likely that the net deferred tax
asset will be realized. The effect on deferred tax assets and liabilities of a
change in the rates is recognized in income in the period that includes the
enactment date.
F-9
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has cash and cash equivalents, receivables and accounts payable
for which the carrying value approximates the fair value due to the short-term
nature of these instruments.
The fair value of long-term debt due to shareholder cannot be estimated due
to its related party nature.
The fair value of the Company's debt instruments is based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities.
STOCK COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123") allows an entity to elect to continue to
measure compensation cost under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), but requires pro
forma disclosures of net earnings and earnings per share as if the fair-valued-
based method of accounting had been applied. In accordance with FASB 123, the
Company elected to continue to measure compensation cost under APB No. 25, and
comply with the pro forma disclosure requirements.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income," ("SFAS 130") establishes standards for reporting and
display of comprehensive income and its components in a full set of general-
purpose financial statements. The Company did not have any components of other
comprehensive income for the years ended December 31, 1999 and 1998, as such,
comprehensive loss and net loss are equivalent.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131") requires that
public companies report certain information about operating segments, products,
services and geographical areas in which they operate and their major customers.
The Company operates in one business segment.
F-10
<PAGE>
VITAFORT INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY
Vitafort International Corporation (the "Company") was incorporated on
September 28, 1989 in the State of Delaware to succeed to the business of a
California corporation of the same name which was organized on February 7, 1986.
The Company is presently engaged in sourcing, developing and formulating
products that it sells and markets under brands for healthy products, for
licensed products and for low-priced sourced products.
NOTE 2 - LIQUIDITY AND GOING CONCERN
For the past several years, the Company has suffered recurring losses from
operations. For the year ended December 31, 1999, the Company incurred a net
loss of $1,058,591, has working capital of $1,406,258 and stockholders' equity
of $1,571,465 as compared to a net loss of $4,258,005, negative working captial
of $(615,028) and a stockholders' deficit of $(1,704,265) at December 31, 1998.
Although the Company raised additional capital in 1999 and converted debt or
accounts payables and paid expenses of $3,205,000 with issuances of equity (see
Note 10), it has not generated sufficient revenue-producing activity to sustain
its operations. Accordingly, there is substantial doubt regarding the Company's
ability to continue as a going concern. The Company is attempting to raise
additional capital to meet future financial obligations, but may not be able to
do so. Should the Company not be able to raise additional capital, it may have
to severely curtail operations. The financial statements do not include any
adjustments that may be necessary if the Company is unable to continue as a
going concern.
During the current and prior year, the Company reduced its cost of sales by
sourcing the manufacturing of a significant amount of its products from Mexico
to obtain lower rates than compared with domestic manufacturers. The Company has
also introduced both new and reformulated products in 1999 and plans to
introduce new products in 2000. These steps, coupled with improvements in
subcontract manufacturing quality control and quality assurance and monitoring
improvements in Company internal control and communications with respect to
product returns and deductions, management believes should improve the Company's
prospects to achieve profitability. However, no assurances can be given that the
Company will be successful in its plans.
NOTE 3 - INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
--------- ---------
<S> <C> <C>
Finished goods $352,847 $118,524
Packaging and raw material 232,560 78,079
-------- --------
$585,407 $196,603
======== ========
</TABLE>
F-11
<PAGE>
NOTE 4 - INTANGIBLE ASSETS
Intangible assets consists of the following:
December 31,
1999 1998
---- ----
Auburn Farms trademarks $ 311,254 $ 311,254
Customer acquisition costs - 76,167
Deferred financing costs - 278,600
Distribution rights 93,686 93,686
Goodwill 218,213 218,213
--------- ---------
623,153 977,920
Less accumulated amortization 96,297 66,236
--------- ---------
Total intangible assets $ 526,856 $ 911,684
========= =========
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31,
1999 1998
---- ----
Accrued compensation $ 284,119 $ 32,709
Accrued interest payable 21,903 46,468
Accrued royalties 103,036 51,126
Other accrued expenses 60,475 -
--------- ---------
Total accrued expenses $ 469,533 $ 130,303
========= =========
NOTE 6 - NOTES PAYABLE
Bank
----
In August 1996, the Company entered into a revolving credit facility with
Coast Business Credit ("Bank") that provided a credit line of up to $4,000,000
subject to certain covenants. Advances made to the Company under the facility
were based on a certain percentage of eligible accounts receivable, as defined,
and a certain percentage of eligible inventory, as defined. In June 1999, the
Company paid off the balance of this line of credit, but the assets are still
collateralized. As of December 31, 1999, the Company does not have a line of
credit.
Other
-----
During 1999, the Company exchanged 230,371 shares of its subsidiary,
Hollywood Partners.com, Inc., to various unrelated parties in settlement of
notes payable. The shares exchanged had minimal value on the Company's books.
As such, the Company recognized a $921,484 gain on repayment of debt.
Throughout 1998, the Company entered into purchase order financing
agreements with accredited investors, which provided the Company with $995,000
to purchase inventory. These advances bear interest at 3% per month and are due
as the related receivables are collected. In addition, several lenders received
options to purchase 410,000 shares of the Company's common stock at $1.00 per
share, which was fair market value at the time. The exercise price was later
reduced to $0.10 and $0.085 reflecting a subsequent decline in the fair market
value of the Company's common stock. The Company has pledged its inventory as
F-12
<PAGE>
collateral for these advances. At December 31, 1999, $220,262 of these advances
were outstanding. During 1999, the Company repaid $320,000 of these notes in
cash and repaid $250,000 plus accrued interest thereon with the issuance of
500,000 shares of the Company's common stock, having a total value of $131,750.
The difference between the fair market value of the Company's common stock
issued and the carrying value of the advances and accrued interest repaid
resulted in an extraordinary gain to the Company of $143,250.
Convertible Notes Payable
-------------------------
As of December 31, 1998, convertible notes payable consisted of two notes
in the amount of $300,000 each to previous holders of the Company's Series A
Preferred Stock. The notes were repaid in 1999 with the exchange of 150,000
shares of Hollywood Partners.com held by the Company. The shares exchanged had
minimal value on the Company's books. As such, the Company recognized a
$600,000 gain on repayment of debt.
Under the terms of these notes, the Company had issued five-year warrants
to purchase 60,000 shares of common stock at $0.40 per share and 60,000 shares
of common stock at $0.25 per share. If the notes and accrued interest are
repaid in cash, the warrants for 60,000 shares at $0.25 will be cancelled.
Otherwise, to the extent any portion of the notes and accrued interest is paid
with stock, the exercise price of a proportionate number of the 60,000 shares
will be adjusted to $0.01 per share. The warrants were valued at the fair value
as of the date issued, which resulted in non-cash financing cost of $58,262.
This non-cash financing cost is being amortized as interest expense over the
term of the debt.
