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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
- ----- 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. 000-24755
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HOLLYWOOD PARTNERS.COM, INC.
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(Name of Small Business Issuer in its Charter)
Delaware 33-0379106
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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) 552-0555
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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 $.001
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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
----- -----
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-K or any
amendment to this form 10-K. X
-
State issuer's revenues for its most recent fiscal year: $981,518.
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 March 28, 2000
was $0.00.
The number of shares outstanding of the issuer's common stock as of March 28,
2000 was 8,036,000.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
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PART I
ITEM 1. BUSINESS
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. See also the
information set forth in Exhibit 99.1 on our Form 8-K dated January 21, 2000
titled "RISK FACTORS," incorporated herein to this annual report.
OVERVIEW
THE COMPANY
Hollywood Partners.com (the "Company") is a marketing and promotions company
building a family of content, community and commerce opportunities offered to
Website visitors. Using entertainment-themed Websites, we present both
proprietary and sourced content to build relationships with Website visitors and
to collect their demographic and lifestyle information. We expect to obtain
revenues from many sources including sweepstakes sponsorships, Website
sponsorships and allowing access to our registered users ("Members") who have
given permission for us to send them offers from marketing partners.
Prior to September 13, 1999, the Company's operations were conducted through
Hollywood Partners, Inc., a California Corporation incorporated on August 7,
1995, and a wholly-owned subsidiary of Vitafort International Corporation.
The Company was engaged primarily in the business of designing, manufacturing
and distributing food products based upon brands licensed from third parties,
such as Jurassic Park: The Lost World(TM) and The Wizard of Oz(TM). Effective
September 13, 1999, pursuant to a Share Exchange and Reorganization Agreement,
Hollywood Partners.com, Inc., a Delaware corporation incorporated August 31,
1989 and formerly known as Guideline Capital, Inc., ("Holding Company") acquired
all of the issued and outstanding shares of Hollywood Partners, Inc., a
California corporation ("Operating Company"). In consideration of the shares of
Operating Company, Holding Company issued an aggregate of 5,000,000 shares of
its common stock to Vitafort International Corporation, a publicly traded
Delaware corporation ("Vitafort"). Operating Company is now a wholly owned
subsidiary of Holding Company and Vitafort is the majority stockholder of
Holding Company,
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holding 52.02% of Holding Company's issued and outstanding common stock. In
connection with the transaction, Holding Company also changed its name to
"Hollywood Partners.com, Inc."
Following the transaction, we appointed a new President and CEO of the Company
and implemented a new strategy designed to leverage our experience and
connections with the entertainment industry to offer marketing and promotions
services on the Internet. In late September 1999, we launched our initial
Website at www.hollywoodpartners.com. This Website has been used to post and
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manage a 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 year
2000, we will re-launch our 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 hollywoodpartners.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 we believe
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 we provide on this Website are aimed to both entertain and
inform the visitor about the entertainment industry, how it works and why.
As part of our mission, we also strive to be a socially responsible company. In
our normal course of business, we attempt to integrate environmental
organizations and charitable causes into our content. For example,
PlanetFree.com will contain links to environmental organizations and many of our
sweepstakes are expected to have tie-ins to charities. We promote support of
charities and encourage co-sponsorship of charities as a part of our regular
sales program.
We intend to use the Hollywood Partners.com brand as an "umbrella" to build,
partner or acquire additional complementary Websites that offer unique content
for our visitors. As this group of associated Websites builds, we plan to
increase the relationship we have with our visitors and increase our ability to
effectively conduct direct marketing activities with them.
Revenues to date have been minimal for the Company's new business model. To
date, we have used our Website as a demonstration to prove our capabilities to
successfully conduct sweepstakes promotions, to collect registration information
from our visitors and to refer visitors to information or e-commerce
opportunities. Companies we have worked with or who have committed to working
with us 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.
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INDUSTRY BACKGROUND
The Internet has emerged as a powerful and efficient means of exchanging
information, enhancing capabilities to provide information and to conduct
commerce for many businesses. International Data Corporation ("IDC") estimates
that the number of people who use the Internet will grow from approximately 160
million worldwide in 1998 to over 500 million by the end of 2003, compound
average annual growth rate of 26%
Online commerce is anticipated to increase at a more rapid rate of growth than
the rate of growth of the user base. IDC estimates that online commerce will
increase from $50 billion worldwide in 1998 to approximately $1.3 trillion
worldwide in 2003, a compound average annual growth rate of 92%.
The rapid anticipated growth of the consumer base and even more rapid growth of
the online spending of this user base has in turn greatly increased the
expenditures for advertising and marketing to these consumers.
According to Forrester Research, Inc. ("Forrester"), online promotions generate
three to five times the response rates of traditional promotions. Forrester also
reports that 88% of retailers and marketers surveyed found that online
promotional efforts have met or exceeded their expectations and 80% of those
surveyed planned to increase their online promotional spending in the next year.
Based on this survey, Forrester estimates that 50% to 70% of total Internet
marketing budgets will be spent on promotions over the next five years, compared
to less than 15% of Internet marketing budgets currently being spent on
promotions.
Forrester research estimates that expenditures for Internet advertising,
inclusive of both brand advertising and direct marketing expenditures, were
approximately $3.3 billion in 1999, with growth to approximately $33.1 billion
in 2004, a compound annual growth rate of 59%.
Direct marketing involves any direct communication to a consumer that is
designed to generate a response in the form of an order, a request for further
information or a visit to a place of business. Direct marketing allows
marketers to reach targeted audiences and to quantify and measure the
effectiveness of their campaigns and advertising spending. The direct marketing
industry is large and growing. According to the Direct Marketing Association,
in 1998 businesses spent an estimated $81.4 billion marketing directly to
consumers through direct mail, telemarketing and direct response advertising in
both online and off-line media.
However, the traditional direct marketers' targeting process is inefficient
because marketers lack specific information about a consumer's immediate
interests and needs. As a result, the majority of direct mail is discarded and
the majority of telemarketing calls are terminated quickly or ignored. Although
a direct mail campaign is often considered successful if it reaches 1-2% of the
population targeted, there is substantial waste from energy used to transport
the offer, and waste from paper that must be sent to a landfill or recycled.
With a television or radio campaign, most messages are not relevant to the
consumers who must hear them as a cost of viewing or listening.
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We believe the Internet is a superior solution for direct marketing because it
can be used to create an interactive environment between the consumer and the
marketer. For example, online marketers can measure the response rate of a
promotion by sending out several sample test promotions with variable prices,
graphics and text to small groups of consumers. Based on the responses to a
sample, an online promotion can be modified quickly for much less than the cost
to modify a printed promotion. In addition, online direct marketing allows
marketers to more effectively:
. Develop one-to-one relationships with consumers
. Interact real-time with consumers
. Collect data and feedback on marketing campaigns
. Customize marketing campaigns to broad audiences or specific groups
Database capture and analysis technologies enhance greatly the effectiveness of
Internet promotions. Tools are available that allow visitors to be tracked and
a record made of their specified and implied behavior over time. This is
invaluable to a marketer who is seeking to maximize the effectiveness of a
dollar spent to promote product or service offering.
COMPANY ACTIVITIES
Hollywood Partners.com is building a family of Websites offering content,
community and commerce. Our second quarter 2000 launch of PlanetFree.com and
BigTimeHollywood.com will be the first Internet Website offerings of many we
plan to offer to our visitors under a broad entertainment theme.
Management believes that visitors and registered users, who we call "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 our 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.
We plan 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, we intend to extend this registration system
to include the new Websites. We believe a universal registration system will
increase the ease of use for our Members across our Websites and increase our
overall traffic for our family of Websites.
We are a "permission" marketer - our Members do not receive any announcements or
offers unless they have given us permission. We maintain a strict privacy policy
which provides
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that all personal information provided to us remains confidential unless we are
authorized to provide it to a third party.
Management believes that marketers may benefit from using our "permissioned"
access to our registered Members to acquire customers more efficiently than
through other means of direct marketing. Since many of our registered Members
have provided information regarding their interests and demographic profile,
marketers can target subgroups of our registered users where they believe they
will have the highest rates of success. Further, we are able to offer fee
structures to marketers for access to our Members based upon the results
achieved for the marketer, thereby minimizing the risk to use our 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.
SWEEPSTAKES ACTIVITIES
Our PlanetFree.com Website is planned to have neither banner ads nor any other
form of advertisement other than display of our brands. On PlanetFree.com, we
provide 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.
