<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
[ ] Transition Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ____________ to ____________.
Commission file number 1-12350
REGENESIS HOLDINGS, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Florida 65-0611607
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7777 Glades Road, Suite 211
Boca Raton, Florida 33434
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(Address of Principal Executive Offices) (Zip Code)
(561) 470-6005
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b)
of the Securities Exchange Actof 1934:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, par value $.01 per share, Over the counter bulletin board
non-cumulative
Common Stock Purchase Warrants not traded
Securities registered pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
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(Title of Class)
<PAGE>
Check whether the registrant: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State registrant's revenues for its most recent fiscal year: none.
State the aggregate market value of the voting stock held by
non-affiliates of the registrant on June 3, 1998, computed by reference to the
closing bid price ($1.50) of the Regensis Holdings, Inc. Common Stock as
reported by the Wall Street Journal on that date: $1,031,487.
APPLICABLE ONLY TO CORPORATE ISSUERS
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The number of shares outstanding of the registrant's Common Stock, par
value $.01 per share (the "Regenesis Common Stock"), as of June 3, 1998, was
762,445.
<PAGE>
PART I
Item 1. Description of Business.
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GENERAL
Regenesis Holdings, Inc. ("Regenesis"), formally known as QPQ
Corporation ("QPQ"), attempted to complete the acquisition of Torland, Inc., a
harvester and seller of Canadian Sphagnum Peat Moss. However, on May 1, 1998
that transaction was retroactively cancelled due to the inability to raise the
financial requirements to complete the acquisition. Until June 1997, Regenesis
developed and operated Domino's Pizza Stores in the Republic of Poland and had
been in the business of developing centers which offer primary health care,
medical services and medically supervised weight loss programs in South
Florida.
New management took over the Company in May 1997 and determined that
the negative cash flow of the pizza and medical businesses was placing
Regenesis in a difficult financial position. In addition, due to not meeting
the expansion requirements the Company was about to lose it's Domino's Pizza
franchise. Management therefore sold its Polish subsidiary for approximately
$500,000. At the same time management determined that the medical businesses
were losing over $70,000 per month and that the diet business was in
difficulty due to the phen-fen scare. Management sold its QPQ Medical
subsidiary and certain assets for cash and notes totaling $285,000.
PROPOSED VENTURE ACTIVITIES
Regenesis continues to search for, investigate and attempt to secure and
develop business opportunites on its own behalf. However, there can be no
assurance that Regensis will be successful in its search for new business
opportunities.
Regenesis is searching for and investigating business opportunities. Regenesis
presently intends to investigate and/or engage in one or more of the following
activities ("Venture Activities") : (1) acquisition of at least a majority
interest in and operational control of, business enterprises; (2) development
and marketing of commercial enterprises, products and/or services; and (3}
participation in business ventures with existing or newly formed business
entities on a joint venture or other active business relationship basis.
Regenesis may also take equity positions in certain business enterprises
through the direct purchase of securities or through other financing methods
including the utilization of debt financing and may also purchase franchises
and/or license products or services. In any case, Regenesis intends to,
directly and/or through subsidiaries or affiliates, acquire and maintain a
controlling interest in the entities it acquires or establishes Management
anticipates that the selection of business enterprises, products or services
for acquisition will be complex and risky. Because of Regenesis's limited
financial capabilities at this time, it is anticipated that Regenesis may not
be able to diversify its acquisitions.
Regenesis will consider the quality of the management of any business
acquisition candidate and the operating records of the entity, the soundness
of the service or product to be developed or being developed, the effect of
market and economic conditions and governmental policies on the business and
its products, the nature of its competition, and the total projected required
capital. At this time, Regenesis cannot predict the manner in which it may
acquire and/or participate in the establishment and/or financing of a business
enterprise.
RELATIONSHIP WITH DOMINO'S
DOMINO'S DEVELOPMENT AGREEMENT. The relationship between Regenesis
and Domino's was governed principally by the Domino's Development Agreement.
Pursuant to the Domino's Development Agreement, as amended, Regenesis was
granted the exclusive right until December 31, 2003 to develop, operate and,
with the exception of Domino's Stores to be developed in Warsaw, Poland,
franchise Domino's Stores in Poland. During the Initial Term of the Domino's
Development Agreement, which would have expired on December 31, 2003,
Regenesis was required to open and operate, either through affiliates of
Regenesis ("Affiliated Franchisees") or unrelated third parties
("Non-Affiliated Franchisees"), at least 50 Domino's Stores in accordance with
a schedule that obligated Regenesis or its Non-Affiliated Franchisees to open
eight Domino's Stores in 1996 and five, six or seven Domino's Stores for each
of the following seven years. Regenesis did not satisfy the requirements to
open eight Domino's stores during 1996 and in March 1997, Domino's granted
Regenesis an extension until July 1, 1997 to satisfy such requirement.
<PAGE>
The Domino's Development Agreement was not assignable by Regenesis
without Domino's consent. In addition, the Domino's Development Agreement
prohibits Mitchell Rubinson from transferring control of Regenesis,
respectively, without Domino's prior written consent. Domino's consented to
Regenesis's initial public offering and agreed that the control requirement
would be satisfied by the agreement of Mitchell Rubinson to serve as an
officer and director of Regenesis if elected. Regenesis agreed to use its best
efforts to elect Mitchell Rubinson as an officer and director. For the term of
the Domino's Development Agreement, Regenesis, and Mitchell Rubinson were
restricted from having an interest in, being employed by, advising or
assisting another business that is the same as or similar to a Domino's Store.
The Domino's Development Agreement also set forth restrictions on transfer of
the various rights of Regenesis, Affiliated Franchisees and Non-Affiliated
Franchisees.
On June 27, 1997 the Company, due to its inability to meet the terms
of the development agreement, sold it's wholly owned subsidiary PK Polska for
$500,000, plus a release from all other obligations of the Company relative to
PK Polska, including bank guarantees.
QPQ MEDICAL CENTERS, INC.'S BUSINESS
In August 1995 QPQ Medical, formally a wholly-owned subsidiary of
Regenesis, invested in the business of developing and/or operating centers
which offer primary care, medical services and medically supervised weight
loss programs. The weight loss programs used a protocol which integrates
systems and routines of nutrition management, exercise and prescribed
medication and certain other medical services to address the weight loss and
non-weight loss related medical problems of its patients. In January, April,
July and September of 1996, Regenesis opened four (4) medical centers. In
February 1997, QPQ Medical acquired the medical practice of Dr. Jack B.
Drimmer, P.A. and relocated such practice to an Aventura, Florida center.
QPQ's medical centers were located in Kendall, Aventura, Fort Lauderdale and
Boca Raton, Florida.
Effective June 23, 1997, the Company sold three of its four operating medical
centers to an unrelated party in exchange for cash of $25,000, which was
received on July 1, 1997 and notes receivable of $57,000. The Company recorded
a loss on disposition of assets of $228,088 in its condensed consolidated
financial statements for the year ended December 31, 1997. After completion of
this sale it was the Company's intention to continue to operate the remaining
medical center. Subsequently, management of the Company determined that it
would be in the best interest of the Company to dispose of the remainder of
its medical center operation in order to eliminate the continuing losses
associated with such operation and the potential contingent liabilities
related to the weight loss business.
On September 3, 1997 the Company sold its 100% interest in QPQ Medical to an
unrelated party in exchange for $60,000 of cash, a $150,000 note receivable,
and the assumption of all liabilities of QPQ Medical by the purchaser. In
addition, QPQ Medical transferred computer equipment with a net book value of
approximately $74,789 to the Company as additional consideration. The note
bears interest at 10% per annum, is payable in monthly principal installments
of $5,000 commencing October 1, 1997, with a balloon payment of $90,000
payable on September 30, 1998. Interest is payable at maturity. The note is
secured by a first lien on all assets of QPQ Medical and certain other assets
owned by the purchaser.