On December 31, 1999, 150,000 shares of Hollywood Partners.com were issued
to the holders of the two convertible notes in payment of the principal amount
of $600,000. These shares are restricted pursuant to Rule 144 and bear a legend.
On August 24, 1998, the Company issued a convertible debenture due August
24, 2000 and received proceeds in the amount of $548,352. Interest was payable
at 6% per annum. Repayments could be made in cash or stock at the option of the
Company. On December 30, 1998, this note and accrued interest of $11,629 were
repaid in full from the proceeds of a related party long-term promissory note.
Other Notes Payable
-------------------
During the year, the Company entered into various insurance policies
financed by notes payable which is included in "Notes payable-other." The notes
payable had a balance of $130,468 bearing interest at between 8% and 9% with
$104,137 due in the coming year.
NOTE 7 - LONG-TERM DEBT
At December 31, 1998, the Company's long term debt consisted of a
$2,065,000 five year promissory note payable issued to a principal shareholder.
The note was due January 22, 2004 with interest at 6%, payable annually. The
note provided for the first year's interest on the note to be applied to the
partial exercise of the warrants. Under the terms of the note, the Company
issued warrants to the note holder to purchase 500,000 shares of common stock at
$0.25 per share. These warrants were valued at the fair value as at that date,
which resulted in non-cash financing cost of $220,267 to be amortized to
interest expense over the life of the note.
F-13
<PAGE>
In 1999, the Company issued 1,235,857 shares of the Company's common stock
in repayment of $543,775 of the related party long-term promissory note. The
remaining balance of $1,521,225 was forgiven by the shareholder and was recorded
as a contribution to capital by the shareholder, net of the non-cash unamortized
financing cost.
The proceeds from this note were used to retire 1,351 shares of Series A
Preferred Stock and to repay a $548,352 note payable to a shareholder along with
accrued interest thereon of $11,628.
NOTE 8 - INCOME TAXES
As the Company has incurred significant operating losses since inception,
its current tax provision has been limited to minimum California tax payments.
As of December 31, 1999, the Company had unused Federal and California net
operating loss carryforwards of approximately $24,932,000 and $11,732,000,
respectively, available to offset against future Federal taxable income and
future California taxable income. The unused net operating loss and credit
carryforwards expire in various amounts through the year 2019. In contrast to
Federal net operating losses, only 50% of the California net operating losses
incurred subsequent to December 31, 1986 may be carried forward. The California
net operating losses will expire in various amounts through the year 2004.
Net deferred tax assets of approximately $8,829,000 resulting from net
operating losses have been offset by a valuation allowance since management
cannot determine whether it is more likely than not such assets will be
realized.
Due to restrictions imposed by the Internal Revenue Code regarding
substantial changes in ownership of companies with loss carryforwards, the
utilization of the above-mentioned net operating losses may be limited as a
result of changes in stock ownership. The annual utilization of these losses is
limited to an amount equal to the estimated fair value (for income tax purposes)
of the Company at the point of stock ownership change, multiplied by the long-
term tax-exempt rate then in effect. The annual limitation has not been
quantified at this time.
NOTE 9 - STOCKHOLDERS' EQUITY
Convertible Preferred Stock
The Company entered into two subscription agreements totaling $750,000 in
1997 with two unrelated investors for 750 shares of 1997 Series A Preferred
Stock. The preferred stock has a cumulative dividend rate of 6% with no voting
rights. The conversion price is the lower of $1.25 per share or a 30% discount
to the market price at the time of conversion. The preferred stock is
convertible at any time. For accounting purposes, the original issue discount
of $305,749 is being treated as a deemed dividend. The facilitators received a
10% fee from the proceeds, as well as warrants to purchase 52,500 shares of
common stock at an exercise price of $1.00 per share.
The Company entered into a subscription agreement in March 1998 with an
unrelated investor for $500,000 for 500 shares of 1997 Series A Preferred Stock.
The preferred stock has a cumulative dividend of 6% with no voting rights. The
preferred stock is convertible beginning August 10, 1998 at a 21.5% discount if
the fair market value of the stock on the date of conversion is $0.6875 per
share or less. If the fair market value of the stock on the date of conversion
is more than $0.6875 per share, the preferred stock is convertible at fair
market value. However, if the preferred shares are converted at fair market
value, the preferred shareholder will receive sufficient warrants upon
conversion to purchase common stock at $0.6875 per share to generate a $275
profit per share of preferred stock converted.
F-14
<PAGE>
As part of the above transaction, the Company also issued 451 shares of
preferred stock, as well as warrants to purchase 282,422 shares of common stock
at $0.6875 per share to the holders of the 1997 Series A Preferred Stock in
exchange for the preferred stockholders accepting an adjustment in the terms of
the 1997 Series A Preferred Stock. The warrants may be exercised over a five-
year period beginning August 10, 1998.
For accounting purposes, the issuance of the warrants to the 1997 Series A
Preferred stockholders resulted in a deemed dividend of $147,381.
The modified terms of the 1,701 total shares of 1997 Series A Preferred
Stock outstanding resulted in an issuance of 787,563 warrants to purchase shares
of common stock. The value of these potential warrants issued is reflected as
an original issued discount of $411,128 at the time of the transaction. This
original issue discount is being treated as a deemed dividend.
During the last quarter of 1998, the holders of 350 shares of the 1997
Series A Preferred Stock elected to convert said shares into 3,251,575 shares of
common stock under the terms of the subscription agreement.
The Company repurchased the remaining 1,351 shares of the 1997 Series A
Preferred Stock for $1,505,020 from the proceeds of long term related party
promissory note. There was no 1997 Series A Preferred stock outstanding at
December 31, 1999.
Each share of Series B 10% Cumulative Convertible Preferred stock is
convertible into 1.667 shares of common stock, and cumulative convertible
dividends of 10% per annum are payable annually commencing October 1992. The
Series B 10% Cumulative Preferred stock has a liquidation preference of $50 per
share plus all accrued and unpaid dividends. It is subject to optional
redemption by the Company at any time at $50 per share plus accrued and unpaid
dividends. Cumulative unpaid dividends amounted to $42,500 and $39,000 at
December 31, 1999 and 1998, respectively.
Each share of Series C Convertible Preferred Stock is convertible into 100
shares of common stock and 100 warrants. Series C Convertible Preferred Stock
does not carry any dividend rights. The warrants expired in June 1994.
Additionally, the Series C Convertible Stock has a dilutive conversion factor.
The Series C Convertible Preferred Stock has a liquidation preference of $1,000
per share after Series B Cumulative Convertible Preferred Stock, and to holders
of common stock.
The shares of Series B and Series C Preferred stock are not currently
registered under the Securities Exchange Act of 1934.
Common Stock
In March 1999, the Company issued 10,000 shares of common stock at $.50 per
share to a previous employee in payment of accrued vacation.
In June 1999, the Company issued 160,000 shares of common stock at $.10 per
share in exchange for services rendered, previously recorded as a liability.