We also provide 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. We believe 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 our
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.
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 GiftCertificates.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 Publishing, this
sweepstakes offered prizes and offers for free magazine subscriptions.
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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. Our registration process has a
mandatory information section, an optional information section and "opt-in"
questions regarding the Member's permission to send additional information. The
mandatory information includes 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.
Our 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, we have managed fulfillment to winners either in-house or through prize
sponsors who send the prizes directly to the winners.
We offer a full range of sweepstakes management services for our PlanetFree.com
sweepstakes sponsors to manage the technology and creative processes for both
online and for in-store promotions. Our 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 our registered user database grows, we plan to add significant capabilities
so as to market opportunities to companies that desire to market to the Members
in our permissioned database. We 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.
Basic operations of PlanetFree.com will remain similar to the prior sweepstakes
Website hosted as HollywoodPartners.com. We intend, however, to increase
significantly the quality of design, the number, the depth and the breadth of
our 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
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Also during the second quarter, we will launch BigTime, our 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
Our goal is to become a preeminent entertainment-themed family of Websites on
the Internet, using our Hollywood-oriented entertainment theme to combine
content, community and commerce attributes to create an attractive destination
for visitors. We believe the combination of content and sweepstakes promotions,
combined with our Website promotion activities, will generate high interest from
Internet users. Through this family of Websites, we intend 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 we will be able to form a relationship
whereby our 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.
Our plan is designed to develop multiple sources of revenue for the Company in a
phased approach. We believe 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.
We anticipate 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 our
Members
. E-commerce opportunities offered directly from a store or other area on
one or more of our 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
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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.
We also anticipate receiving a small amount of revenue from the sale of licensed
food products. We currently have products in distribution through our majority
owner from our 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, Publishing. We earn royalties from these products but we
do not engage in any manufacturing or distribution activities, nor do we carry
any inventories.
MARKETING
The Company's marketing efforts are directed to both Website visitors and
potential promotion sponsors.
We intend to implement a number of measures to drive additional visitors to our
Websites and to increase the time spent on our Websites by each visitor. To
attract new visitors, we 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, we send emails to Members who have given their
permission for us to send updates to them of new contests, features and
opportunities.
We have also tied in our Hollywood Partners.com brand in a number of promotions
that have been intended to maximize impressions at a minimum of cost. We have
designed and implemented promotions such as inclusion of our 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. We also are planning
promotions that include in-store campaigns in addition to the Internet
sweepstakes. These sweepstakes have the capability to place our brand in front
of millions of people in thousands of stores.
We have implemented a sales program to national and regional retailers and
manufacturers, and intend to add significantly to our sales force. In
addition, further sponsorship opportunities will be available for advertising on
our BigTimeHollywood.com Website, which we believe will be appealing to
companies seeking branding or referrals from an entertainment-related Website.
We believe it is critical to keep improving and expanding our offerings in order
to retain our current traffic and to attract new visitors. For example, after
the launch of PlanetFree.com, we intend to improve the number of sweepstakes and
the dollar value of the prizes offered. After the launch of
BigTimeHollywood.com, we intend to expand the content offered and continuously
research and focus to the areas of greatest interest to our Members.
We also intend to increase the depth and the breadth of our offerings through
the addition of Websites consistent with our brand and visitor strategies.
These additions may be made through
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our 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
We sell our sweepstakes services through direct sales, managed by our own
employees and in conjunction with consultants retained to extend our range of
contacts. We typically target our sales efforts at senior marketing executives
within a major retailer or manufacturer. In a typical sales process, we 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. We then present and propose sweepstakes promotions to them
according to their preferences.
Customer service after the sale is a critical factor in our 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
We currently outsource our Website design, computer programming efforts and
hosting requirements. We have primarily used two design and programming
companies as contractors. To date, we believe the quality and timeliness of
these services has been satisfactory.
For our initial HollywoodPartners.com sweepstakes Website, we have 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 our requirements. With the launch of our new Websites,
PlanetFree.com and BigTimeHollywood.com, we are 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. We plan to
increase our research and development expenditures to build our in-house
technology staff, to expand our service capacity and to increase our
capabilities to offer additional services to our 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.
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We also compete 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
We protect our technology and proprietary rights through a combination of
copyright, trade secret and trademark law. We have filed for a number of
trademarks and service marks, including pending registrations for the Hollywood
Partners, Planetfree and BigTime trademarks in the United States. Our trademark
registration applications may not be approved.
We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and generally control access to
and distribution of our technologies, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights from
unauthorized use or disclosure, parties may attempt to disclose, obtain or use
our proprietary rights. We cannot be certain that the steps we have taken will
prevent misappropriation of our proprietary rights, particularly in foreign
countries where the laws or law enforcement may not protect our proprietary
rights as fully as in the United States.
Our technology collects and utilizes data derived from user activity on the
HollywoodPartners.com Website, and we expect to continue to use this and
successor versions of our technology to collect similar information from our
future Websites. Although we believe that we have 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 we use to collect this
information, or the technology we use to use this information to create
offerings for our clients.
GOVERNMENT REGULATION
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Laws and regulations that apply to Internet communications, commerce and
advertising are becoming more prevalent. The adoption of such laws could create
uncertainty in Internet usage and reduce the demand for all products and
services offered on the Internet. Recently, Congress enacted legislation
regarding children's privacy on the Internet. It is possible that additional
laws and regulations may be proposed or adopted with respect to the Internet,
covering issues such as user privacy, taxation, advertising, intellectual
property rights and information security. Several states have proposed
legislation to limit the use of personal user information gathered online or to
require online services to establish privacy policies. The Federal Trade
Commission has initiated action against at least one online service regarding
the manner in which personal information was collected from users and provided
to third parties.
Legislation has recently been enacted in several states relating to sending
unsolicited emails, a practice commonly referred to as "spamming." The federal
government and several other states, including New York, are considering, or
have considered, similar legislation. Although the provisions of these current
and contemplated laws vary, generally they limit or prohibit both the
transmission of unsolicited emails and the use of familiar spamming techniques,
such as the use of forged or fraudulent routing and header information. Some
states, including California, require that unsolicited emails include opt-out
instructions and that senders of such emails honor any opt-out requests. We
believe that our practices will not be affected by legislation directed at
unsolicited emails because we do not send unsolicited messages and because our
current practices are intended to comply with current and proposed legislation.
However, if we are required to change our business practices as a result of new
legislation, our business could suffer.
We do not know how our business may be affected by the application to the
Internet of existing laws governing issues such as property ownership,
copyrights, encryption and other intellectual property issues, taxation, libel,
obscenity and export or import matters. Most of these laws were adopted before
the advent of the Internet and do not contemplate or address the unique issues
of the Internet and related technologies. Changes in laws intended to address
such issues could create uncertainty in the Internet marketplace. That
uncertainty could reduce demand for our service or increase the cost of doing
business as a result of litigation costs or increased service delivery costs.
In addition, because our services are available on the Internet in multiple
states and foreign countries, these states and countries may claim that we are
required to qualify to do business in their jurisdictions. Our failure to
qualify in other jurisdictions where we are required to do so could subject us
to taxes and penalties. It could also restrict our ability to enforce contracts
in those jurisdictions. The application of laws or regulations from
jurisdictions whose laws do not currently apply to our business could have a
material adverse effect on our business, results of operations and financial
condition.
The European Union has adopted a privacy directive that went into effect in
1998. Under this directive, business entities domiciled in member states of the
EU are limited with respect to the transactions in which they may engage with
business entities domiciled outside the EU, unless the non-EU entities are
domiciled in jurisdictions with privacy laws comparable to the EU privacy
directive. The United States presently does not have laws that satisfy the EU
privacy
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directive. If we do business directly in the EU in the future, we will be
required to comply with the EU privacy directive.
CUSTOMER DEPENDENCE
For the year ended December 31, 1999, three customers accounted for 53.1% of
sales.
EMPLOYEES
As of December 31, 1999, we had a total dedicated staff of four full-time
employees. We had additional shared resources of another five employees with
our majority owner in the areas of finance, business development and
administration. In year 2000 to date, we have begun aggressively staffing to
increase our activity levels, particularly in the area of consultants who are
assisting the Company in writing, web design, computer programming, basic
research and other areas.