LATOR INTERNATIONAL, INC.
On October 8, 1997, the Company contingently acquired 100% of the issued and
outstanding common stock of Lator International, Inc. ("Lator") from unrelated
parties in exchange for 300,000 shares of the Company's Series A Preferred
Stock, convertible into 1,500,000 shares of the Company's common stock. Lator
was formed for the purpose of marketing Canadian Sphagnum peat moss and
entered into an agreement to purchase a Canadian Company ("Torland") which
leases certain peat moss bogs in Canada and harvests and sells the peat moss
primarily in the Southeastern United States. As of May 1, 1998 that transaction
was retroactively cancelled and all shares returned to the Company, due to the
Company's inability to finance the purchase.
<PAGE>
EMPLOYEES
As of March 31, 1998, Regenesis had 2 full-time employees. Mr.
C. Lawrence Rutstein Regenesis's Chairman of the Board, Chief Executive Officer
and President has entered into an employment agreement with Regenesis,
pursuant to which he is required to devote such portion of his business time
to Regenesis as may be reasonably required by Regenesis's Board of Directors.
Item 2. Description of Property.
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Regenesis currently maintains its executive offices in approximately
1,000 square feet of office space at 7777 Glades Road, Suite 211, Boca Raton,
Florida 33434. Rental payments for the space aggregate to approximately
$18,000 per annum. The lease is on a month to month basis.
Item 3. Legal Proceedings.
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Regenesis is not a party to any litigation or governmental
proceedings that management believes would result in any judgments or fines
that would have a material adverse effect on Regenesis.
Item 4. Submission of Matters to a Vote of Security-Holders.
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None.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
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Regenesis's Common Stock is currently listed on the National
Association of Securities Dealers, Inc. ("NASD") OTC Bulletin Board under the
symbol "RGNS". On October 27, 1997 the common stock was deleted from Nasdaq
Stock Market ("Nasdaq"), because the Company did not meet certain maintenance
requirements for continued inclusion on Nasdaq.
The following table sets forth, for the period since January 1, 1995,
the high and low closing bid quotations for the Common Stock as reported by
NASD OTC Bulletin Board. The NASD OTC Bulletin Board quotations represent
quotations between dealers without adjustments for retail markups, markdowns
or commissions and may not necessarily represent actual transactions.
High Low
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1995
First Quarter............................................ 1 5/16 5/8
Second Quarter........................................... 2 1/8 21/32
Third Quarter............................................ 1 7/16 5/8
Fourth Quarter........................................... 2 1/2 5/8
1996
First Quarter............................................ 2 3/8 1 5/8
Second Quarter........................................... 2 2
Third Quarter............................................ 4 3 1/2
Fourth Quarter........................................... 2 3/4 2 3/8
1997
First Quarter............................................ 2 7/8 25/32
Second Quarter........................................... 1 1/8 1/8
Third Quarter (1)........................................ 1 1/32 1/32
Fourth Quarter (1)....................................... 2 3/4 23/32
<PAGE>
(1) On August 8, 1997, the Company declared a 1-for-20 reverse stock split,
payable to stockholders of record on August 22, 1997, and on September 17,
1997, the Company declared a 1 for 3 reverse stock split, payable to
stockholders of record on October 8, 1998.
As of March 31, 1998, there were 112 holders of record of Regenesis's Common
Stock. Regenesis believes that there were in excess of 300 beneficial holders
of the Regenesis Common Stock.
Regenesis has not paid any cash dividends on the Regenesis Common Stock and
does not currently intend to declare or pay cash dividends in the foreseeable
future. Regenesis intends to retain any earnings, if any, that may be
generated to provide funds for the operation and expansion of Regenesis's
business.
Item 6. Management's Discussion and Analysis or Plan of Operation.
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GENERAL
Management's Discussion and Analysis or Plan of Operation contains
various "forward looking statements" within the meaning of the Securities Act
of 1993 and the Securities And Exchange Act of 1934, which represents the
Company's expectations or beliefs concerning future events including without
limitation the following; ability of the Company to obtain financing on terms
and conditions that are favorable: ability of the Company to achieve
profitability and sufficiency of cash provided by operations, investing and
financing activities.
The Company cautions that these statements are further qualified by
important factors that would cause actual results to differ materially from
those contained in the forward looking statements, including without
limitations, the demand for the Company's future products and services,
changes in the level of operating expense and the present and future level of
competition. Results actually achieved may differ materially from expected
results included in these statements.
At December 31, 1997, Regenesis did not have any operating
subsidiaries. During the year ended December 31, 1997, management of the
Company determined that it would be in the best interest of the Company to
dispose of the remainder of its medical center operation in order to eliminate
the continuing losses associated with such operation and the potential
contingent liabilities related to the weight loss business.
On May 12, 1997, C. Lawrence Rutstein was appointed CEO and President of
the Company. When the existing Board of Directors resigned, Robert Hausman was
added to the Board of Directors with Mr. Rutstein.
After new management reviewed the financial status of the Company and
the continuing serious operating losses, the following action was taken:
1. Effective June 23, 1997, the Company sold three of its four weight loss
centers operated by QPQ Medical Weight Loss Centers, Inc. ("QPQ Medical") a
wholly-owned subsidiary which was organized on August 25, 1995 to offer
supervised weight loss programs using a protocol which integrates systems and
routines of nutrition management, exercise and prescribed medication. The
centers continued to have substantial operating losses and combined with the
negative publicity on weight loss medications management believed it was
prudent to sell the centers. The Company incurred a loss of $228,088 on such
sale.
2. On June 27, 1997, the Company sold its wholly-owned Polish subsidiary PK
Polska ("PKP") which operated Domino's Pizza franchises in Poland for $500,000
of cash. In addition to the continuing operating losses, the Company was in
default of its development agreement with Domino's and the Company did not
have adequate resources to cure the default. The Company incurred a loss of
$301,711 on such sale.
3. On September 3, 1997 the Company sold its 100% interest in QPQ Medical to
an unrelated party in exchange for $60,000 of cash, a $150,000 note
receivable, and the assumption of all liabilities of QPQ Medical by the
purchaser. In addition, QPQ Medical transferred computer equipment with a net
book value of $74,789 to the Company as additional consideration. The Company
incurred a loss of $295,630 on such sale.
<PAGE>
4. On October 7, 1997, the Board of Directors of the Company designated
300,000 shares of authorized Preferred Stock as Series A Preferred Stock with
a par value of $.01 per share. The Series A Preferred Stock has equal voting
rights with the Company's Common Stock; is convertible, at the option of the
holder, into five shares of Common Stock for each share of Series A Preferred
Stock; is redeemable at any time at the sole option of the Company at a
redemption price to be negotiated by the parties; entitled to dividends from
time to time as determined in the sole discretion of the Company out of funds
legally available for the payment of dividends; and is entitled to a
liquidation preference of $.01 per share upon voluntary or involuntary
dissolution or winding up of the Company.
5. On October 8, 1997, the Company acquired 100% of the issued and outstanding
common stock of Lator International, Inc. ("Lator") from unrelated parties in
exchange for 300,000 shares of the Company's Series A Preferred Stock. Lator
was formed for the purpose of marketing Canadian Sphagnum peat moss and has
entered into an agreement to purchase a Canadian company which leases certain
peat moss bogs in Canada and harvests and sells the peat moss primarily in the
Southeastern United States. The Company has made an aggregate of $350,000 of
demand loans to Lator, $350,000 of which were outstanding as of
December 31, 1997. On May 1, 1998 the transaction was retroactively cancelled
due to the Company's inability to finance the purchase and the 300,000 shares
were returned to the Company. The Loans to Lator are currently being repaid.