In the second quarter of 1999, various employees exercised 106,529 options
at $.085 per share and 850,000 options at $.10 per share to purchase common
shares.
In July 1999, a shareholder exercised options to purchase 500,000 shares of
common stock at $.25 per share.
F-15
<PAGE>
In August 1999, the Company issued 26,316 shares of common stock at $.085
per share in exchange for services rendered, previously recorded as a liability.
In September 1999, the Company issued 1,235,857 shares of common stock at
$.44 per share to convert $543,775 of convertible debt held by a shareholder to
equity. The remaining balance of this convertible debt of $1,521,225 was
forgiven and has been reflected as a contribution to capital by the shareholder
net of associated unamortized non-cash financing costs.
In the third quarter of 1999, the Company entered into a settlement
agreement with an individual owed $250,000 plus accrued interest. In accordance
with this agreement, the Company issued 500,000 shares of common stock to settle
all amounts owed. Of this amount, 200,000 shares of common stock related to
options granted to this individual, 150,000 at $.085 per share and 50,000 at
$.10 per share. The remaining shares were valued at the then market value of
$.38 per share.
Throughout 1999, the Company issued 2,042,158 shares of common stock upon
exercise of options granted to consultants and vendors of the Company as payment
for services rendered or amounts owed as follows:
- 49,971 shares at an exercise price of $.085 per share.
- 1,613,187 shares at an exercise price of $.10 per share.
- 10,000 shares at an exercise price of $.25 per share.
- 40,000 shares at an exercise price of $.50 per share.
- 4,000 shares at an exercise price of $1.00 per share.
- 325,000 shares at an average exercise price of $.38 per share.
In January 1998, the Company issued 85,000 shares of common stock at a
value of $1.00 per share as settlement for contract disputes previously recorded
as a liability.
In February 1998, the Company issued 30,000 shares of common stock at a
value of $.30625 per share as settlement of a contract dispute related to
consulting services previously recorded as a liability.
In February 1998, the Company issued 60,000 shares of common stock at a
value of $.71875 per share and forgave a $25,000 note receivable from an
unrelated company in exchange for its distribution rights with respect to
marshmallow products in North America. The Company also received $5,000 of
sample inventory and $15,000 of furniture and equipment as part of this
transaction.
In February 1998, the Company issued 100,000 shares of common stock at a
value of $0.74 per share upon the exercise of an option granted a consultant in
exchange for future consulting services.
In March 1998, the Company issued 15,000 shares of common stock at a value
of $1.00 per share upon the exercise of an option granted a consultant in
exchange for services rendered previously recorded as a liability.
In April and July 1998, the Company issued a total of 87,000 shares of
common stock at a value of $1.00 per share upon the exercise of options granted
to a consultant in exchange for consulting services.
F-16
<PAGE>
In May 1998, the Company issued 37,500 shares of common stock at a value of
$1.004 per share upon the exercise of an option granted a previous employee as
part of a litigation settlement.
In June 1998, the Company issued 174,500 shares of common stock at a value
of $1.00 per share under an S-8 filing as payment for services rendered and to
be rendered.
In July 1998, the Company issued an additional 60,500 shares at values
averaging $.80 per share under the S-8 filing as payment for services rendered
and to be rendered.
During 1998, the Company issued 29,500 shares of common stock at a value of
$1.00 per share to various consultants and professional firms for previous
services rendered.
In July 1998, the Company issued 20,000 shares of common stock at a value
of $.94 per share to a consultant in payment of services rendered.
In August 1998, the Company issued 125,000 shares of common stock to
officers at a value of $1.00 per share in payment of accrued bonuses.
In August 1998, the Company issued 7,000 shares of common stock at a value
of $.86 per share to a consultant in payment of services rendered.
In December 1998, the Company issued 352,575 shares of common stock upon
the conversion of 350 shares of 1997 Series A Preferred Stock.
In December 1998, the Company sold 1,000,000 shares of common stock to
Terra Healthy Living, a principal shareholder, for $250,000 (or $.25 per share)
which was paid by delivery to the Company of marketable Swiss securities. The
Company believes that the price paid for such shares was no less favorable to
the Company than that which would have been paid by an unaffiliated purchaser.
Contribution to Capital
-----------------------
During 1999, a shareholder of Hollywood Partners.com, Inc. contributed
approximately $2 million in cash to Hollywood Partners.com, Inc. Accordingly,
the Company recorded its proportionate share of the contribution as a
contribution to paid in capital Hollywood Partners.com.
NOTE 10 - STOCK OPTIONS
The 1989 Stock Option Plan, as amended (the "Plan") reserved 50,000 shares
of common stock (as adjusted for the reverse split effected in 1996) to grant
either nonqualified or incentive stock options. All directors, officers, key
employees and consultants to the Company or its subsidiaries are eligible under
the terms of the Plan. Such options may not be granted at less than 100% of the
fair market value at the date of grant (110% for an owner of 10% or more of the
outstanding stock). Upon termination of service, the options, which an
individual was entitled to exercise at the date of termination may be exercised
at any time within six months of such termination. If an employee is terminated
with cause, the options are canceled upon termination. As of December 31, 1999,
no options are outstanding under this plan.
In 1995, the Company adopted the 1995 Stock Option Plan (the "1995 Plan")
pursuant to which 2,000,000 shares of Common Stock (as adjusted for the reverse
stock split effected in 1996) were reserved for issuance upon the exercise of
options. The 1995 Plan is similar to the 1989 Plan in many respects and in the
discussion below, each is referred to as a "Plan" and they are collectively
referred to as the "Plans".
F-17
<PAGE>
The Company has also granted stock options outside the Plans to other
individuals, such as employees and consultants, in consideration for services
performed. The options were granted at fair market value and at various terms
and vesting periods. The following table on the next page summarizes all option
activity for the years ended December 31, 1999 and 1998:
Number of Common Stock Options Weighted
1995 Stock Other Stock Average
Option Plan Options Price
----------- ----------- -----
Outstanding as of
January 1, 1998 1,231,708 3,885,982 $ 1.55
Granted and repriced - 6,755,528 .48
Exercised - (239,500) .89
Canceled - (2,328,970) 2.01
----------- ----------- --------
Outstanding as of
December 31, 1998 1,231,708 8,073,040 $ .66
Granted - 8,411,000 .27
Exercised - (3,698,687) .51
Canceled - (1,254,000) .51
----------- ----------- --------
Outstanding as of
December 31, 1999 1,231,708 11,531,353 $ .50
=========== =========== ========
Exercisable as of
December 31, 1999 1,231,708 6,991,867 $ .61
=========== =========== ========
FASB Statement 123, "Accounting for Stock-Based Compensation," requires the
Company to provide pro forma information regarding net income and earnings per
share as if compensation cost for the Company's stock option plans had been
determined in accordance with the fair value based method prescribed in FASB
Statement 123. The Company estimates the fair value of each stock option, using
the Black-Scholes method, at the weighted-average assumption used for grants in
fiscal 1999 and 1998 dividend yield of zero percent; expected volatility of 188
percent and 371 percent, respectively; risk-free interest rate of six and eight
percent, respectively; and an expected life of three to five years.