ITEM 2. FACILITIES
We lease a total of 4,759 square feet for our headquarter offices at 1800 Avenue
of the Stars in Los Angeles. This space is leased at a current monthly rental
cost of $8,800 per month. In addition, we lease a total of 516 square feet of
storage space at our headquarter offices at a current monthly rental cost of
$706 per month. Our majority shareholder subleases a portion of this space from
us at a rate of $4,753 per month.
We plan to increase our staff significantly in the near future, and our current
space will not be sufficient to house our planned personnel. While we believe
we will be able to locate sufficient additional space in a reasonable time frame
and at a reasonable cost for this expansion, there is no guarantee that we will
be able to accomplish this in a timely manner and at a reasonable cost. If we
are not able to achieve our expansion according to our time and pricing
expectations, our business may be disrupted and our results may be impacted.
ITEM 3. LEGAL PROCEEDINGS
Hollywood Partners.com, Inc. is not currently a party to any material legal
proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders during the fourth
quarter of 1999.
13
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on NASD Electronic Bulletin Board under the
symbol HLYP. Trading of the Company's common stock commenced on March 2, 2000.
The following table represents the high and low sales prices of shares of common
stock since opening of trading, as reported by Bloomberg. The quotations
represent inter-dealer quotations without adjustment for retail mark-ups,
mark-downs or commissions and may not represent actual transactions.
Year 2000 HIGH LOW
First Quarter from March 2 through March 28, 2000: $7.25 $5.00
As of March 27, 2000, there were 61 shareholders of record of the Company's
common stock.
The Company has never declared dividends or paid any cash dividends on its
capital stock. The Company currently intends to retain all future earnings, if
any, for use in the operation and development of its business and, therefore,
does not expect to declare or pay any cash dividends on its Common Stock in the
foreseeable future.
In December 1999, the Company sold 600 shares of convertible preferred stock to
Triple Tree, an affiliate of Terra Listed, Ltd., a related party, for $300,000.
The convertible preferred shares have a 7% cumulative dividend and are
convertible into common shares at $4.00 per share for one year after issuance at
the holder's discretion or at the Company's discretion if the Company's common
stock is trading at $6.00 per share for five consecutive days.
14
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION
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 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. See also the information set forth in Exhibit 99.1 on our Form
8-K dated January 21, 2000 titled "RISK FACTORS," incorporated herein to this
annual report.
YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------
RESULTS OF OPERATIONS
The Company
The Company's strategy was changed substantially in the fourth quarter of 1999
as the Company moved its focus to a new strategy to develop its marketing and
promotions business on the Internet. Prior to the fourth quarter of 1999, the
Company's primary activities were to license brands from third parties, and to
design, manufacture and distribute products based on these licenses into grocery
and mass merchandise channels. Beginning in the fourth quarter of 1999, the
Company ended substantially all of the prior business activities and began
implementation of changes to the business, including sale of all food
inventories to Vitafort and ending all manufacturing and distribution business
activities.
Due to this change in strategy and the transition of the business model, the
Company's revenues have dropped significantly. The combination of lower revenues
and increased expenses to launch the new business strategy has increased net
loss. The Company anticipates that losses will continue for at least the first
half of year 2000, and possibly beyond. Net losses are expected to increase as
the Company invests resources to build the new business model.
The Company continues to be a licensee of certain food products, most
significantly the Gravity Games Bar licensed from eMap USA and The Wizard of Oz
line of marshmallows. The Company granted all distribution of these products to
Vitafort as Master Distributor for these products in exchange for a royalty
based upon net sales of these products. As Master Distributor, Vitafort is
responsible for all manufacturing and distribution expenses, including the
building and maintaining of inventory, billings
15
<PAGE>
and collections and working capital requirements. The Company remains
responsible to the Licensor for certain minimum payments under the licenses held
and for other contractual obligations. The Company operates in one segment.
Net Revenues
Net revenues decreased $830,143 from $1,811,661 for the year ended December
31,1998 to $981,518 for the year ended December 31, 1999, a decrease of 46%.
The decrease was caused substantially from the absence of product sales in the
fourth quarter 1999, compared with $1.1 million in net sales in the fourth
quarter 1998, when the Company introduced its line of The Wizard of Oz(TM)
Lollipops and Gummy Friends in a collector tin container. The absence of product
sales in the fourth quarter of 1999 was due to the change in business strategy
to exit the manufacturing and distribution of licensed food products.
Royalties from sales of The Wizard of Oz(TM) products were $30,956 in the fourth
quarter of 1999, versus no royalty sales in the fourth quarter of 1998. The
difference is due to a shift of the business strategy to a royalty sales model
for licensed products.
Gross Profit
Gross profit decreased $601,545 from $982,395 for the year ended December 31,
1998 to $380,850 for the year ended December 31, 1999, a decrease of 61%. The
decrease in gross profit was caused primarily by lower product revenues and by
reduced margins due to an unfavorable mixed of product sales before the change
in business strategy.
Operating Expenses
Research and Development
Total expenses for research and development decreased from $204,557 for the year
ended December 31, 1998 to $63,073 in the year ended December 31, 1999, a
decrease of $141,484 or 69%. The reduction was primarily due to the Company's
decision in 1999 to close its research and development department and utilize
the research and development capacity of its manufacturers.
Sales and Marketing
Total expenses for sales and marketing increased from $541,984 for the year
ended December 31, 1998 to $716,535 for the year ended December 31, 1999, an
increase of $174,551 or 32%. This increase was substantially due to higher
slotting costs paid to new customers, increased promotional costs for The Wizard
of Oz products, increased freight expenses and the cost of additional sales
consultants.
General and Administrative
Total expenses for general and administrative purposes increased from $252,417
for the year ended December 31, 1998 to $533,240 for the year ended December 31,
1999, an increase of $280,823 or 111%. The increase was primarily due to the
decision to change the strategy of the Company and the associated costs to
support the separation of the Company from Vitafort and to hire and support
additional personnel.
16
<PAGE>
Liquidity and Capital Resources
<TABLE>
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
Net Cash Used In Operations $ (73,495) $(710,467)
Net Cash Used in Investing Activities (521,667) -
Net Cash Provided By Financing Activities 1,437,913 954,301
Working Capital 1,465,283 (861)
</TABLE>
The success of the Company's future operations is dependent on its ability to
generate adequate revenue to offset operating expenses. Unless otherwise noted,
the proceeds from the financing transactions described above are for general
corporate purposes.
The Company has increased expenditures substantially to implement the new
business strategy to build a marketing and promotions company on the Internet.
To support the growth of this business, the Company expects to incur operating
losses for the foreseeable future and requirements for additional financing.
There can be no assurance that additional financing will be available to the
Company or will be obtained on terms favorable to the Company.
The Company received a $2 million financing commitment from an investor in the
third quarter and received the full amount in the fourth quarter. These funds
were received for general corporate purposes.
During the fourth quarter, the Company repaid a $375,000 note plus $6,513 in
accrued interest. Also during the fourth quarter, the Company raised $300,000
in a convertible preferred stock placement.
ITEM 7. FINANCIAL STATEMENTS
SEE "INDEX TO CONSOLIDATED FINANCIAL STATEMENTS" BEGINNING ON PAGE F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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:
<TABLE>
<CAPTION>
Directors
Name Age Positions Held Term of Office
---- --- -------------- ---------------
<S> <C> <C> <C>
Mark Beychok 43 Chairman of the Board 3 years
John Coppolino 39 Director 3 years
Eugene Scher 51 Director 3 years
Lee M. Lambert 44 President, CEO, Treasurer and Director 3 years
Valerie A. Broadbent 61 Secretary
Fred Rigaud 55 Acting Chief Financial Officer
</TABLE>
17
<PAGE>
Mark Beychok - Chairman of the Board
- ------------------------------------
Mr. Beychok was elected Chairman of the Board in September 1999. He also serves
as Chairman of the Board of Vitafort International Corporation and its
subsidiaries. Mr. Beychok is a private investor with over twenty years
experience 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 - Director
- -------------------------
Mr. Coppolino was elected a Director in September 1999. Mr. Coppolino also
serves as a Director and President of Vitafort International Corporation and its
subsidiaries. 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.
Eugene Scher - Director
- -----------------------
Mr. Scher was elected a Director in September 1999. Since 1989 Mr. Scher has
been a partner in the firm of November Lazar Scher, a company who specializes in
obtaining licenses from such companies as The Walt Disney Company, Warner Bros.,
Universal, Twentieth Century Fox, Paramount and Sony. Through his expertise in
marketing and licensing, Mr. Scher has helped numerous companies increase their
gross sales and revenues. Mr. Scher received a Liberal Arts degree from Hunter
College in 1969, and a Masters degree in Psychology from Manhattan College in
1971.