The balance as of May 20, 1998 was $288,000.
With the cash available from the demand notes receivable the Company has
the ability to fund its corporate operations for the next twelve months.
Although the Company is confident that the demand notes from Lator are
collectible, the notes from the sale of the medical assets and its medical
subsidiary totaling approximately $227,000 are now in default. Management has
taken appropriate action to collect such notes and is uncertain at this time
the degree of collectability based on the collateral underlying such notes.
However, in order to acquire any businesses, it will be necessary for the
Company to raise additional debt or equity financing in order to fund such
transactions. There can be no assurance that the Company will be able to
obtain additional financing or that additional financing will be available on
acceptable terms to fund future commitments.
On October 27, 1997, the Company's Common Stock was delisted from the
NASDAQ SmallCap Market and has traded on the over the counter market
(Electronic Bulletin Board) since that date.
YEAR ENDED DECEMBER 31, 1997 VS YEAR ENDED DECEMBER 31, 1996:
RESULTS OF OPERATIONS
During the years ended December 31, 1997 and 1996 the Company generated
revenues from QPQ Medical and PK Polska of $1,260,707 and $2,093,179
respectively and incurred losses from such operations in the amounts of
$(1,371,183) and $(2,194,222), respectively.
Effective June 23, 1997 the Company sold three of its operating Medical
Centers to an unrelated party in exchange for cash of $25,000, which was
received on July 1, 1997 and notes receivable of $57,000 and incurred a loss
on such sale of $228,088, which is included in loss from discontinued
operations in the accompanying condensed consolidated financial statements.
On June 27, 1997, the Company sold its wholly-owned Polish subsidiary PK
Polska for $500,000, plus a release from all other obligations of the Company
relative to PK Polska, including bank guarantees. The Company also
relinquished its $300,000 certificate of deposit (which was used as collateral
for a $300,000 bank loan to PK Polska) and transferred the unamortized cost of
its Domino's Development rights to the purchaser. Following is a computation
of the loss incurred on the sale of QPQ Medical and PK Polska:
<PAGE>
Q P Q P K
Medical Polska Total
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Net assets at date of sale $ 580,418 $ 312,068 $ 893,026
Certificate of deposit relinquished -- 300,000 300,000
Transfer of net book value of
Domino's development rights -- 189,103 189,103
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Total 580,418 801,711 1,382,129
Less proceeds received 284,788 500,000 784,788
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Loss on sale $ 295,630 $ 301,711 $ 597,341
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General and Administrative Expenses for the year ended December 31, 1997
and December 31, 1996, totalled $2,565,185 and $710,679, respectively. For the
year ended December 31, 1997, General and Administrative Expenses were
comprised of executive and office staff salaries and benefits of $462,113
legal and professional fees, office rent, travel, telephone and other
corporate expenses of $612,359, depreciation and amortization of $88,160 and
consulting fees of $1,402,553. The shares issued for a portion of the
compensation and consulting fees were valued at the market value of the
Company's stock on the date of authorization. However, the Board took into
account the lack of liquidity of the shares when issued in determining the
value of the compensation. For the year ended December 31, 1996, General and
Administrative Expenses were comprised of executive and office staff salaries
of $223,718, legal and professional fees, office rent, travel, telephone and
other general corporate expenses of $394,388,depreciation and amortization of
$84,050 and consulting fees of $8,523.
Interest and other income for the year ended December 1997 and 1996 was
$19,757 and $38,627. The $19,757 is primarily attributable to interest earned
on invested funds during the 1997 period ,as well as, miscellaneous income
relating to the disposal of assets.
Interest expense for the year ended December 31, 1997 was $(31,375) and
relates primarily to interest incurred on the 8% Convertible Debentures prior
to their conversion into Common Stock in June 1997.
Following is a condensed summary of the results of operations of QPQ
Medical and PK Polska for all periods presented in the accompanying condensed
consolidated financial statements:
Year Ended
December 31,
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1997 1996
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Revenues $ 1,260,707 $ 2,093,145
Net Loss $(1,371,183) $(2,194,222)
LIQUIDITY AND CAPITAL RESOURCES
On August 8, 1997, the Company declared a 1 for 20 reverse stock split,
payable to stockholders of record on August 22, 1997 and on September 17,
1997, the Company declared a 1 for 3 reverse stock split, payable to
stockholders of record on October 8, 1997. All information relating to
outstanding shares of common stock in the following paragraphs has been
restated to reflect the reverse splits.
As of December 31, 1997, the Company had working capital of $44,558 and
cash and cash equivalents of $500.
<PAGE>
In March 1997, the Company entered into Securities Subscription
Agreements (the "Agreements") for the sale of $1,280,000 of 8% Convertible
Debentures (the "Debentures") with a maturity date of March 31, 1998, for
which the Company received net proceeds of $1,066,667. Interest was payable
quarterly. The Debentures originally were convertible into shares of common
stock at a conversion price per share equal to the lower of (a) 75% of the
average closing bid price of the common stock for five business days
immediately preceding the conversion date or (b) 75% of the average of the
closing bid price of the common stock for the business day immediately
preceding the date of the individual Subscription Agreement.
Pursuant to a settlement entered into with all holders of the Debentures
the holders agreed to accept three shares of Common Stock in exchange for each
$1 of principal amount of each Debenture. In addition, all accrued interest on
the debentures was satisfied by issuance of the Common Stock. On June 4, 1997,
the Company issued 64,000 shares of Common Stock in exchange for all of the
outstanding Debentures.
The $165,927 of unamortized costs associated with issuance of the
debentures has been charged against additional paid in capital in the
accompanying condensed consolidated financial statements at December 31, 1997.
The Debentures were issued in reliance upon the exemption from
registration afforded by Regulation S as promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
Item 7. Financial Statements.
--------------------
See "Index to Financial Statements" for a description of the
financial statements included in this Form 10-KSB.
Item 8. Changes and Disagreements with Accountants on Accounting and Financial
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Disclosures.
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none
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
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with Section 16(a) of the Exchange Act.
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The Company's Bylaws provide that the number of directors shall be
fixed from time to time by resolution of the Board of Directors within the
limits specified by the Company's Articles of Incorporation. The Board of
Directors has fixed at three the number of directors that will constitute the
Board for the ensuing year. Each director elected at the Annual Meeting will
serve for a term expiring at the Company's 1997 Annual Meeting of Shareholders
(the "Annual Meeting") or when his successor has been duly elected and
qualified.
The directors and executive officers of the Company are as follows:
Name Age Position
- -------------------- --------- ------------------------------------
C. Lawrence Rutstein 53 Chairman of the Board, Chief Executive
Officer, Chief Operating Officer and
President
Robert Hausman 41 Director
Robert Claire 38 Director
<PAGE>
C. LAWRENCE RUTSTEIN has served as the Chairman of the Board, Chief
Executive Officer and President and Chief Operating Officer of the Company
since May 1997. Since 1995 he has also served as president of CapQuest
Partners, Inc., a company which has made several investments in emerging
software companies. A Harvard Law School graduate, Mr. Rutstein has practiced
corporate, banking and securities law in Philadelphia, Pennsylvania. Mr.
Rutstein previously served as Chief Counsel to the Pennsylvania Department of
Banking from 1971 to 1972, and served as Resident Counsel to a major
Philadelphia bank. From 1989 to 1991 he served as Chairman of the Board of
Cedar Group, Inc. a Nasdaq listed importer and distributor of fasteners. From
1992 until 1994 he was a General Partner of the Memphis Chicks AA baseball
club and during 1995 he was chairman of the Rittenhouse Group, Inc., a private
consulting company. Mr. Rutstein currently serves on the Board of Directors of
Coventry Industries, Corp., Daltex Medical Sciences, Inc., Packquistion Corp.,
and Future Graph, Inc.