The weighted average fair value of options granted during 1999 and 1998 was
$.25 and $.41, respectively.
Under the accounting provisions of FASB Statement 123, the Company's net
loss and loss per share for 1999 and 1998 would have been reduced to the pro
forma amounts indicated below:
Net loss 1999 1998
----------------------------------------------------------
As reported $(1,058,591) $(4,887,153)
Pro forma $(1,327,923) $(4,904,346)
Basic loss per share
--------------------
As reported $ (.07) $ (.66)
Pro forma $ (.09) $ (.66)
F-18
<PAGE>
Due to the fact that the Company's stock option programs vest over many
years and additionally awards may be made each year, the above pro forma numbers
are not indicative of the financial impact had the disclosure provisions of FASB
123 been applicable to all years of previous grants. The numbers above do not
include the effect of options granted prior to 1995 that vested in 1996 and
1997.
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options
Outstanding Options Exercisable
-------------------
Number Weighted-Average Number Weighted
Range of Outstanding Remaining Weighted-Average Exercisable Average
Exercisable Prices At 12/31/99 Contractual Life Exercise Price at 12/31/99 Exercise Price
- ------------------ ----------- ---------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.085 - $0.75 9,946,188 2.61 $ 0.22 5,556,702 $ 0.19
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
$ 0.875 - $2.80 2,552,748 1.12 1.04 2,502,748 1.05
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
$ 3.00 - $7.50 232,375 .9 3.62 132,875 3.90
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
$10.00 - $20.00 31,250 7.93 11.76 31,250 11.76
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
Totals 12,763,061 2.36 $ 0.50 8,223,575 $ 0.61
- ------------------=================================================================================
- ---------------------------------------------------------------------------------------------------
</TABLE>
NOTE 11 - COMMITMENTS
Lease Agreement
As of August 1, 1999, the Company entered into a two-year lease agreement
for its office premises. The Company is obligated for a monthly rent of $8,800
through May 31, 2000 and $8,950 per month for the period June 1, 2000 through
May 31, 2001.
Rent expense for the years ended December 31, 1999 and 1998 including
parking, included in selling, general and administrative expenses, was $118,686
and $138,627, respectively.
Employment Agreements
In September 1997, Mr. Beychok, the Company's current Chairman of the
Board, entered into a new employment agreement ("Agreement") with the Company
for three years. Under the Agreement, Mr. Beychok receives an annual base salary
of $150,000 and was granted options for 450,000 shares of stock at an exercise
price of $0.87 per share, all of which are currently vested. In September 1997
Mr. Beychok was given a successful litigation reward of $51,535 plus 100,000
shares of common stock at fair market value of $1.00. In November 1998 the price
of all options other than those related to the private placement were repriced
to $0.10. In August 1999, Mr. Beychok was given a successful litigation reward
of $75,000. In October 1999 Mr. Beychok was granted a new Board of Director
package of an option to purchase 500,000 shares at an exercise price of $.25 per
share, the then fair market value, vesting 166,667 shares on October 22, 1999,
166,667 shares on October 22, 2000 and 166,666
F-19
<PAGE>
shares on October 22, 2001. In October 1999, the Board granted Mr. Beychok an
option for 900,000 shares at an exercise price of $.25 per share, the then fair
market value, vesting 450,000 on October 22, 1999, 225,000 on October 22, 2000,
and 225,000 on October 22, 2001.
In September 1997, Mr. Coppolino, the Company's current President, was
given a successful litigation reward of $25,000, forgiveness of debt of $25,000,
plus 25,000 shares of common stock at $1.00, being the fair market value at the
date of the award. In November 1998 the price of all options were repriced to
$0.10. In August 1999, Mr. Coppolino was given a successful litigation reward of
$50,000. In October 1999, Mr. Coppolino was granted a Board of Director package
of an option to purchase 375,000 shares at an exercise price of $.25 per share,
the then fair market value, vesting 125,000 shares on October 22, 1999, 125,000
shares on October 22, 2000 and 125,000 shares on October 22, 2001. In October
1999, the Board granted Mr. Coppolino an option for 750,000 shares at an
exercise price of $.25 per share, the then fair market value, vesting 375,000 on
October 22, 1999, 187,500 on October 22, 2000, and 187,500 on October 22, 2001.
In December 1999, Mr. Coppolino entered into a new employment agreement
("Agreement") with the Company for three years. Under the Agreement, Mr.
Coppolino receives an annual base salary of $150,000 effective January 2000.
NOTE 12 - MAJOR CUSTOMERS
The Company derived the following revenue from major customers, each of
which provided 10% or more of total revenues during the year ended December 31,
1999 and 1998:
1999 1998
-------- ----------
Wal-Mart $533,620 $ 585,813
Bi-Lo 281,636 -
A-1 International, Inc. 45,820 532,422
-------- ----------
Total $861,076 $1,118,235
======== ==========
NOTE 13 - LITIGATION
The Company is a party to legal proceedings which generally relate to
disputes between the Company and its suppliers or customers regarding payment
for products sold or supplied and are typical for a company of its size and
scope and financial condition. None of these proceedings are believed to be
material to its financial condition or results of operations.
NOTE 14 - RELATED PARTY TRANSACTIONS
The Company has entered into related party transactions during 1999 and
1998. See Notes 6, 7, 9 and 15 for further detailed information.
NOTE 15 - MARKETABLE SECURITIES
The Company owns 2,050 shares of Triple Tree Trust AG, a publicly traded
Swiss corporation (TTT-SW), an affiliate of a related party. The marketable
securities carrying amount and fair market value is $514,150 at December 31,
1999. The Company has recorded no realized or unrealized gain or loss on these
securities.
The carrying amount and fair value of other marketable securities (based on
quoted market prices) available-for-sale at December 31, 1999 amounted to
$22,517.
F-20
<PAGE>
NOTE 16 - LITIGATION RECOVERY, NET OF COSTS
On August 3, 1999, the Company entered into litigation settlement
agreements with Barbara's Bakery, Inc. ("Barbara's Bakery"), New Life Bakery,
Inc. ("New Life"), Gil Pritchard, David Marson, James Marson, and Kim Walters
(collectively the "Defendants") and resolved the Company's disputes with its
insurers over coverage for Defendants' counterclaims against the Company and
Mark Beychok. The lawsuit alleged that Barbara's Bakery had violated the
Federal Lanham Act, and the California Unfair Competition Act, by improperly
marketing toaster pastries, fruit juice sweetened cookies, and fig bars, and
that New Life Bakery had breached an agreement with Auburn Farms, Inc., whose
claims Vitafort purchased in 1996. Barbara's Bakery further agreed to withdraw
from the toaster pastry business by discontinuing its Nature's Choice Toaster
Pastry line by no later than November 30, 1999. Vitafort had secured up to
$800,000 in off balance sheet financing for the litigation against New Life and
Barbara's Bakery, including $600,000 from an investment partnership, Auburn
Farms Vindication Partners, LLC, for the purpose of paying the legal fees and
expenses of the pending litigation. The fee arrangement included a limited,
partial contingency arrangement with the Chicago-based law firm of Jenner &
Block. After paying attorneys' fees and making payments to outside investors
who funded the litigation, the Company has received approximately $1,260,000.