Lee M. Lambert - President, CEO, Treasurer and a Director
- ---------------------------------------------------------
Mr. Lambert was elected as Director, President, Chief Executive Officer,
Secretary and Treasurer in September 1999. From July 1998 to the present, Mr.
Lambert has served as an independent business advisor to a number of companies,
principally involving the software and Internet industries. From March 1997 to
December 1998, Mr. Lambert served as Managing Director of Cambridge/Samsung
Partners, a venture capital firm based in Boston, Massachusetts. From December
1994 to July 1998, Mr. Lambert served as Director, Corporate Development, for
Samsung Electronics Co., Ltd., in activities including venture stage investing
through mergers and acquisitions. From May 1993 to December 1994, Mr. Lambert
served as Vice President, Corporate Finance for Van Kasper & Company, a regional
full-service investment banking and brokerage house. He holds an MBA from
Harvard Business School and a BS from the University of California (Berkeley).
Valerie A. Broadbent - Secretary
- ---------------------------------
Ms. Broadbent was elected as Secretary of the Company in January 2000. Ms.
Broadbent is also Corporate Secretary of Vitafort International Corporation and
its subsidiaries, a position she has held since February 1999. 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 - Acting Chief Financial Officer
- --------------------------------------------
Mr. 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 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.
18
<PAGE>
ITEM 10: EXECUTIVE Compensation
On September 22, 1999, the Company entered into an Employment Agreement with Mr.
Lambert through June 30, 2000 which provides for monthly base salary of $10,000
and the grant of an option to purchase 300,000 shares of common stock at $1.07
per share. Such options vest 2,967 on September 22, 1999; 25,000 each on October
1, 1999 and every three-month period thereafter until April 1, 2002; and 22,033
vest on July 1, 2002. The Employment Agreement carries certain early termination
provisions.
The following table sets forth certain information with respect to the
compensation paid by the Company to Mr. Lambert and Mr. Rigaud (the "named
individuals") during 1999:
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
Principal Position
& Name Year Salary
- --------------------- ---- -------
<S> <C> <C>
CEO / President 1998(1) $ -
Lee M. Lambert 1999 $35,000
Acting CFO 1998 $ -
Fred Rigaud 1999 $ 8,700
</TABLE>
(1) Mr. Lambert began employment with the Company in 1999.
The following chart sets forth certain information with respect to
options/warrants granted at December 31, 1999 to the named individuals:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Number of % of total
Securities Options/SAR's
Underlying Granted to
Options/SAR's Employees in Fiscal Exercise or
Name Granted Year Base Price Expiration Date
<S> <C> <C> <C> <C>
Lee M. Lambert 450,000 28.6% $1.07 September 21, 2004
Fred Rigaud -0- 0% - -
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The following chart sets forth certain information with respect to
options/warrants outstanding at December 31, 1999 to the named individuals:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying In-the-Money
Unexercised Options/SAR's at
Shares Options/SARs at FY-End
Acquired on Value FY-End Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Lee M. Lambert -0- $ -0- 450,000/372,033 $-0- / $-0-
Fred Rigaud -0- $ -0- 0 / 0 $-0- / $-0-
- -----------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
We have established an Advisory Board of twelve key persons who we believe have
special expertise, knowledge and contacts that are valuable for the Company. To
attract and encourage participation from these Advisory Board members, we offer
each a package granting 25,000 options to purchase common shares at $1.37 per
share vesting immediately upon grant. These options expire three years from
date of grant.
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.
<TABLE>
<CAPTION>
Number of Shares Percentage of
Name and Address of of Common Stock Beneficial
Beneficial Owner Beneficially Owned Ownership
- ----------------- ------------------- ------------
<S> <C> <C>
Vitafort International Corporation 4,619,629 52.1%
1800 Avenue of the Stars, Suite 480
Los Angeles, California 90067
<CAPTION>
Number of Shares Percentage of
Name and Address of of Common Stock Beneficial
Beneficial Owner Beneficially Owned Ownership
- ----------------- ------------------ -------------
<S> <C> <C>
Mark Beychok (1) 150,000 (2) 1.7%
John Coppolino (1) 150,000 (3) 1.7%
Eugene Scher (1) 50,000 (4) 0.6%
Lee M. Lambert (1) 77,967 (5) 1.0%
Valerie A. Broadbent (1) 25,000 (6) 0.3%
All directors and officers as a
group. (5 persons) (2)(3)(4)(5)
and (6) 452,967 5.6%
</TABLE>
(1) The address of this person is 1800 Avenue of the Stars, Suite 480, Los
Angeles, California 90067.
(2) Includes 150,000 shares underlying a currently exercisable option with an
exercise price of $1.07 per share, which expires on September 21, 2004 and does
not include 300,000 shares underlying options that are not currently exercisable
with an exercise price of $1.07 expiring September 21, 2004.
(3) Includes 150,000 shares underlying a currently exercisable option with an
exercise price of $1.07 per share, which expires on September 21, 2004 and does
not include 300,000 shares underlying options that are not currently exercisable
with an exercise price of $1.07 expiring September 21, 2004.
20
<PAGE>
(4) Includes 50,000 shares underlying a currently exercisable option with an
exercise price of $1.07 per share, which expires on September 21, 2004 and does
not include 100,000 shares underlying options that are not currently exercisable
with an exercise price of $1.07 expiring September 21, 2004.
(5) Includes 77,967 shares underlying a currently exercisable option with an
exercise price of $1.07 per share, which expires on September 21, 2004 and does
not include 372,033 with an exercise price of $1.07, that are not currently
exercisable, expiring September 21, 2004.
(6) Includes 25,000 shares underlying a currently exercisable option with an
exercise price of $1.07 per share, that expires on September 21, 2004 and does
not include 50,000 shares underlying options that are not currently exercisable
with an exercise price of $1.07 expiring September 21, 2004.
The following table sets forth the ownership of the Series A 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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Number of
Name and Address of Shares Percentage
Title of Class Beneficial Owner Owned of Class
<S> <C> <C> <C>
1999 Series A All officers and directors as a group
Preferred Stock (5 persons) 0 0%
1999 Series A Triple Tree
Preferred Stock Bahnhofplatz 9
P. O. Box 6139 600 100%
8023 Zurich
Switzerland
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.
Effective September 13, 1999, pursuant to a Share Exchange and Reorganization
Agreement, the Company acquired all of the issued and outstanding shares of
Hollywood Partners, Inc., a subsidiary of Vitafort International Corporation
("Vitafort"), in exchange for 5,000,000 (62.5% of the then outstanding) shares
of the Company. The Company has an agreement with Vitafort with respect to
allocating overhead and rent expense at their common offices. A total of
$402,748 and $160,065 net expenses were allocated from Vitafort to Hollywood
Partners.com for 1999 and 1998 respectively. Messrs. Beychok and Coppolino are
directors of both the Company and of Vitafort.
During July 1999, DYDX Consulting, LLC, a beneficial owner of Vitafort, and
accordingly an indirect beneficial owner of the Company, lent the Company
$375,000 at 9% interest. This loan was repaid during the fourth quarter of 1999
and DYDX Consulting received 200,000 warrants at $2.50 per share as
consideration for the loan.
In December 1999, the Company was offered $375,000 of preferred stock
convertible at $4.00 per share to Triple Tree, an affiliate of Terra Listed,
Ltd. ("Terra"). $300,000 of the preferred stock was paid for
21
<PAGE>
during 1999. In connection with and to induce Triple Tree's investment in the
Company, the Company concurrently purchased 4,100 shares of Triple Tree for an
aggregate of $1 million. In connection with that purchase, Triple Tree and the
Company entered into a guaranty and put agreement pursuant to which Triple Tree
guaranteed that the Company would be able to liquidate all such shares for an
amount not less than $1.01 million, net of commissions. At December 31, 1999,
the Company had sold all of is Triple Tree stock and was owed $159,000 by Triple
Tree under the guaranty and put agreement.
During December 1999, Spinneret Financial Systems, Ltd., a beneficial owner of
Vitafort, and, accordingly, an indirect beneficial owner of the Company, Terra
and VTZ, AG, and affiliate of Terra, agreed to acquire certain securities of
Triple Tree from the Company for their market value. Management considered this
transaction beneficial to the Company as the Triple Tree securities acquired had
limited liquidity.