ROBERT HAUSMAN has served as a director of Regenesis since May 1997.
Since June 1997 Mr. Hausman has served as the chairman and board of directors
of Coventry Industries Corp. From October 1994 to October 1997, Mr. Hausman
was President and CEO of Federal Supply, Inc., a fabrication company in
Pompano Beach, Florida. From February 1982 until July 1994, Mr. Hausman was a
50% owner of Bedford Weaving Mills, a Bedford, VA based specialty textile
mill.
ROBERT CLAIRE had served as a director of the Company between October
1997 and March 1998 when he resigned. Since 1989 Mr. Claire has been a partner
in the law firm Selman & Claire, Boca Raton, Florida, where he specializes in
real estate, corporate and business law, estate and financial planing, probate
and civil litigation. Prior to entering private practice in 1986 Mr. Claire,
who is also a certified public accountant, was an associate with Leonard G.
Birnbaum & Company.
The Company's officers are elected annually by the Board of Directors
and serve at the discretion of the Board. The Company reimburses all directors
for their expenses in connection with their activities as directors of the
Company. The directors make themselves available to consult with the Company's
management. Directors of the Company who are also employees of the Company do
not receive additional compensation for their services as directors.
Meetings and Committees of the Board of Directors
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's outstanding Common Stock, to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports
of changes in ownership of Common Stock. Such persons are required by SEC
regulation to furnish the Company with copies of all such reports they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners have been
complied with.
Item 10. Executive Compensation
----------------------
Summary Compensation Table
The following table sets forth the aggregate compensation paid to
Mr. C. Lawrence Ruttstein (the "Named Executive Officer") and
Mr. Mitchell Rubinson. None of the Company's other executive officers total
annual salary and bonus for the year ended December 31, 1997 was $100,000
or more.
Long Term
Annual Compensation(1) Compensation
-------------------------- --------------
Number of
Name and Fiscal Other Annual Options All Other
Principal Position Year Salary Compensation Granted Compensation
- ----------------------- ------ ------ ------------ --------- ------------
C. Lawrence Rutstein 1997 $70,000 $34,554(2) 68,702(3) -
Chief Executive Officer
Mitchell Rubinson 1997 $63,990 $ 0 0 -
Former Chief Executive 1996 $155,031 $ 0 -
Officer 1995 $141,551 $ 0 100,000(4) -
<PAGE>
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(1) The columns for "Bonus", "Restricted Stock Awards" and "LTIP Payments"
have been omitted because there is no compensation required to be
reported in such columns.
(2) Represents 6085 shares of Common Stock issued based on the average
market value on the date of authorization.
(3) Represents an option granted to purchase 68,702 shares of Common Stock
at an exercise price of $.01 per share with a value on the date of
authorization if exercised of $222,594.
(4) Represents an option granted to purchase 100,000 shares of Common Stock
at an exercise price of $1.5625.
Employment Agreements
The Company entered into an employment agreement with C. Lawrence Rutstein
effective May 12, 1997. which provides that he would serve as Chairman of the
Board, Chief Executive Officer and President for an initial term of five
years, commencing on May 12, 1997. His annual salary for the first year was
$120,000, subject to certain cost of living increases. Pursuant to the
employment agreement, Mr. Rutstein was required to devote such portion of his
business time to the Company as may be reasonably required by the Company's
Board of Directors, subject to his other business interests.
The Company had entered into an employment agreement with Mitchell
Rubinson, the former Chief Executive Officer, effective July 23, 1993, which
provided that he would serve as Chairman of the Board, Chief Executive Officer
and President for an initial term of three years, commencing on September 22,
1993, which the Company could have extended for up to two additional years.
His annual salary for the first year was $125,000, subject to annual ten
percent increases. Additionally, Mr. Rubinson was entitled to receive an
annual incentive bonus in the amount of 2.5% of the Company's net income after
tax. In May, 1997 Mr. Rubinson resigned terminating all of his rights pursuant
to his employment agreement and exchanged mutual releases with the Company.
Aggregated Fiscal Year-End Option Value Table
As of December 31, 1997 there were 68,702 stock options held by the
Named Chief Executive Officer as of December 31, 1997 and 1,666 stock options
held by Robert Hausman, a member of the Board of Directors. No stock options
were exercised by the Named Executive Officer during the period ended December
31, 1997. No stock appreciation rights were granted or are outstanding.
Item 11. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth, as of June 3, 1998, the number of shares
of Common Stock of the Company which were owned beneficially by (i) each
person who is known by the Company to own beneficially more than 5% of its
Common Stock, (ii) each director and nominee for director, (iii) the Named
Executive Officer and (iv) all directors and executive officers of the Company
as a group:
Percentage of
Name and Address of Amount and Nature of Outstanding
Beneficial Owner(1) Beneficial Ownership(2) Shares Owned
---------------------------- ------------------------- --------------------
C. Lawrence Rutstein ........ 74,787(3) 9.80%
All directors and
executive officers as
a group (two persons) ..... 76,453 10.02%
- ---------------
<PAGE>
(1) Unless otherwise indicated, the address of each of the beneficial owners
identified is 7777 Glades Road #211, Boca Raton, FL 33434. Unless
otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Amendment
upon the exercise of options. Each beneficial owner's percentage ownership
is determined by assuming that options that are held by such person (but
not those held by any other person) and that are exercisable within 60
days from the date of this Amendment have been exercised. As of June 3,
1998, there were 762,445 shares of Common Stock outstanding.
Item 12. Certain Relationships and Related Transactions
----------------------------------------------
Shared Facilities
The Company had occupied office space, at Suites 200, 206 and 210 at
1000 Lincoln Road, Miami, Florida. With respect to Suite 200, the Company was
ultimately responsible for payments of $10,132 in the year ended 1996 and $0
in 1995. With respect to Suite 206, the Company was ultimately responsible for
payments of $1,380 in the year ended 1996 and $156 in 1995. With respect to
suite 210, the Company was responsible for $3,004 during the year ended
December 31, 1996 and $9,585 during the year ended December 31, 1995. The
Company shared all or a portion of these facilities with International Fast
Food Corporation and Capital Brands, Inc.
The Company currently shares a portion of its executive offices with
Coventry Industries Corp. (Coventry). Mr. Rutstein serves on the board of
directors of Coventry and Robert Hausman, the president and CEO of Coventry
serves on the board of Regenesis Holdings, Inc.
Private Offering
As of March 31, 1996, the Company had negative working capital of
$169,089. The Company required an infusion of working capital. After
considering various alternatives and factors, including the market price of
the Common Stock, its trading volume and various time constraints, the Board
of Directors of the Company authorized a private offering of up to 1,195,000
shares of Common Stock. As of July 1996, QPQ sold in a private offering (the
"Private Offering") 1,195,000 of restricted Common Stock, which included
200,000 shares sold to Mitchell Rubinson, 50,000 shares each to Mr. Rubinson's
two children, 100,000 shares to Nigel Norton, Mr. Rubinson's brother-in-law
and 100,000 shares to each of Mr. Rubinson's two nieces. Each party has taken
the position that they have not entered into any contracts, arrangements or
understanding with Mr. Rubinson with respect to control of the Company.