NOTE 17 - FINANCING AGREEMENTS
Effective December 30, 1998, the Company completed the closing under a
series of agreements including a Common Stock Purchase Agreement (the "CSPA"),
dated as of December 30, 1998, by and among the Company; Terra Healthy Living,
Ltd., a B.V.I. corporation ("Terra"); Sovereign Partners Limited Partnership, a
Connecticut limited partnership ("Sov"); and Dominion Capital Fund, Ltd., a
Bahamian corporation ("Dom"). Pursuant to the CSPA and the related documents:
Terra acquired 2,712,843 shares of the Company's common stock from Sov and
Dom for $235,000. Such shares were issued by the Company upon the conversion by
Sov and Dom of an aggregate of 235 shares of the Company's 1997 Series A
Convertible Preferred Stock ("Series A Preferred").
The Company borrowed $2,065,000 from Terra pursuant to a promissory note
with warrant and registration rights (the "Terra Note"). The Terra Note is a
five-year note bearing interest at 6% per annum. Interest on the Terra Note is
payable annually. The Terra Note provides for the issuance to Terra of a five
year warrant (the "Terra Warrant") for the purchase of 500,000 shares of the
Company's common stock at $.25 per share. The Terra Note further provides that
the first year's interest on the Terra Note shall be applied to the partial
exercise of the Terra Warrant.
The Company applied the $2,065,000 proceeds of the Terra Note to redeem all
1,351 remaining shares of Series A Preferred held by Sov and Dom, as well as a
convertible debenture in the amount of $548,352 held by Dom.
The aggregate of $2,300,00 paid by Terra in connection with its purchase of
the 2,712,843 shares of the Company's common stock from Sov and Dom and in
connection with the Terra Note was satisfied through the delivery to Sov and Dom
of marketable securities having a value of $2,300,000. Under the CSPA, Terra
made certain assurances to Sov and Dom and assumed certain obligations to assure
that Sov and Dom would realize $2,300,000 on the sale of the marketable
securities.
The Company borrowed $300,000 from each of Sov and Dom pursuant to a non-
negotiable nine month promissory note bearing interest at 8% per annum (the "Sov
Note" and the "Dom Note"). These notes provide for their repayment, at the
option of the Company, in registered common stock of the
F-21
<PAGE>
Company which shall be valued at the then market for such stock. The Sov Note
and the Dom Note provide for the issuance to each of Sov and Dom of 60,000
warrants which expire on December 31, 2003, half of which are exercisable at
$.40 and half of which are exercisable at $.25. If the Company repays the Sov
Note or the Dom Note with common stock, as provided in such notes, then the
exercise price of the $.25 warrant is reduced to $.01.
The CSPA granted the Company the right to redeem up to 2,000,000 of the
shares of its common stock acquired by Terra through June 30, 2000, based upon a
formula related to the market price of the common stock at the time of the
redemption.
In addition, the Company issued 571,232 shares of its common stock to Sov
in connection with Sov's prior conversion of 40 shares of Series A Preferred
Stock.
NOTE 18 - EXTRAORDINARY ITEM
During the year ended December 31, 1999, the Company renegotiated certain
accounts payable and notes payable resulting in a reduction of the amount due.
The resulting decrease in the amounts due of $242,359, in addition to the
$143,250 gain on extinguishments of debt discussed in Note 6, is reflected as an
extraordinary gain on extinguishments of debt in the year ended December 31,
1999 statement of operations.
F-22
<PAGE>
EXHIBIT 10.87
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement is dated as of October 1, 1999
(the "Effective Date") between, Hollywood Partners.com, Inc., a Delaware
corporation ("HLYP") with its principal place of business at 1800 Avenue of the
Stars, Suite 480, Los Angeles, California 90067 and Vitafort International
Corporation, a Delaware corporation ("Vitafort") with its principal place of
business at 1800 Avenue of the Stars, Suite 480, Los Angeles, California 90067
(the "Parties").
WHEREAS, HLYP and Vitafort desire to enter into this Agreement
pursuant to which HLYP will provide certain facilities and services to Vitafort
subsequent to the Effective Date, and Vitafort will provide certain services to
HLYP after the effective date.
NOW, THEREFORE, in consideration of the mutual promises made herein
and subject to the conditions hereinafter set forth, the parties hereto enter
into this Administrative Services Agreement as follows:
ARTICLE I
FACILITIES
1.1 Office Facilities. HLYP shall permit Vitafort to occupy and use
the office facilities (including, without limitation, furniture, office
supplies, telephones, computer equipment and other office equipment) and office
services at 1800 Avenue of the Stars, Los Angeles, California 90067. These
facilities will be provided to Vitafort per the cost sharing shown at
Schedule A.
1.2 Safety/Security. Vitafort shall, in its use of the facilities,
comply with all reasonable rules and regulations of HLYP, particularly with
respect to safety and security procedures.
ARTICLE II
GENERAL BUSINESS SERVICES
2.1 Data Processing Services.
A. Vitafort shall provide to HLYP all data processing and other computer
services necessary for HLYP to conduct its business. These services shall allow
HLYP to have access to certain hardware and software, at a level of service and
availability (including, without limitation, on-line connection time) to permit
HLYP to continually operate its business. Data processing and other computer
services shall include, without limitation, training, technical support,
computer operators, coordinators, analysts, managers and other personnel
familiar with the use and operation of all computer equipment, maintenance,
information, statements and reports (collectively, the "Data Processing
Services"). These computer services will be provided
1
<PAGE>
to HLYP by Vitafort's vendors. These services will be provided to HLYP per a
cost sharing shown at Schedule A.
B. All records, data files (and the data contained therein), input
materials, software, reports and other materials received, computed, developed,
processed or stored by Vitafort or third parties on behalf of HLYP (the "Data")
pursuant to this Section 1.1 will remain the exclusive property of HLYP, and
Vitafort shall not possess any interest, title or right in connection therewith.