Eugene Scher, a director of the Company, is a partner in the firm of November
Lazar Scher ("NLS"), an entertainment industry licensing firm. Both Vitafort
and the Company utilize the services of NLS. During 1999, the Company paid NLS
$32,140. Management believes that the payments to NLS represented its usual and
customary fees for the services that it provided.
22
<PAGE>
PART IV
ITEM 13: EXHIBITS LIST
-------------
(a) The following exhibits are submitted herewith:
2.0 Share Exchange Agreement and Plan of Reorganization (i)
3.0 Restated and Amended Certificate of Incorporation (i)
10.1 Employment Agreement dated September 22, 1999 between Lee M. Lambert
and the Registrant (filed herewith)
10.2 Administrative Services Agreement dated October 1, 1999 between
Vitafort International Corporation and the Registrant (filed
herewith)
10.3 Distribution Agreement dated October 1, 1999 between Vitafort
International Corporation and the Registrant (filed herewith)
99.1 Audited Financial Statement of Hollywood Partners, Inc., a California
corporation for the twelve month periods ending December 31, 1998 and
1997 and unaudited financial statements for six month periods ending
June 30, 1999 and 1998 (i)
99.2 Pro Forma Financial Information (i)
(i) Incorporated by reference to the same numbered exhibit to the
Registrant's September 28,1999 Form 8-K.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the fourth quarter ended
December 31, 1999.
23
<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.
HOLLYWOOD PARTNERS.COM, INC.
By: /s/ Lee M. Lambert
---------------------------------
Lee M. Lambert, President and CEO
LOS ANGELES, CALIFORNIA
DATE: March 30, 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/ Lee M. Lambert Director, President, March 30, 2000
- -------------------------- Chief Executive Officer
Lee M. Lambert and Treasurer
(Principal Executive Officer)
/s/ Fred Rigaud Acting Chief Financial Officer March 30, 2000
- -------------------------- (Principal Accounting Officer)
Fred Rigaud
/s/ Mark Beychok Chairman of the Board March 30, 2000
- --------------------------
Mark Beychok
/s/ John Coppolino Director March 30, 2000
- --------------------------
John Coppolino
/s/ Eugene Scher Director March 30, 2000
- --------------------------
Eugene Scher
</TABLE>
24
<PAGE>
HOLLYWOOD PARTNERS.COM, INC.
Index to Financial Statements
<TABLE>
<S> <C>
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-4
Consolidated Statements of Stockholders' Equity (Deficit) -
Years Ended December 31, 1999 and 1998 F-5
Consolidated Statements of Cash Flows -
Years Ended December 31, 1999 and 1998 F-6
Summary of Accounting Policies F-7
Notes to Consolidated Financial Statements F-10
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS'
To the Stockholders and Board of Directors of
Hollywood Partners.com, Inc.
We have audited the accompanying balance sheets of Hollywood Partners.com, Inc.
as of December 31, 1999 and 1998 and the related statements of operations,
stockholders' equity, and cash flows for the 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 out audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hollywood Partners.com, Inc. at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years then ended I conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
Los Angeles, California
March 28, 2000
F-2
<PAGE>
HOLLYWOOD PARTNERS.COM, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
December 31,
1999 1998
---------- ----------
<S> <C> <C>
Current assets
Cash and cash equivalents $1,086,585 $ 243,834
Marketable securities (Note 2) 514,150 -
Accounts receivable, less allowance for doubtful account of $21,472 - 819,856
Inventories (Note 1) - 94,932
Prepaid insurance, current 76,225 -
Other current assets 68,801 111,813
---------- ----------
Total Current Assets 1,745,761 1,270,435
---------- ----------
Computer equipment 7,517 -
Less accumulated depreciation (502) -
---------- ----------
Net equipment 7,015 -
---------- ----------
Prepaid insurance, long-term 49,835
Receivable from related party (Note 3) 8,995 -
Other assets 18,495
---------- ----------
Total assets $1,830,101 $1,270,435
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
December 31,
1999 1998
---------- ----------
Current liabilities
Notes payable (Note 4) $ 87,516 $ -
Accounts payable 64,295 251,868
Payroll taxes payable 23,838 -
Loans - related party (Note 3) - 953,301
Accrued expenses 104,829 66,127
---------- ----------
Total Current Liabilities 280,478 1,271,296
---------- ----------
Notes payable 12,693 -
---------- ----------
Total liabilities 293,171 1,271,296
---------- ----------
Commitments (Note 8)
Stockholders' equity
Convertible preferred Stock, cumulative 7%, $.001 par value; authorized 5,000,000
shares; issued and outstanding 600 shares (Note 5) 1 -
Common stock, $.001 par value; authorized 50,000,000
shares; issued and outstanding 8,036,000 and 5,000,000 shares (Note 10) 8,036 5,000
Additional paid-in capital 2,395,626 -
Accumulated deficit (866,733) (4,000)
---------- ----------
Total stockholders' equity (deficit) 1,536,930 (1,861)
---------- ----------
Total liabilities and stockholders' equity $1,830,101 $1,270,435
========== ==========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-3
<PAGE>
HOLLYWOOD PARTNERS.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Net revenues $ 981,518 $ 1,811,661
Cost of sales 600,668 829,266
------------- -------------
Gross profit 380,850 982,395
------------- -------------
Operating expenses
Research and development 63,073 204,557
Sales and marketing 716,535 541,984
General and administrative 533,240 252,417
------------- -------------
Total operating expenses 1,312,848 998,958
------------- -------------
Loss from operations (931,998) (16,563)
Other income (expense)
Other income (expense) (2,255) 14,014
Intrest expense (20,426) -
Interest income 2,270 688
------------- -------------
Total other income (expense) (20,411) 14,702
Loss before extraordinary item (952,409) (1,861)
Forgiveness of debt, net of income tax expense (Note 9) 95,337 -
------------- -------------
Net loss $ (857,072) $ (1,861)
========================================
Basic and diluted net loss per common share
Loss before extraordinary item $ (0.12) $ (0.00)
Extraordinary item 0.01 0.00
----------------------------------------
Basic net loss per common share $ (0.11) $ (0.00)
========================================
Basic and diluted weighted average common shares outstanding 8,010,553 5,000,000
========================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-4
<PAGE>
HOLLYWOOD PARTNERS.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock Additional
Preferred Stock ------------------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
---------- ---------- ---------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 5,000,000 $5,000 (4,000) $1,000
Net loss (1,861) ($1,861)
----------------------------------------------------------------------------------------------
Balance, December, 31 1998 5,000,000 $5,000 (4,000) (1,861) $ (861)
----------------------------------------------------------------------------------------------
Adjustment - exchange of stock
and recapitalization (note 1) 3,000,000 3,000 (3,800) ($800)
Preferred Stock (Note 9) 600 $1 - $ - 299,999 - $ 300,000
Contribution by shareholder (Note 9) - - - $2,000,000 - $2,000,000
Issuance of common stock
for services (Note 9) - - 36,000 36 49,284 - 49,320
Options issued in connection
with debt (Note 9) 12,118 12,118
Options issued for services (note 9) 34,225 34,225
Net loss - - - (857,072) (857,072)
-------- ---------- ---------- ---------- ----------- ----------- ----------
Balance, December 31, 1999 600 $1 8,036,000 $8,036 $2,387,826 $(858,933) $1,536,930
======== ========== ========== ========== =========== =========== ==========
</TABLE>
See accompanying summary of accounting policies and notes
to financial statements
F-5
<PAGE>
HOLLYWOOD PARTNERS.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
December 31,
1999 1998
---------- ---------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Reconciliation of net loss to net cash used in
operating activities:
Net loss $ (857,072) $ (1,861)
Depreciation and amortization 502 -
Allowance for doubtful accounts - 21,472
Stock issued for services 49,320 -
Options issued in connection with debt 12,118
Options issued for services 34,225
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 819,856 (841,328)
Inventories 94,932 (94,932)
Prepaid insurance (126,060) -
Other current assets 43,012 (111,813)
Other assets (18,495) -
Increase (decrease) in: - -
Accounts payable (188,373) 251,868
Payroll taxes payable 23,838 -
Accrued expenses 38,702 66,127
---------- ---------
Cash and cash equivalents used in operating activities (73,495) (710,467)
---------- ---------
Cash flows from investing activitites:
Purchase of marketable securities (1,000,000) -
Proceeds from sale of marketable securities 485,850 -
Purchase of equipment (7,517) -
---------- ---------
Cash used in investing activities (521,667) -
Cash flows from financing activities:
Proceeds from additional paid-in capital 2,000,000 -
Proceeds from issuance of preferred stock 300,000 -
Proceeds from convertible note payable 375,000 -
Repayment of convertible note payable (375,000) -
Proceeds from notes payable 119,249 -
Repayments of notes payable (19,040) -
Repayments of loans from related parties (962,296) -
Proceeds of loan from related parties - 954,301
---------- ---------
Cash and cash equivalents provided by financing 1,437,913 954,301
activities ---------- ---------
Increase (decrease) in cash and cash equivalents 842,751 243,834
Cash and cash equivalents, beginning of period 243,834 -
---------- ---------
Cash and cash equivalents, end of period $1,086,585 $ 243,834
========== =========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-6
<PAGE>
HOLLYWOOD PARTNERS.COM, INC.