Consulting Agreement
On July 25, 1993 the Company entered into a three year consulting
agreement (the "Consulting Agreement") with IFFC. Under the terms of such
agreement, IFFC is to assist the Company generally with operational and
administrative matters. Pursuant to the Consulting Agreement, as amended on
July 27, 1994 and January 1, 1995, IFFC will provide to the Company: (1) the
services of IFFC's Chief Financial Officer for not more than 30% of his
business time; (2) the services of IFFC's Controller for not more than 30% of
each of his business time; and (3) the services of managerial, general office
and staff personnel of IFFC. In exchange for such services, the Company is
required to pay IFFC: (1) 30% of all compensation and benefits provided by
IFFC to its Chief Financial Officer; (2) 27.5% of all compensation and
benefits provided by IFFC to its Controller; and (3) all costs and expenses
incurred by IFFC in connection with the services rendered pursuant to the
Consulting Agreement. For the fiscal years ended December 31, 1997 and
December 31, 1996, the Company's obligations to IFFC pursuant to the terms of
the Consulting Agreement aggregated to none and $4,225, respectively.
Regenesis terminated the agreement with IFFC in June 1996.
In connection with the signing of the Consulting Agreement, the
Company granted IFFC an option to purchase up to 250,000 shares of the
Company's Common Stock at an exercise price of $6.00 per share. This option
was also terminated in June 1996 for a $10,000 cash payment.
<PAGE>
License Agreement
As of November 9, 1995, QPQ Medical entered into a license agreement
(the "License Agreement"), with Weight Loss Associates, Inc. ("Weight Loss
Associates"), a corporation owned by Dr. Rabinowitz, a former director of QPQ,
and Mr.Rubinson, QPQ's former Chairman of the Board, Chief Executive Officer
and President,pursuant to which QPQ Medical has acquired the exclusive rights
subject to ertain restrictions, to use and sublicense a weight loss system and
certain proprietary marks developed by Weight Loss Associates. The weight loss
system (the "Program") integrates systems and routines of nutrition
management, exercise and prescribed medication.
Under the License Agreement, Weight Loss Associates was required to
assist QPQ Medical in developing and operating the Weight Loss Centers and
other businesses (collectively, the "Weight Loss Business"), that utilize the
Program, which assistance includes, but is not limited to, the following:
providing to QPQ Medical the Program; providing to QPQ Medical the information
necessary to prepare operations and marketing materials which describe how the
Program should be implemented; providing to QPQ Medical information necessary
to prepare a comprehensive business plan with respect to the Program;
providing to QPQ Medical any assistance or information reasonably deemed
necessary or desirable by QPQ Medical in connection with any of its efforts to
secure financing for the Business; providing any assistance or information
reasonably deemed necessary or desirable by QPQ Medical in connection with any
of his efforts to sub-license the Program and/or Marks; providing to QPQ
Medical in connection with any of its efforts to (i) obtain any governmental
license, authorization, permits, consent or approval with respect to use of
the Program and/or Marks, and (ii) respond to any governmental authority
inquiries with respect to the Business; providing to QPQ Medical technical
advice regarding the development and marketing of the Business; and continuing
to use its best efforts to develop and/or enhance the value of the Business
and Program.
Weight Loss Associates is also responsible for the establishment of all
protocols to be followed in connection with the implementation of the Program
by QPQ Medical. Subject to Weight Loss Associates' consent otherwise, QPQ
Medical is prohibited from overriding, modifying or otherwise causing
non-conformity with such protocols established by Weight Loss Associates in
connection with the implementation of the Program.
QPQ Medical shall pay Weight Loss Associates, Inc., as royalties for the
license of the Program, (i) a percentage of QPQ Medical's "Operating Profit"
from each of its product lines associated weight loss, and (ii) a percentage
of QPQ Medical's "Extraordinary Gain" from certain events. Payments shall be
made in arrears not later that the twentieth day of each month. For purposes
of the License Agreement, Operating Profit is generally defined in accordance
with Statement of Financial Accounting Standards No. 14 but excludes royalties
payable to Weight Loss Associates and certain other items. For purposes of the
License Agreement, "Extraordinary Gain" is defined to include the gain
associated with the events described in APB Opinion No. 30, including: (a) the
disposal of a business segment, (b) extraordinary items, and (c) unusual or
infrequent items. The calculation of an Extraordinary Gain is made in
accordance with APB Opinion No. 30 and generally accepted accounting
principles, with the following modifications: (a) Extraordinary Gain is
computed without reduction or allowance for events which give rise to a
negative Extraordinary Gain, (b) Extraordinary Gain is computed without
reduction or allowance for federal or state income taxes, and (c) in computing
Extraordinary Gain, estimated Operating Profit or negative Operating Profit
between "measurement date" and the "disposal date" (as such terms are defined
in APB Opinion No. 30) do not enter into the computation of Extraordinary
Gain. The License Agreement also provides that Weight Loss Associates and its
employees, officers or directors are entitled to reimbursement from QPQ
Medical for ordinary and necessary out-of-pocket expenses incurred by them in
the course of performing their duties under the License Agreement. QPQ Medical
will be required to make payments to Weight Loss Associates even if QPQ
medical fails to develop the system into a profitable business concept.
The licence agreement was terminated for 3,334 unregistered shares of the
Company's common stock.
<PAGE>
PART IV
Item 13. Exhibits, Lists and Reports on Form 8-K.
---------------------------------------
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
1.1 Form of Underwriting Agreement between QPQ and Reich & Co., Inc.(1)
3.1 QPQ's Articles of Incorporation(1), as amended(14)
3.2 QPQ's Bylaws(1)
3(i) Articles of Amendment to the Articles of Incorporation of QPQ Corporation setting
forth the descriptions, rights and preferences of the Series A Preferred Stock.(18)
3(ii) Articles of Amendment to the Articles of Incorporation of QPQ Corporation changing
the name of the Corporation to Regenesis Holdings, Inc.