HLYP shall have access to the Data during the term of this Agreement. Upon
termination of the rights and obligations provided pursuant to this Section 1.1,
Vitafort shall deliver or cause to be delivered to HLYP, on or prior to the
termination or expiration of this Agreement, all Data (including all copies
thereof) in the form (either magnetic or paper) requested by HLYP. During the
term of this Agreement, Vitafort shall keep in a separate and safe place at
least one additional copy of all Data required to be maintained including
additional tapes or disks necessary to reproduce all such Data. Vitafort shall
use reasonable care to minimize the likelihood of any damage, loss, delays or
errors resulting from an uncontrollable event and shall use its best efforts to
mitigate the effect of any such occurrence.
ARTICLE III
MANAGEMENT SERVICES
3.1. Accounting and Financial Services. Vitafort will furnish to HLYP
all necessary accounting and financial management services, including (1)
payroll and employee benefits -- maintenance of all payroll and employee benefit
and accounting systems; (2) books and records -- review and assistance in the
maintenance of financial and other books and records, including preparation of
any required federal, state or local governmental reports; (3) general ledger
consolidations; (4) audit -- periodic internal audits; (5) treasury --investment
on behalf of HLYP of excess cash balances of HLYP; and (6) advice and assistance
regarding cash management, bank and custodial accounts and debt and equity
financing. These services will be provided to HLYP per a cost sharing shown at
Schedule A.
3.2. Environmental Services. If required, HLYP will furnish to
Vitafort, as Vitafort may from time to time request, environmental services,
including such services as are necessary or desirable to assist HLYP to meet the
reporting requirements of regulatory agencies, including the preparation,
subject to the approval of HLYP, and submission of all necessary reports. HLYP
shall provide these services at cost to Vitafort.
3.3. Employee and Personnel Services. The parties may from time to
time request, employee and personnel services from the other. These services
will be provide per a cost sharing shown at Schedule A.
3.4. Management Information Services. Vitafort will furnish to HLYP,
as HLYP may from time to time request, management information and other system
services. including computer operations, data input systems and programming and
technical support. These services will be provided to HLYP per a cost a cost
sharing shown at Schedule A.
2
<PAGE>
ARTICLE IV
ADDITIONAL SERVICES, SOFTWARE, EQUIPMENT
4.1 Additional Services. In addition to the specific services and
facilities described above, the parties acknowledge that there may be additional
services and facilities which have not been identified herein but which HLYP or
Vitafort may require after the Effective Date. If any such additional services
or facilities are identified and requested by Vitafort or HLYP, as the case may
be, th eother Party agrees to use reasonable efforts to promptly provide such
services or facilities; provided that nothing shall require the other Party, as
the case may be, to continue the employment of any person or the leasing or
ownership of any real or personal property which it would otherwise not require.
The cost for these services shall be determined in good faith between the
parties.
4.2 Additional Obligations of Vitafort. Vitafort shall provide HLYP
with training and assistance as reasonably necessary to enable HLYP to use the
Data Processing and Communications Services.
4.3 Access. HLYP shall permit Vitafort to enter Vitafort's
facilities to use the facilities and services specified herein .
4.4 Software. Each Party retains ownership of all software products
licensed in its name, or developed for its own use.
ARTICLE V
PAYMENT AND TERM
5.1 Payment. During the term of this Agreement, as soon as
practicable after the closing of each quarter, HLYP and Vitafort shall reconcile
cross-charges based on this Agreement and the percentages set forth in Schedule
A attached hereto. The parties shall determine amounts owed to each other and
the Party owed a net balance shall invoice the other quarterly for said costs
using the form of invoice attached hereto as Schedule B. The Party owing a
balance due shall pay said sum within fifteen (15) days after receipt of the
invoice from the other Party. Notwithstanding anything to the contrary herein,
the parties agree that if conditions of business change during the Term such
that the services or facilities to be provided hereunder require material
alteration or modification, the Parties will negotiate in good faith to adjust
the description of the services, the compensation and/or the Term accordingly.
5.2 Interest. Interest shall accrue on any balances due from one
Party to the other for any payments not made within 15 days per Section 5.1
above. The interest rate to be used in the calculation of interest under this
section shall be 10% per annum. Interest shall be calculated on the basis of a
365/366 day year and shall be paid monthly.
3
<PAGE>
5.3 Term. The term of this Agreement shall be three (3) years
commencing on the Effective Date, subject to the right for either Party to
terminate as set forth below in Section 5.4.
5.4 Termination Either Party may cancel this Agreement upon notice
given to the other Party at least one full reporting quarter in advance of the
date of termination. In addition, either Party may cancel this Agreement if the
other Party, after having been given written notice that it is not complying
with any of the terms of this Agreement, does not come into compliance with such
terms within thirty (30) days of receipt of such notice of noncompliance.
ARTICLE VI
MISCELLANEOUS
6.1 Confidential Information. Each Party shall hold the other
Party's proprietary data and programs in confidence and shall exercise the same
high degree of care for the other Party's proprietary data and programs as it
exercises with its own proprietary data and programs. The Parties shall take
all steps necessary to ensure that all information and records relating to the
business of Vitafort or HLYP are kept secure and strictly confidential by the
other. Notwithstanding the foregoing, the obligations of either Party hereunder
shall not apply to any Confidential Information which: (i) is hereinafter
independently developed by or for such Party and is in no way derived from or
based on the technology of the other Party; (ii) is hereafter disclosed to such
Party on a non-confidential basis by third parties who have the right to so
disclose such Confidential Information; or (iii) is or becomes generally
available to the public unless such public disclosure results from a breach by
such Party hereunder.
6.2 Quality of Services; Liability. The Parties shall use
reasonable efforts to provide the Facility, Data Processing, Communication and
Office Services to the other in accordance with reasonable standards. Each
Party shall indemnify and hold the other Party harmless from and against any
damage, injury, loss, cost or expense incurred by the other Party's employees or
any third Party by reason of the Party's rendering such Services to the other
Party hereunder, unless such damage, injury, loss, cost or expense is caused by
the intentional actions or gross negligence of the Party, its employees or
agents.
6.3 Termination Assistance. Upon termination of this Agreement, the
Parties shall cooperate with one another to maintain an orderly transfer of
functions and shall provide all necessary staff, services and assistance for an
orderly transfer, provided that each Party pays all reasonable costs and
expenses of any transfer of its own property in connection therewith.
6.4 Modification; Waiver; Severability. This Agreement may not be
modified except in a writing executed by each of the parties to this Agreement.
The failure by any Party to exercise or a delay in exercising any right provided
for herein shall not be deemed a
4
<PAGE>
waiver of any right hereunder. If any provision of this Agreement is held
invalid or otherwise unenforceable, the enforceability of the remaining
provisions shall not be impaired thereby.
6.5 Remedies. All remedies set forth in this Agreement shall be
cumulative and in addition to and not in lieu of any other remedies available to
either Party at law, in equity or otherwise, and may be enforced concurrently or
from time to time.