SUMMARY OF ACCOUNTING POLICIES
NATURE OF THE COMPANY
Hollywood Partners.com, Inc. (the "Company") is a marketing and promotions
company building a family of content, community and commerce Internet Websites.
The Company uses sweepstakes offerings on the Internet to help clients to build
brands, to make commerce offerings and to acquire customers. As Website
visitors register to enter the sweepstakes, the Company collects demographic and
lifestyle information, and gains permission to send announcements and offerings
in the future. The Company is developing additional and enhanced offerings to
increase its presence on the Internet.
Effective September 13, 1999, pursuant to a Share Exchange and
Reorganization Agreement, Hollywood Partners.com, Inc. a Delaware corporation
("Holding Company") acquired all of the issued and outstanding shares of
Hollywood Partners, Inc., a California corporation ("Operating Company"). In
consideration of the shares of Operating Company, Holding Company issued an
aggregate of 5,000,000 shares of its common stock to Vitafort International
Corporation, a publicly traded Delaware corporation ("Vitafort"). Operating
Company is now a wholly owned subsidiary of Holding Company and immediately
following the issuance, Vitafort became the majority stockholder of Holding
Company, holding 62.5% of Holding Company's issued and outstanding common stock.
In connection with the transaction, the Holding Company also changed its
name to "Hollywood Partners.com, Inc."
Immediately prior to the closing date of the transaction, there were
500,000 shares of Holding Company's common stock issued and outstanding. As part
of the terms of agreement between Holding Company, Vitafort and Operating
Company, Holding Company undertook a 6 to 1 forward split of its issued and
outstanding common stock, so that at the time of closing and prior to issuance
of the 5,000,000 shares of common stock to Vitafort there were 3,000,000 shares
of common stock issued and outstanding. Concurrent with the closing, Holding
Company filed a Restated and Amended Certificate of Incorporation with the
Delaware Secretary of State effecting the stock split as well as:
. an increase in its authorized capitalization to 50,000,000 shares of common
stock, par value $.001; an authorization, for the first time, of 5,000,000
shares of blank check preferred stock, par value $.001; and
. authorizing a classified board of directors for Holding Company.
For accounting purposes, the acquisition of the Operating Company by the
Holding Company has been treated as a reverse acquisition in substance
equivalent to the issuance of stock for the net monetary assets of the Holding
Company accompanied by a recapitalization. The historical operating results
reflected in the accompanying financial statements are those of the Operating
Company as the Holding Company's operations were de minimis.
As of December 31, 1999, 52.1% of the Company's outstanding common stock
is owned by Vitafort.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements of Hollywood
Partners.com, Inc. ("Company") include the accounts of the Company and its
subsidiary Hollywood Partners, Inc. Intercompany transactions and balances have
been eliminated in consolidation.
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 are 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
stockholders' 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
F-7
<PAGE>
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 computer equipment and is recorded at cost.
Depreciation is computed on a straight-line basis over the estimated useful life
not in excess of three years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has cash equivalents for which the carrying value approximates
the fair value due to the short-term nature of these instruments.
The fair value of the notes payable 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. The fair value of related party loans
cannot be determined due to their related party nature.
REVENUE
Product sales are recognized when the Company's products are shipped from
the commercial warehouse used by the Company or the contract manufacturer to the
customer.
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.
As of December 31, 1999, the Company had unused Federal and California net
operating loss carryforwards of approximately $936,000 and $468,000 respectively
available to offset against future Federal taxable income and future California
taxable income. The unused net operating loss carryforwards expire in various
amounts through the year 2019. The California net operating losses will expire
in various amounts through the year 2004.
Net deferred tax assets of approximately $346,000 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.
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 computer equipment,
F-8
<PAGE>
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.
REPORTING 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. As the Company has no components of comprehensive
income, the net loss of the Company is the same as the comprehensive loss of the
Company.
EARNINGS 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 per share includes no dilution and is computed by dividing
income (loss) 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 preferred stock. The
Company adopted SFAS 128 on December 15, 1997 and it had no effect on income
(loss) per share. At December 31, 1999 and 1998, potentially dilutive securities
were not included in the computation of diluted earnings per share as the effect
would be anti-dilutive.
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 segment.
STOCK-BASED COMPENSATION
The Company has adopted for footnote disclosure purposes, Statement of
financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123) which requires that companies measure the cost of
stock-based employee compensation at the grant date based on the value of the
award and recognize this cost over the service period. The value of the stock-
based award is determined using a pricing model whereby compensation cost is the
excess of the fair value of the stock as determined by the model at grant date
or other measurement date over the amount an employee must pay to acquire the
stock.
F-9
<PAGE>
HOLLYWOOD PARTNERS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INVENTORIES
Inventory consists of the following:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> $ <C>
Finished goods - $ 43,242
Packaging and raw material - 51,690
--------- ---------
$ - $ 94,932
========= =========
</TABLE>
NOTE 2 - 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. Subsequent to December 31, 1999, securities totalling $328,857 were
sold.
NOTE 3 - RELATED PARTY
The Company owed $953,301 to its majority shareholder as of December 31,
1998. As of December 31, 1999, the Company is owed a balance of $ 8,995 from its
majority shareholder.
The Company purchased 4,100 shares of Triple Tree Trust AG, a publicly
traded Swiss corporation, from Terra Healthy Living, a related party. During the
year, the Company sold 2,050 shares of Triple Tree Trust AG to a related party
at approximately the purchase price of the securities.
NOTE 4 - NOTES PAYABLE
Represent primarily the amount of insurance costs being financed by a
financial institution. The note has monthly payments of $6,347, bears interest
at 8.92%, and matures in February 2001.
NOTE 5 - PREFERRED STOCK
The Company issued 600 shares of preferred stock to a related party with a
par value of $.001 with a cumulative dividend rate of 7% annually, payable in
cash or in kind at the Company's discretion. These shares are convertible to
common stock at a value of $4.00 per share for a one year period, although the
Company can force conversion at any time if the price of its stock trades at
$6.00 per share or above for five consecutive days.
NOTE 6 - MAJOR CUSTOMERS
The Company derived the following revenue from major customers, each of
which provided 10% or more of total revenues during the years ended December 31,
1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Wal-Mart $187,544 $461,522
Dorsey 186,091 -
BI-LO, Inc. 147,634 -
</TABLE>
F-10
<PAGE>
NOTE 7 - EXTRAORDINARY ITEM
Extraordinary item reflects the forgiveness of debt by vendors and
consultants of $95,337.
NOTE 8 - COMMITMENTS
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.
On September 22, 1999, the Company entered into an Employment Agreement
with an officer through June 30, 2000 that provides for monthly base salary of
$10,000 and the grant of an option to purchase 300,000 shares of common stock at
$1.07 per share. Such options vest 2,967 on September 22, 1999; 25,000 each on
October 1, 1999 and every three-month period thereafter until April 1, 2002; and
22,033 vest on July 1, 2002. The Employment Agreement carries certain early
termination provisions.
NOTE 9 - STOCKHOLDER'S EQUITY
F-11
<PAGE>
During July 1999, DYDX Consulting, LLC, a beneficial owner of Vitafort, and
accordingly an indirect beneficial owner of the Company, lent the Company
$375,000 at 9% interest. This loan was repaid during the fourth quarter of 1999
and DYDX Consulting received 200,000 warrants at $2.50 per share, the then fair
value, as consideration for the loan.