4.1 Form of QPQ's Common Stock Certificate(1)
4.2 Form of Warrant Agreement between QPQ and Reich & Co., Inc. (the "Underwriter")
(including form of Underwriter's Warrants)(1)
4.3 Form of Warrant Agreement between QPQ and Continental Stock Transfer &
Trust Company (including form of Warrants)(1)
10.1 Domino's Development Agreement dated as of June 11, 1993, between Capital Brands and
Domino's (including form of Standard Franchise Agreement and Know-How
and Technical Knowledge, License and Management Agreement) (the
"Development Agreement")(1)
10.2 Assignment and Assumption Agreement, dated as of July 16, 1993, between QPQ and Capital
Brands assigning the Development Agreement to QPQ(1)
10.3 QPQ's Stock Option Plan, as amended(1)*
10.4 QPQ's Directors Stock Option Plan(1)*
10.5 Employment Agreement, effective as of July 23, 1993, between QPQ and
Mitchell Rubinson(1)*
10.6 Amendment to Domino's Development Agreement, dated March 7, 1995,
between QPQ and Domino's (10.1) (7)
10.7 Amendment to Employment Agreement, effective March 31, 1995, between QPQ
and Mitchell Rubinson (9)*
10.8 Form of Indemnification Agreement between QPQ and each of QPQ's Directors
and Executive Officers(1)*
10.9 Consulting Agreement, effective as of July 25, 1993, between QPQ and IFFC(1)
10.10 Stock Option Agreement, effective as of July 25, 1993, between QPQ and IFFC(1)
10.11 Form of Financial Consulting Agreement between QPQ and the Underwriter(1)
10.12 Letter Amendment to Master Franchise Agreement, dated November 13, 1995,
from Domino's to QPQ (13)
10.13 Credit Facility, dated October 22, 1993, between Northern Trust Bank of Florida,
N.A. and QPQ (10.1)(3)
10.14 Key Man Life Insurance Policy, dated August 9, 1993,
insuring life of Mitchell Rubinson with QPQ as the
beneficiary (4)
10.15 Second Amendment to Consulting Agreement, dated January 1, 1995, between
QPQ and IFFC (9)
10.16 Credit Facility, dated January 26, 1995, and credit
facility amendment dated February 15, 1996, between PK
Polska and AmerBank(10.1)(10)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.17 Stock Option Agreement, dated as of September 22,
1993, between QPQ and Mitchell Rubinson (4)*
10.18 Stock Option Agreement, dated as of September 22, 1993, between QPQ and
Stephen R. Groth (4)*
10.19 Amendment, dated May 25, 1995, to lease, dated July
20, 1993, between Corporate Srodmiescie and Pizza
King Polska (10.1)(11)
10.20 Office Site Lease, dated February 28, 1984, between
QPQ and the Managing Board of Municipality of Ochota
(4)
10.21 Domino's Store Site Lease, dated November 25, 1993, between QPQ and
Cogik (4)
10.22 Domino's Store Site Lease and Lease Option, dated
January 17, 1994, between PTTK, IFFC and QPQ (4)
10.23 Domino's Store Site Sublease, dated January 17, 1994,
between Ambrozja, IFFC and QPQ (4)
10.24 Domino's Store Site Sublease, dated January 17, 1994,
between Hofmokl, IFFC and QPQ (4)
10.25 Amendment to Credit Facility, dated April 22, 1994, between Northern Trust
Bank of Florida, N.A. and QPQ (4)
10.26 Restaurant Site Lease, dated November 10, 1993, between QPQ, Jan Kosmowski,
Justine Kosmowski, Irene Kosmowski and Krystof Kosmowski (4)
10.27 Schedule of Standard Franchise Agreements as of March
30, 1995 (form Standard Franchise Agreement filed with
Domino's Development Agreement) (9)
10.28 First Amendment to Consulting Agreement, dated July 27, 1994, between QPQ
and IFFC (10.1) (5)
10.29 Restaurant Site Lease dated July 20, 1994 between Corporate Srodmiescie and
multi-business company ABJ-POL, Ltd. (10.2) (5)
10.30 Assignment Agreement dated May 28, 1994 between Pizza King Polska and
Krak-Wien (10.3) (5)
10.31 Agreement dated May 13, 1994 between QPQ and Beata Najgrodzki (10.4) (5)
10.32 Credit Agreement No. 11/94 between Pizza King Polska and American Bank in
Poland S.A. dated January 31, 1994, amended as of September 26, 1994 (10.1)
(6)
10.33 Guarantee dated September 26, 1994 to American Bank in Poland S.A. from
QPQ (10.2) (6)
10.34 Amendment, dated November 2, 1994, to the Assignment
Agreement entered into on May 28, 1994 between Pizza
King Polska and Krak-Wien (10.3) (6)
10.35 Amendment, dated November 2, 1994, to the agreement
entered into on May 13, 1994 between QPQ Corporation
and Beata Najgrodzki (10.4) (6)
10.36 Domino Store Site Sublease agreement, dated January
17, 1994, between IFFP and Pizza King Polska and
Ambrozja [Parnas] (9)
10.37 Domino Store Site Sublease agreement, dated January
17, 1994, between IFFP and Pizza King Polska and
Hofmokl [Parnas] (9)
10.38 Lease Agreement, dated March 9, 1994, between Pizza King Polska and "Iron
Gate" Housing Cooperative [John Paul] (9)
10.39 Sublease Termination Agreement between Pizza King Polska and AWAL Sp. z
o.o. [John Paul] (9)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.40 Weight Loss Center Site, dated September 1995, between QPQ Medical and
M.C.H. Medical Center, Ltd. (10.1)(12)
10.41 Weight Loss Center Site, dated November 1, 1995, between QPQ Medical and
Aventura Corporate Center (10.2)(12)
10.42 License Agreement, dated November 9, 1995, between
QPQ Medical and Weight Loss Associates (QPQ has
requested of the Securities and Exchange Commission
that certain portions of the License Agreement
receive confidential treatment (10.3)(12)
10.43 Physician Employment Agreement, dated December 27, 1995, between QPQ
Medical and Dr. Beth D. Yedwab, M.D. (13)*
10.44 Physician Employment Agreement, dated December 13, 1995, between QPQ
Medical and Dr. Jose David Suarez, M.D. (13)*
10.45 Amendment dated January 19, 1996, to Credit Facility dated January 31, 1995
between PKP and AmerBank (13)
10.46 Amendment, dated November 24, 1995, to credit
facility dated January 26, 1995, between PKP and
AmerBank (13)
10.47 Lease Agreement, dated March 18, 1996, between QPQ Medical Weight Loss
Centers, Inc. and Howard B. Goldman and Sue E. Goldman (13)
10.48 Amendment to Employment between QPQ and Mitchell Rubinson, dated
November 7, 1996.(14)
10.49 Amendment to its Master Franchise Agreements, dated March 21, 1996 between
Domino's and QPQ (14)
10.50 Employment Agreement dated February 21, 1997 between QPQ and Dr. Jack
Drimmer.(14)
10.51 Undertaking and Loan Agreement, dated May 23, 1997, by and among the Registrant,
International Fast Food Corporation and Pizza King Polska Sp, z.o.o.(16)
10.52 Agreement on Transfer of Shares as Collateral, dated May 23, by and among the
Registrant and International Fast Food Corporation.(16)
10.53 Stock Purchase Agreement dated as of September 3, 1997 by and between
QPQ Corporation and Linde Group, Inc.(17)
10.54 Agreement and Plan of Reorganization dated October 8, 1997 by and between
QPQ Corporation and Darren Apel, Dr. Roy Bresky and Louis Zanette, the Shareholders
of Lator International, Inc.(18)
10.55 Escrow Agreement dated October 8, 1997.(18)
12.51 Purchase Agreement dated February 21, 1997 between QPQ and Dr. Jack
Drimmer, P.A.(14)
22.1 Subsidiaries of QPQ (13)
23.0 Consent of Accountants
27.0 Financial Data Schedule
- -----------------
</TABLE>
* Executive Compensation Plan or Arrangement
(1) Incorporated by reference to the exhibit of the same number filed with
QPQ's Registration Statement on Form S-1 (File No. 33-66862).
(2) Incorporated by reference to the exhibit number indicated filed with
QPQ's Registration Statement on Form S-1 (File No. 33-66862).
(3) Incorporated by reference to the exhibit number indicated filed with
QPQ's Form 10-QSB for the quarterly period ended September 30, 1993.
(4) Incorporated by reference to the exhibit of the same number filed with
QPQ's Form 10-KSB for the year ended December 31, 1993.
(5) Incorporated by reference to the exhibit of the number indicated filed
with QPQ's Form 10-QSB for the quarterly period ended June 30, 1994.
(6) Incorporated by reference to the exhibit of the number indicated filed
with QPQ's Form 10-QSB for the quarterly period ended September 30,
1994.
<PAGE>
(7) Incorporated by reference to the exhibit of the number indicated filed
with QPQ's Form 8-K dated March 8, 1995.
(8) Incorporated by reference to the exhibit of the number indicated filed
with QPQ's Form 8-K dated March 30, 1995.
(9) Incorporated by reference to the exhibit of the number indicated filed
with QPQ's Form 10-KSB for the year ended December 31, 1994.
(10) Incorporated by reference to the exhibit of the number indicated filed
with QPQ's Form 10-QSB for the quarter ended March 31, 1995.
(11) Incorporated by reference to the exhibit of the number indicated filed
with QPQ's Form 10-QSB for the quarter ended June 30, 1995.
(12) Incorporated by reference to the exhibit of the number indicated filed
with QPQ's Form 10-QSB for the quarter ended September 30, 1995.
(13) Incorporated by reference to the exhibit of the number indicated filed
of QPQ's Form 10-KSB for the year ended December 31, 1995.
(14) Incorporated by reference to the exhibit of the number indicated filed
of QPQ's Form 10-KSB for the year ended December 31, 1996.