6.6 Notices. All notices, requests and other communications
hereunder shall be in writing and shall be deemed to have been duly given at the
time of receipt if delivered by hand or communicated by electronic transmission,
or, if mailed, three (3) days after mailing registered or certified mail, return
receipt requested, with postage prepaid to the persons and at the addresses set
forth herein; provided, however, if either Party shall have designated a
different address by notice to the other, as provided above, then to the last
address so designated.
6.7 Non-Assignability. This Agreement shall not be assignable by
either of the parties hereto without the written consent of the other.
6.8 Non-Exclusivity. This Agreement is not an exclusive arrangement.
The Parties may provide to others services similar to the Services provided to
the other Party hereunder. Either Party may obtain from other providers
services similar to the Services provided hereunder.
6.9 Other. This Agreement contains the entire agreement of the
parties with reference to the subject matter hereof. This Agreement shall be
construed in accordance with the laws of the State of California. This
Agreement shall be binding upon and inure to the benefit of the successors of
each of the parties.
In witness whereof the parties agree to the above stated.
Hollywood Partners.com, Inc. Vitafort International Corporation
/s/ Lee M. Lambert /s/ John Coppolino
------------------- -------------------
By: Lee M. Lambert By: John Coppolino
President and CEO President
5
<PAGE>
Schedule A
Fourth Quarter Allocation Schedule
<TABLE>
<CAPTION>
Vitafort Allocation HLYP Allocation
<S> <C> <C>
Facilities
Office Facilities 60% 40%
Parking & Auto Expense 50% 50%
Repairs & Maintenance 50% 50%
General Business Services
Data Processing 50% 50%
ADP 50% 50%
Personnel Services
Executive and Staff Services See Attached See Attached
Additional Expenses
Equipment Rental & Lease 50% 50%
Office Supplies 50% 50%
Postage & Delivery 50% 50%
</TABLE>
* This schedule will be adjusted on a quarterly basis so as to most accurately
reflect the cost that should be attributed to the respective companies.
6
<PAGE>
<TABLE>
<CAPTION>
Vitafort/Visionary Brands
Employee Expenses 2000 Total Allocation Allocation
% Amount
<S> <C> <C> <C> <C>
Beychok, Mark 40.00% 0.00
Coppolino, John 25.00% 0.00
Rigaud, Fred 40.00% 0.00
Aguilar, Miguel 50.00% 0.00
Broadbent, Valerie 40.00% 0.00
Clancy, Jere 40.00% 0.00
Himes, Keith 0.00% 0.00
McKendry, Steve 0.00% 0.00
Sub Total
Chinn, Lisa 75.00% 0.00
Marchand, Yolande 40.00% 0.00
0.00
</TABLE>
<PAGE>
EXHIBIT 10.88
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT ("Agreement"), is made and entered into as of
October 1, 1999 ("Effective Date") by and between HOLLYWOOD PARTNERS.COM, INC.,
a Delaware corporation ("Company"), and VITAFORT INTERNATIONAL CORPORATION, a
Delaware corporation ("Distributor").
RECITAL
WHEREAS, Company desires to engage Distributor to perform certain sales,
marketing, promotion and distribution services for it, and Distributor desires,
subject to the terms and conditions of this Agreement, to perform these services
for the Company, the parties hereto agree as follows:
1. ENGAGEMENT.
----------
Company hereby grants the Distributor the exclusive worldwide rights to
promote, distribute and market the products on Exhibit A to all classes of
trade. The Distributor hereby accepts the appointment and agrees to use its
best efforts to promote, distribute and sell the Company's products in a manner
so as to promote and enhance the reputation and goodwill of the Company and its
products.
2. TERM.
----
The term of this Agreement shall be October 1, 1999 through October 1, 2003
unless terminated or extended in accordance with provisions of this Agreement.
3. COMPANY COMPENSATION.
--------------------
In consideration for the distribution rights of the Company's products, the
Distributor will pay the Company a ten percent (10%) royalty fee against net
sales.
4. PAYMENT OF COMPENSATION.
-----------------------
Distributor shall pay amounts due to Company within thirty (30) days after
the end of the calendar quarter, together with an accounting showing the
calculation of the amount due to Company by product and by customer. The
accounting shall be certified by the principal accounting officer of
Distributor.
5. RIGHT TO AUDIT.
--------------
Company shall have the right to audit the amount due from Distributor to
Company on a once per year basis. Distributor agrees to cooperate with any audit
request from Company, and make
Page 1 of 7
<PAGE>
available personnel and records on a timely basis. If the audit results in
amounts due to the Company in excess of $10,000, Distributor shall pay the
reasonable costs of the audit to Distributor.
6. COMPANY OBLIGATION.
------------------
It is the responsibility of the Company to pay all product license fees to
the appropriate entities according to the respective licensing agreements. The
company is also responsible for all costs associated with the development of the
finished product ("Exhibit B-Product Development"). Company represents that it
has all rights necessary for Distributor to market the products, and that the
products do not infringe on the rights of others.
7. DISTRIBUTOR OBLIGATIONS.
------------------------
The Distributor agrees to use its best efforts, including but not limited
to, the use of advertising, direct mail, or similar activities, to promote and
sell the Company's products. The Distributor also agrees to maintain a work
force and staff sufficient to perform the duties necessary to distribute, market
and promote the Company's products on an on-going basis.
8. NON-COMPETITION.
---------------
The Distributor shall not engage in the manufacture, promotion, sale,
distribution or servicing, either directly or indirectly, of any product similar
or competitive with the products during the term of this Agreement.
9. CONFIDENTIALITY
---------------
Distributor recognizes that during the course of Distributor's activities
on behalf of the Company, they will accumulate certain proprietary and
confidential information and trade secrets used in the Company's business and
will have divulged to them certain confidential and proprietary information and
trade secrets about the business, operations and prospects of the Company, which
constitute valuable business assets of the Company. Distributor hereby
acknowledges and agrees that such information, except for information which is
in the public domain prior to Distributor's receipt thereof, or which
subsequently becomes part of the public domain other than by Distributor's
breach of a confidentiality obligation, or which Distributor can clearly
demonstrate was in his possession prior to receipt thereof from the Company and
was developed by Distributor or received by Distributor from a third-party
without breach of such third-parties confidentiality obligations with respect
thereto ("Proprietary Information") is confidential and proprietary and
constitutes trade secret information and the Proprietary Information belongs to
the Company
10. TERMINATION
-----------
This Agreement may be terminated on the occurrence of any one of the
following events:
10.1 The expiration of the Term hereof;
10.2 By the Company "with cause," effective upon delivery of written
notice to
Page 2 of 7
<PAGE>
Distributor given at any time (without any necessity for prior notice) if any of
the following shall occur:
(a) A material breach of this Agreement by Distributor, which breach
has not been cured within thirty (30) days after a written demand for such
performance is delivered to Distributor by the Company that specifically
identifies the manner in which the Company believes that Distributor has
breached this Agreement;
(b) Any material act or event, which inhibit Distributor from fully
performing their responsibilities to the Company in good faith, such as
bankruptcy.