In September 1999, the Company granted 161,667 stock options to various
consultants in consideration for past and future services. The stock options
were granted at an exercise price of $1.37, which is equal to the fair market
value of the Company's common stock on the date of grant. As a result, the
Company recorded consulting expense of $33,397 for the year ended December 31,
1999.
In September 1999, the Company issued 36,000 shares of common stock at
$1.37 per share to a professional firm, a related party, as payment for past and
future services. Based upon the fair value of the common stock on the date of
issuance, the Company recorded prepaid consulting expense of approximately
$43,000 to be amortized over the term of the consulting contract.
In September 1999, the Company granted warrants to purchase 200,000 shares
of the Company's common stock to a consultant in consideration for financing
provided to the Company during the year. The warrants have an exercise price of
$2.50, which was greater than the fair market value of the Company's common
stock on the date of grant. As a result, the Company recorded $12,118 in
interest expense for the year ended December 31, 1999.
In September 1999, the Company adopted a Stock Option Plan providing for
the granting of both qualified incentive stock options and non-qualified stock
options. The Company has reserved 3,000,000 shares of its common stock for
issuance under the Plan. Granting of the options is at the discretion of the
Board of Directors and may be awarded to employees and consultants. Consultants
may receive only non-qualified stock options. The maximum term of the stock
options are three to five years and generally vest proportionately throughout
the term of the option. The exercise price of each option is equal to the fair
market value of the Company's common stock on the date of grant.
During 1999, the Company granted 1,575,000 stock options to various
employees each of which had a price of $1.07 per share and a remaining weighted
average life of 57 months. At December 31, 1999, the Company had 1,575,000 stock
options outstanding, of which 452,967 options were exercisable.
During 1999, the Company purchased 4,100 shares of Triple Tree Trust AG, a
publicly traded Swiss corporation, from Terra Healthy Living, a related party.
During the year, the Company sold 2,050 shares of Triple Tree Trust AG to a
related party at approximately the purchase price of the securities.
In December 1999, the Company sold 600 shares of convertible preferred
stock to Triple Tree, an affiliate of Terra Listed Ltd., a related party, for
$300,000. The convertible preferred shares have a 7% cumulative dividend and are
convertible into common shares at $4.00 per share for one year after issuance at
the holder's discretion or at the Company's discretion if the Company's common
stock is trading at $6.00 per share for five consecutive days.
F-12
<PAGE>
All stock options issued to employees have an exercise price not less than
the fair market value of the Company's Common Stock on the date of grant. In
accordance with accounting for such options utilizing the intrinsic value
method, there is no related compensation expense recorded in the Company's
financial statements for the years ended December 31, 1999 and 1998. Had
compensation cost for stock-based compensation been determined based on the fair
value of the options at the grant dates consistent with the method of SFAS 123,
the Company's net income and earnings per share for the years ended December 31,
1999 and 1998 would have been reduced to the proforma amounts presented below:
<TABLE>
<CAPTION>
1999
---------
<S> <C>
Net loss
As reported.................................... $(804,565)
Proforma....................................... (928,596)
Net loss per share
As reported.................................... $ (.10)
Proforma....................................... $ (.12)
</TABLE>
The fair value of option grants is estimated as of the date of grant
utilizing the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1999: expected life of 5 years, expected
volatility of 0%, risk-free interest rate of 6.0%, and a 0% dividend yield. The
weighted average fair value at date of grant for options granted during 1999 was
$1.07.
F-13
<PAGE>
EXHIBIT A
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the
22nd day of September, 1999 ("Effective Date") by and between HOLLYWOOD
PARTNERS.COM, INC. ("Company") and LEE M. LAMBERT ("Employee").
RECITALS
1. ENGAGEMENT BY COMPANY.
---------------------
Company hereby engages Employee as its President and Chief Executive
Officer of Company. Employee will perform the duties as prescribed by the Board
of Directors. Employee may continue to reside in northern California but will be
expected to travel to the Company's headquarters in Los Angeles, or to other
locations required by Company's business, on a regular basis.
Employee will devote the majority of his time to the activities of
Hollywood Partners.com, Inc., but will be allowed to render limited consulting
services to the extent those services do not interfere with his duties at
Company, and to the extent that those activities do not pose a conflict of
interest with Company.
2. TERM.
----
The term of this Agreement shall be September 22, 1999 through June 30,
2000, unless terminated in accordance with provisions of this Agreement or
extended by mutual agreement of the parties.
3. COMPENSATION.
------------
Employee shall be entitled to receive compensation at the rate of $10,000
per month, payable semi-monthly.
Employee will be given vacation, insurance and all other benefits given by
the Company to its officers.
Employee will be granted a five-year option to purchase 300,000 shares of
the Company's common stock at an exercise price of $1.07 per share. The options
will vest at the rate of 25,000 every quarter commencing September 1999. If
Employee is terminated at any time during the term of this Agreement, 100,000
options will vest immediately, inclusive of any ISO's previously granted per
this Agreement.
Any and all bonus payments shall be in the discretion of the Board. The
Company shall establish a written bonus plan applicable to Employee, and he
shall be entitled to receive bonus
1
<PAGE>
payments in accordance therewith. Such plan, when adopted, shall be affixed to
each original of this Agreement as Exhibit A.
Employee will be reimbursed for all ordinary and necessary expenses, in
reasonable amounts, which Employee incurs in performing his duties under this
Agreement, including, but not limited to, travel, entertainment, cellular
telephone, professional dues and subscriptions, subject, however, to any
limitations, rules and procedures adopted by Company and which are applicable to
executives generally.
4. ASSIGNMENT.
----------
This Agreement is a personal one being entered into in reliance upon and in
consideration of the singular personal skill and qualifications of Employee.
Neither Employee nor the Company shall voluntarily, or by operation of law
assign or otherwise transfer the obligations incurred on its part pursuant to
terms of this Agreement without the prior written consent of the other party.
Any attempt at assignment or transfer by either party of its obligations
hereunder, without such consent, shall be null and void.
5. NON-COMPETITION.
---------------
Employee agrees that during the Term he shall not, directly or indirectly
(whether for compensation or otherwise), alone or as an agent, principal,
partner, officer, employee, trustee, director, shareholder, Employee or in any
other capacity own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or furnish any capital to, or be
connected in any manner with, or provide any services as a Employee for any
business which has any activities or products directly competitive with the
activities and products of the Company.
6. CHANGE OF CONTROL
-----------------
6.1 Survival. The provisions of this Section 6 shall (i) survive this
--------
Agreement and shall continue one (1) day past termination of Employee's
employment, and (ii) only become effective upon a "Change in Control," as
defined below. No termination or expiration of this Agreement shall limit, alter
or otherwise affect Employee's continuing rights hereunder with respect to the
benefits and rights afforded to him as provided herein.
6.2 Background.
----------
6.2.a The Company believes that because of its position in the
industry, financial resources and historical operating results there is a
possibility that the Company may become the subject of a Change in Control (as
defined below), either now or at some time in the future.
6.2.b The Company believes that it is in the best interest of the
Company and its shareholders to foster Employee's objectivity in making
decisions with respect to any pending or threatened Change in Control of the
Company and to assure that the Company will have the continued dedication and
availability of Employee, notwithstanding the possibility, threat or
2
<PAGE>
occurrence of a change in Control. The Company believes that these goals can
best be accomplished by alleviating certain of the risks and uncertainties with
regard to Employee's financial ad professional security that would be created by
a pending or threatened Change in Control and that inevitably would distract
Employee and could impair his ability to objectively perform his duties for and
on behalf of the Company.
6.2.c Accordingly, the Company believes that it is appropriate and
in the best interest of the Company and its shareholders to provide to Employee
compensation arrangements upon a change in Control that lessen Employee's
financial risks and uncertainties and that are reasonably competitive with those
of other corporations. With these and other considerations in mind, the Board
has authorized the Company to enter into these arrangements with Employee to
provide the protections set forth herein following a change in Control.