(15) Incorporated by reference to the exhibit of the number indicated filed
of QPQ's Form 10-QSB for the quarter ended March 31, 1997.
(16) Incorporated by reference to the exhibit of the number indicated filed
of QPQ's Form 8-F on May 12, 1997.
(17) Incorporated by reference to the exhibit of the number indicated filed
of QPQ's Form 8-K on September 18, 1997.
(18) Incorporated by reference to the exhibit of the number indicated filed
of QPQ's Form 8-K on October 21, 1997.
(b) Reports on Form 8-K:
QPQ filed the following reports on Form 8-K during the quarterly period
ended December 31, 1997:
(i) On December 22, 1997 the Company filed a Form 8-KA in connection with
the acquisition of 100% of the issued and outstanding Stock of Lator
International, Inc.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, Regenesis has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
REGENESIS HOLDINGS, INC.
DATE: June 10, 1998 By: /s/ C. Lawrence Rutstein
------------------------------------------
C. Lawrence Rutstein, Chairman of the Board,
Chief Executive Officer and President
[Principal Executive Officer]
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of Regenesis in the
capacities and on the dates indicated:
DATE: June 10, 1998 /s/ C. Lawrence Rutstein
------------------------------------------
C. Lawrence Rutstein, Director
DATE: June 10, 1998 /s/ Robert Hausman
------------------------------------------
Robert Hausman, Director
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Certified
Public Accountants F-2
Consolidated Balance Sheets as of
December 31, 1997 and December 31,
1996 F-3 - F-4
Consolidated Statements of Operations
for the Years Ended December 31, 1997
and 1996 F-5
Consolidated Statements of
Shareholders' Equity for the Years
Ended December 31, 1997 and 1996 F-6
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1997
and 1996 F-7 - F-8
Notes to Consolidated Financial
Statements F-9 - F-22
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Regenesis Holdings, Inc.
Miami Beach, Florida
We have audited the accompanying consolidated balance sheets of Regenesis
Holdings, Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' 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 our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Regenesis
Holdings, Inc. as of December 31, 1997 and 1996, and the results of its
operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the Company has suffered and continues
to suffer significant losses, has an accumulated deficit and, as of December
31, 1997, has no operations or sources of revenues. These factors, among
others, raise substantial doubt about its ability to continue as a going
concern. Management's plans with regard to these matters are described in Note
2. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Moore Stephens Lovelace, P. A
Certified Public Accountants
Orlando, Florida
May 22, 1998
F-2
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
-------------------------
1997 1996
---------- ----------
CURRENT ASSETS:
Cash $ 500 $ 138,731
Restricted cash -- 300,000
Current portion of notes receivable
from Lator International, Inc. 100,000 --
Notes and accounts receivable
from sale of QPQ Medical,
net of allowance for doubtful
accounts of $202,167 2,983 --
Receivables -- 171,972
Inventory -- 57,718
Accrued interest receivable -- 28,889
Due from affiliates -- 149,382
Prepaid expenses 18,000 230,368
---------- ----------
Total current assets 121,483 1,077,060
---------- ----------
FURNITURE, EQUIPMENT & LEASEHOLD
IMPROVEMENTS, NET 14,013 1,988,251
NONCURRENT NOTES RECEIVABLE FROM
LATOR INTERNATIONAL, INC 250,000 --
ASSETS HELD FOR SALE 3,000 --
DEFERRED CHARGES, NET OF ACCUMULATED
AMORTIZATION OF $ 1,500 AND $11,301
RESPECTIVELY -- 124,030
DOMINO'S DEVELOPMENT RIGHTS, NET
OF ACCUMULATED AMORTIZATION OF
$106,208 AT DECEMBER 31, 1996 -- 204,646
---------- ----------
$ 388,496 $3,393,987
========== ==========
See Accompanying Notes
F-3
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
-----------------------------
1997 1996
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 76,925 $ 479,895
Accrued expenses -- 92,489
Due to affiliate -- 243,983
Bank credit facilities payable -- 21,718
------------ ------------
Total current liabilities 76,925 838,085
------------ ------------
BANK CREDIT FACILITIES PAYABLE -- 300,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 par value,
1,000,000 shares authorized -- --
Common Stock, $.01 par value,
1,666,667 shares authorized;
663,643 and 127,557 shares
issued and outstanding,
respectively 6,636 1,275
Additional paid-in capital 12,344,281 9,276,942
Accumulated deficit (12,039,346) (7,090,852)
Accumulated translation adjustment -- 68,537
------------ ------------
Total shareholders' equity 311,571 2,255,902
------------ ------------
$ 388,496 $ 3,393,987
============ ============
See Accompanying Notes
F-4
<PAGE>
REGENESIS HOLDINGS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
----------------------------
1997 1996
----------- -----------
GENERAL & ADMINISTRATIVE
EXPENSES $ 2,565,185 $ 710,679
OTHER INCOME (EXPENSES):
Interest and other income 19,757 38,627
Interest expense (31,375) (708)
Underwriter warrant
settlement (201,000) --
Provision for doubtful
accounts (202,167) --
----------- -----------
Total other income
(expense), net (414,785) 37,919
----------- -----------
LOSS FROM CONTINUING
OPERATIONS (2,979,970) (672,760)
DISCONTINUED OPERATIONS:
Loss from operations (1,371,183) (2,194,222)
Loss on disposal of
discontinued operations (597,341) --
----------- -----------
LOSS FROM DISCONTINUED
OPERATIONS (1,968,524) (2,194,222)
----------- -----------
NET LOSS $(4,948,494) $(2,866,982)
=========== ===========
BASIC AND DILUTED NET
LOSS PER COMMON SHARE:
Continuing operations $ (10.63) $ (5.88)
Discontinued operations (7.03) (19.18)
----------- -----------
Net loss $ (17.66) $ (25.06)
=========== ===========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 280,221 114,385
=========== ===========
See Accompanying Notes
F-5
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Additional Accumulated
Common Stock Paid In Translation Accumulated
Shares Amount Capital Adjustment Deficit Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances,
December 31, 1995 100,416 $ 1,004 $ 7,122,290 -- $ (4,223,870) $ 2,899,424
Issuance of shares in
private placement 19,917 199 1,194,801 -- -- 1,195,000
Issuance of shares in
Regulation S offerings,
net of offering expenses 7,224 72 969,851 -- -- 969,923
Cost of termination of
option -- -- (10,000) -- -- (10,000)
Translation adjustments -- -- -- 68,537 -- 68,537
Net loss for the
year -- -- -- -- (2,866,982) (2,866,982)
------------ ------------ ------------ ------------ ------------ ------------
Balances,
December 31,1996 127,557 1,275 9,276,942 68,537 (7,090,852) 2,255,902
Issuance of Common Stock
in exchange for 8%
Convertible Debentures, net
of unamortized debenture
issue costs of $165,927 64,000 640 1,136,071 -- -- 1,136,711
Issuance of Common Stock
in satisfaction of liabilities
and payment of legal and
professional expenses 457,667 4,577 1,620,863 -- -- 1,625,440
Issuance of Common Stock
in payment of officer
compensation 6,086 61 34,493 -- -- 34,554
Options granted to officers
and directors as compensation -- -- 225,995 -- -- 225,995
Issuance of Common Stock
in private placement 8,333 83 49,917 -- -- 50,000
Translation adjustments -- -- -- (68,537) -- (68,537)
Net loss for the year -- -- -- -- (4,948,494) (4,948,494)
------------ ------------ ------------ ------------ ------------ ------------
Balances,
December 31,1997 663,643 $ 6,636 $ 12,344,281 $ -- $(12,039,346) $ 311,571
============ ============ ============ ============ ============ ============
</TABLE>
See Accompanying Notes
F-6
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
--------------------------
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Loss $(4,948,494) $(2,866,982)
Adjustment to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 61,506 71,224
Loss on sale of discontinued
operations 802,491 --
Expenses paid by issuance of
common stock 1,712,294 --
Other operating expenses 64,019 --
Changes in operating assets and
liabilities
Notes and accounts receivable
including accrued interest
receivable 25,906 (28,889)
Prepaid expenses (18,000) 4,454
Accounts payable and
accrued expenses (2,412) 50,574
Discontinued operations -
Noncash charges and
working capital changes 766,114 382,354
----------- -----------
Net cash used in operating
activities (1,536,576) (2,387,265)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of
discontinued operations 585,000 --
Proceeds from sale of equipment 49,282 --
Discontinued operations 300,000 (739,164)
Notes receivable from Lator
International, Inc. (350,000) --
Payments for furniture, equipment
and leasehold improvements (14,081) (79,403)
----------- -----------
Net cash provided by(used in)
investing activities 570,201 (818,567)
----------- -----------
See Accompanying Notes
F-7
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Years Ended December 31,
--------------------------
1997 1996
----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net proceeds from issuance of
common stock 50,000 2,164,923
Payment for option -- (10,000)
Proceeds from short term loans
from former shareholders 397,000 --
Repayment of short term loans
from former shareholders (397,000) --
Net proceeds from issuance of
8% convertible debentures 1,066,667 --
Proceeds from exercise of
stock options 196,333 --
Discontinued operations (321,718) 21,718
Payments from(to) affiliates, net (94,601) 46,554
----------- -----------
Net cash provided by financing
activities 896,681 2,223,195
----------- -----------
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT (68,537) 68,537
DECREASE IN CASH (138,231) (914,100)
BEGINNING CASH 138,731 1,052,831
----------- -----------
ENDING CASH $ 500 $ 138,731
=========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest:
Continuing operations $ 31,375 $ 708
=========== ===========
Discontinued operations $ 17,475 $ 35,745
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON
CASH INVESTING & FINANCING
ACTIVITIES:
Year Ended December 31, 1997:
Issuance of 64,000 shares of Common Stock in satisfaction of
$1,280,000 principal amount of 8% Convertible Debentures and $22,638
of accrued interest.