(c) Failure to meet sales quotas by Distributor for any product will
give Company the right to terminate Distributor's rights to distribute that
product provided that Company notifies Distributor through ninety (90) days
advance written notice.
11. SALES QUOTAS
------------
The Distributor and the Company will work in good faith to establish sales
quota's for the Company for all new products developed by the Company including,
but not limited to the Gravity Bar.
The distributor and the Company will work together in good faith to
establish reasonable and customary sales quotas for all products on Exhibit A.
12. GENERAL PROVISIONS.
------------------
12.1 Governing Law and Jurisdiction. This Agreement shall be governed by
------------------------------
and interpreted in accordance with the laws of the State of California. Each of
the Parties hereto consents to such jurisdiction for the enforcement of this
Agreement and matters pertaining to the transaction and activities contemplated
hereby.
12.2 Attorneys' Fees. In the event a dispute arises with respect to this
---------------
Agreement, the party prevailing in such dispute shall be entitled to recover all
expenses, including, without limitation, reasonable attorneys' fees and expenses
incurred in ascertaining such party's rights, in preparing to enforce or in
enforcing such party's rights under this Agreement, whether or not it was
necessary for such party to institute suit.
12.3 Complete Agreement. This Agreement supersedes any and all of the
------------------
other agreements, either oral or in writing, between the Parties with respect to
the subject matter hereof and contains all of the covenants and agreements
between the Parties with respect to such subject matter in any manner
whatsoever. Each Party to this Agreement acknowledges that no representations,
inducements, promises or agreements, oral or otherwise, have been made by any
Party, or anyone herein, and that no other agreement, statement or promise not
contained in this Agreement shall be valid or binding. This Agreement may be
changed or amended only by an amendment in writing signed by all of the Parties
or their respective successors-in-interest.
12.4 Binding. This Agreement shall be binding upon and inure to the
-------
benefit of the successors-in-interest, assigns and personal representatives of
the respective Parties.
12.5 Notices. All notices and other communications provided for or
-------
permitted hereunder
Page 3 of 7
<PAGE>
shall be made by hand delivery, first class mail, telex or telecopied, addressed
as follows:
Party: Company: Hollywood Partners.com, Inc.
- ----- 1800 Avenue of the Stars, Suite 480
Los Angeles, CA 90067
Attention: Lee M. Lambert, President
Distributor: Vitafort International Corporation
1800 Avenue of the Stars
Suite 480
Los Angles, CA 90067
Attention: John Coppolino, President
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five (5) business days
after deposit in any United States Post Office in the continental United States,
postage prepaid, if mailed; when answered back, if telexed; and when receipt is
acknowledged or confirmed, if telecopied.
12.6 Unenforceable Terms. Any provision hereof prohibited by law or
-------------------
unenforceable under the law of any jurisdiction in which such provision is
applicable shall as to such jurisdiction only be ineffective without affecting
any other provision of this Agreement. To the full extent, however, that such
applicable law may be waived to the end that this Agreement be deemed to be a
valid and binding agreement enforceable in accordance with its terms, the
Parties hereto hereby waive such applicable law knowingly and understanding the
effect of such waiver.
12.7 Execution in Counterparts. This Agreement may be executed in several
-------------------------
counterparts and when so executed shall constitute one agreement binding on all
the Parties, notwithstanding that all the Parties are not signatory to the
original and same counterpart.
12.8 Further Assurance. From time to time each Party will execute and
-----------------
deliver such further instruments and will take such other action as any other
Party may reasonably request in order to discharge and perform their obligations
and agreements hereunder and to give effect to the intentions expressed in this
Agreement.
12.9 Incorporation by Reference. All exhibits referred to in this
--------------------------
Agreement are incorporated herein in their entirety by such reference.
12.10 Miscellaneous Provisions. The various headings and numbers herein
------------------------
and the grouping of provisions of this Agreement into separate articles and
paragraphs are for the purpose of convenience only and shall not be considered a
party hereof. The language in all parts of this Agreement shall in all cases be
construed in accordance with its fair meaning as if prepared by all Parties to
the Agreement and not strictly for or against any of the Parties.
13. INDEMNIFICATION.
---------------
Page 4 of 7
<PAGE>
Both Parties shall indemnify, defend and hold the other Party harmless
against any and all claims, loss, cost, liability, or expense (including,
without limitation, reasonable attorneys' fees and costs) incurred, sustained
and/or paid by either Party arising out of (i) any breach by either Party of any
of its representations, warranties or covenants made under or in connection with
this Agreement, or (ii) the gross negligence or willful misconduct of either
Party in its performance under this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the day and year first above written.
"COMPANY" "DISTRIBUTOR"
Hollywood Partners.com, Inc. Vitafort International Corporation
By: /s/ Lee M. Lambert /s/ John Coppolino
-------------------------- -----------------------------
Lee M. Lambert John Coppolino
President President
Page 5 of 7
<PAGE>
EXHIBIT A
PRODUCT LIST
The Wizard of Oz Marshmallows
The Wizard of Oz Collectors Tins
Gravity Games Energy Bars
Page 6 of 7
<PAGE>
EXHIBIT B
PRODUCT DEVELOPMENT
Including, but not limited to:
Research and development
Product sourcing
Raw material sourcing
Packaging sourcing
Artwork development
Packaging development
Page 7 of 7
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
Vitafort International Corporation
Los Angeles, California
We consent to the incorporation by reference in the Registration Statement on
Form S-8 No. 33-300435, No. 33-307989, No. 33-317763, N. 33-331479, No. 33-
335067 and No. 333-56043 of Vitafort International Corporation of our report
dated April 10, 2000 relating to the consolidated balance sheet of Vitafort
International Corporation and subsidiaries as of December 31, 1999, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the year then ended, which report appears in the December 31,
1999, annual report on Form 10-KSB/A of Vitafort International Corporation and
Subsidiaries.
BDO Seidman, LLP
Los Angeles, California
April 10, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,119,153
<SECURITIES> 536,667
<RECEIVABLES> 139,137
<ALLOWANCES> 63,782
<INVENTORY> 585,407
<CURRENT-ASSETS> 676,753
<PP&E> 486,261
<DEPRECIATION> 305,434
<TOTAL-ASSETS> 3,950,188
<CURRENT-LIABILITIES> 1,698,242
<BONDS> 0
0
11
<COMMON> 1,749
<OTHER-SE> 1,569,705
<TOTAL-LIABILITY-AND-EQUITY> 3,950,189
<SALES> 2,451,531
<TOTAL-REVENUES> 2,451,531
<CGS> 1,911,676
<TOTAL-COSTS> 1,911,676
<OTHER-EXPENSES> 4,834,124
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 366,609
<INCOME-PRETAX> (1,440,666)
<INCOME-TAX> 3,534
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 385,609
<CHANGES> 0
<NET-INCOME> (1,058,591)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