6.3 Change in Control. As used in this Agreement, the phrase "change in
Control" shall mean:
6.3.a. Except as provided by Paragraph 6.3.c hereof, the acquisition
by any person, entity or "group," within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act"), of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of forty percent (40%) or more of the combined voting power of the
then outstanding securities entitled to vote generally in the election of
directors of the Company; or
6.3.b. Individuals who, as of the Effective Date hereof, constitute
the Board of Directors of the Company (as of the Effective Date hereof the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board of Directors of the Company, provided that any person becoming a director
subsequent to the Effective Date hereof who election, or nomination for election
by the Company's shareholders, is or was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual who initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of
this Agreement, considered as though such person were a member of the Incumbent
Board; or
6.3.c. Approval by the stockholders of the Company of a
reorganization, merger or consolidation of the Company with any other person,
entity or corporation, other than:
(i) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of another entity) more than sixty percent
(60%) of the combined voting power of the securities entitled to vote
generally in the election of directors of the Company or such other entity
outstanding immediately after such merger or consolidation, or
3
<PAGE>
(ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
person, entity or group (other than any employee benefit plan of any of the
Company) acquires beneficial ownership of forty percent (40%) or more of
the combined voting power of the securities entitled to vote generally in
the election of directors of the Company outstanding immediately after such
merger or consolidation; or
6.3.d. approval by the stockholders of the Company of a plan of
complete liquidation of the Company or an agreement for the sale or other
disposition by the Company of all or substantially all of such Company's assets.
6.4 Acceleration of Stock Options
Any Change of Control during the term of this Agreement will cause the
immediate vesting of all stock options granted to Employee.
7. TERMINATION
-----------
This Agreement may be terminated on the occurrence of any one of the
following events:
7.1 The expiration of the Term hereof;
7.2 The mutual agreement of the parties;
7.3 At the Company's option, on the last day of the month in which
Employee dies or becomes permanently incapacitated. 'Permanent incapacity' as
used herein shall mean mental or physical incapacity, or both, reasonably
determined by the Company's Board of Directors based upon a certification of
such incapacity by, in the discretion of the Company's Board of Directors,
either Employee's regularly attending physician or a duly licensed physician
selected by the company's Board of Directors, rendering Employee unable to
perform substantially all of his duties hereunder and which appears reasonably
certain to continue for at least six consecutive months without substantial
improvement. Employee shall be deemed to have 'become permanently incapacitated'
on the date the Company's Board of Directors has determined that Employee is
permanently incapacitated and so notifies Employee. Under no circumstances shall
Employee's incapacity, whether permanent or not, limit Employee's right to
receive all the compensation set forth in Section 3 above.
7.4 By the Company "with cause," effective upon delivery of written notice
to Employee given at any time (without any necessity for prior notice) if any of
the following shall occur:
7.4.a A material breach of this Agreement by Employee, which breach
has not been cured within ten (10) days after a written demand for such
performance is delivered
4
<PAGE>
to Employee by the Company that specifically identifies the manner in which
the Company believes that Employee has breached this Agreement;
7.4.b The following acts or events: (i) a felony criminal conviction;
(ii) any other criminal conviction involving Employee's lack of honesty or
Employee's moral turpitude; (iii) acts of gross carelessness or gross
misconduct which continues after due written notice to Employee from the
Company specifying with particularity the nature of such gross carelessness
or gross misconduct.
In the event of a termination of Employee under this provision,
Company shall pay Employee his full base salary and accrued vacation time
through the date of termination, plus all bonus and benefits to which
Employee has a vested right at the time.
7.5 Notice of Termination
---------------------
Notwithstanding the term of this Agreement, the Company agrees to give
a minimum of sixty (60) days written Notice of Termination to Employee if the
Company has not entered into a written contract to continue the services of
Employee with the Company beyond June 30, 2000, and if Employee has not been
terminated according to Sections 7.2, 7.3 or 7.4 above. In accordance with this
provision, if no Notice of Termination has been delivered to Employee as of June
30, 2000, and Employee and Company have not entered into a written contract to
continue the services of Employee as of June 30, 2000, Employee will be entitled
to receive an additional sixty (60) days of salary and benefits without any
obligation to work beyond June 30, 2000.
7.6 Termination by Employee
-----------------------
Employee may terminate this Agreement at any time for "good reason" by
providing a Notice of Termination stating such intent to terminate. "Good
reason" shall mean, without prior written consent, the occurrence of any one or
more of the following:
7.6.a. Failure by the Company to honor any of its material obligations
under this Agreement.
7.6.b Failure to maintain Employee with either or both of the titles
of Chief Executive Officer or President, or materially changing the duties
and responsibilities of Employee in these positions.
7.6.c A material negative change in the benefits offered to Employee.
7.6.d Failure by the Company to have a policy of Directors and
Officers Insurance in place substantially equivalent to that in effect on
September 22, 1999.
5
<PAGE>
7.7 Termination Without Cause
-------------------------
Company may, at any time prior to June 30, 2000, discharge Employee
"without cause," whereupon his employment shall terminate on the date of
termination established by the Notice of Termination. If terminated "without
cause," Employee shall receive all base salary and accrued vacation through the
date of termination, all bonus and benefits to which Employee has a vested right
at the time, an additional payment of $120,000, and immediate vesting of the
100,000 stock options granted to Employee as described in paragraph 3 above.
8. GENERAL PROVISIONS.
------------------
8.1 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.
8.2 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.
8.3 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.
8.4 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.
8.5 Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made by hand delivery, first class mail, or
facsimile, addressed as follows:
Party: Company: Hollywood Partners.com, Inc.
- ------ 1800 Avenue of the Stars, Suite 480
Los Angeles, CA 90067
Attn.: Mark Beychok, Chairman
Phone: 310-552-0555
Fax: 310-552-8480
6
<PAGE>
Employee: Lee M. Lambert
1800 Avenue of the Stars, Suite 480
Los Angeles, California 90067
Phone: 310-552-0555
Fax: 310-552-8480
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; and when receipt is acknowledged or confirmed, if
telecopied.
8.6 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.
8.7 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.
8.8 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.
8.9 Incorporation by Reference. All exhibits referred to in this
--------------------------
Agreement are incorporated herein in their entirety by such reference.
8.10 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.
9. INDEMNIFICATION.
---------------
The Company shall indemnify Employee, to the maximum extent then permitted
by applicable law, from and against any and all claims, actions, suits, losses,
fines, judgments, interest, costs and expenses (including without limitation
actual attorney's fees and disbursements) arising out of or relating to
Employee's actions or omissions as an officer, director or employee of the
Company and/or any affiliate of the Company and/or as a trustee or fiduciary of
any plan, trust or other program established by the Company. This Section 9
shall survive termination or expiration of this Agreement.
7
<PAGE>
10. CONFIDENTIALITY
---------------
Employee recognizes that during the course of Employee's activities on
behalf of the Company, he will accumulate certain proprietary and confidential
information and trade secrets used in the Company's business and will have
divulged to him 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. Employee hereby acknowledges
and agrees that such information, except for information which is in the public
domain prior to Employee's receipt thereof, or which subsequently becomes part
of the public domain other than by Employee's breach of a confidentiality
obligation, or which Employee can clearly demonstrate was in his possession
prior to receipt thereof from the Company and was developed by Employee or
received by Employee 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 and not to Employee. Employee
agrees, to the extent not prohibited by law, that he shall not, at any time
during or after the Term of this Agreement and two years after the expiration or
termination of this Agreement, disclose, divulge or make known, directly or
indirectly, to any person, or otherwise use or exploit in any manner any
Proprietary Information obtained by Employee under this Agreement, except in
connection with and to the extent required by his performance of his duties
hereunder for the Company. Upon termination of this Agreement, Employee shall
deliver to Company all tangible displays and repositories of Proprietary
Information.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the day and year first above written.
"COMPANY" "EMPLOYEE"
HOLLYWOOD PARTNERS.COM, INC.
By ________________________________ ________________________________
Mark Beychok Lee M. Lambert
Chairman of the Board of Directors
8
<PAGE>
EXHIBIT B
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>
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
<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> 1,086,585
<SECURITIES> 514,150
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,745,761
<PP&E> 7,517
<DEPRECIATION> (502)
<TOTAL-ASSETS> 1,830,101
<CURRENT-LIABILITIES> 280,478
<BONDS> 0
0
1
<COMMON> 8,036
<OTHER-SE> 1,528,893
<TOTAL-LIABILITY-AND-EQUITY> 1,830,101
<SALES> 981,518
<TOTAL-REVENUES> 981,518
<CGS> 600,668
<TOTAL-COSTS> 600,668
<OTHER-EXPENSES> 1,312,848
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,426
<INCOME-PRETAX> (952,409)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 95,337
<CHANGES> 0
<NET-INCOME> (857,072)
<EPS-BASIC> (.011)
<EPS-DILUTED> (.011)
</TABLE>