Issuance of 457,667 shares of Common Stock in satisfaction of
liabilities and payment of legal, professional and consulting
expenses.
Issuance of 6,086 shares of Common Stock in payment of officer
compensation.
See Accompanying Notes
F-8
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
Issuance of options to purchase 70,369 shares of Common Stock in payment of
$225,995 of Compensation expense.
See Accompanying Notes
F-9
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
On November 4, 1997, the Company changed its name to Regenesis
Holdings, Inc. ( the "Company/Regenesis"). The Company, formerly known as QPQ
Corporation, was originally organized for the purpose of developing and
operating franchised Domino's Pizza stores in the Republic of Poland
("Poland"). From August 9, 1995, through September 3, 1997, the Company's
wholly-owned subsidiary, QPQ Medical Centers, Inc. ("QPQ Medical") was in the
business of developing and or operating medical centers which offered primary
care medical services and medically supervised weight loss programs. On June
27, 1997, the Company sold its wholly-owned Polish subsidiary Pizza King
Polska, Sp z.o.o. ("PK Polska") to an unrelated party, in exchange for
$500,000 cash, relinquishment of certain PK Polska related assets owned by the
Company and assumption of all liabilities of PK Polska by the purchaser. On
September 3, 1997, the Company sold its wholly-owned subsidiary QPQ Medical
Centers, Inc. to an unrelated party, in exchange for $60,000 of cash, a
$150,000 note receivable and the assumption of all liabilities of QPQ Medical
by the purchaser. See Note 11 for additional details regarding the disposition
of PK Polska and QPQ Medical.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation - The accompanying consolidated financial
statements at December 31, 1997 include the accounts of the Company. The
results of operations and cash flows for PK Polska and QPQ Medical for the
year ended December 31, 1996 and for the periods from January 1, 1997, until
the dates of their sale are included in Discontinued Operations in the
accompanying consolidated financial statements.
The accompanying consolidated financial statements at December 31,
1996, include the accounts of the Company and its wholly-owned Polish
subsidiary Pizza King Polska a limited liability corporation and a wholly
owned subsidiary QPQ Medical. QPQ Medical commenced operations in January
1996. All significant intercompany transactions and balances were 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 these
estimates.
Foreign Currency - The only currency that may be used in Poland is
the Zloty. The value of the Zloty is pegged pursuant to a system based on a
basket of currencies, as well as all other economic and political factors that
effect the value of currencies generally. At December 31, 1996, the exchange
rate was 2,873 Zlotys per dollar. The accounts of PK Polska were measured
using the Polish Zloty. Monetary assets and liabilities were translated from
the local currency, the "Zloty", to U.S. dollars at the period end exchange
rate. Non-monetary assets, liabilities, and related expenses,
F-10
<PAGE>
REGENESIS HOLDINGS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
primarily furniture, equipment, leasehold improvements and related
depreciation and amortization, were translated at a weighted average exchange
rate. For the years ended December 31, 1997 and 1996, the Company recognized a
currency translation loss of $68,537 and a currency translation gain of
$68,537, which amounts are included in shareholders' equity under the caption
Accumulated Translation Adjustment.
Liquidity and Plan of Operations - As of December 31, 1997, the
Company had cash of $500 and working capital of $44,558. The Company's ability
to meet it's future obligations in relation to the orderly payment of it's
current liabilities of $76,925, most of which are past due at December 31,
1997, as well as it's recurring general and administrative expenses on a
current basis, is totally dependent upon its ability to collect amounts from
it's unsecured advances to Lator International, Inc. of $350,000 as of
December 31, 1997, which, as more fully described in Note 6, are past due by
their original repayment terms. Subsequent to December 31, 1997, the Company
has received repayments of approximately $60,000 on the notes. Since the
Company has no other source of liquidity other than collections from it's
unsecured, past due, advances to Lator International, Inc., the Company is
unable to project how long it may be able to survive without a significant
infusion of capital from outside sources and is further unable to predict
whether such capital infusion is available, or if available, will be at terms
and conditions that are acceptable to the Company. If the Company is unable to
collect it's unsecured past due advances to Lator International, Inc., or is
unable to raise sufficient capital, assuming such capital is available on
terms and conditions acceptable to the Company, the Company may be forced to
seek protection under the Federal Bankruptcy Code.
In order to generate future operating activities, the Company intends
to search for, investigate and attempt to secure and develop, business
opportunities through acquisitions, reverse mergers or other venture
activities. However, there can be no assurance that the Company will be
successful in its search for new business opportunities or that any such
businesses or ventures acquired will be successful.
Going Concern - The accompanying financial statements have been
prepared on a going concern basis, which assumes the realization of assets and
liquidation of liabilities in the ordinary course of business. During the
years ended December 31, 1997 and 1996, the Company has incurred losses of
$4,948,494 and $2,866,982 and as of December 31, 1997, has no operating
activities. As more fully described above under "Liquidity and Plan of
Operations", uncertainties exist with regard to the Company's ability to
generate sufficient cash flows from operations or other sources to meet and
fund it's commitments with regard to existing liabilities and recurring
expenses, which gives rise to doubts about the Company's ability to continue
as a going concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
Inventories - Inventories were stated at the lower of cost (first-in,
first-out) or market and consisted primarily of restaurant food items.
F-11
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net Loss Per Common Share - The net loss per common share in the
accompanying statements of operations has been computed based upon the
provisions of SFAS No. 128, Earnings Per Share, which became effective for
reporting periods ending after December 15, 1997, and requires restatement of
previously reported per share amounts. The adoption of SFAS No 128 did not
require a change in the net loss per common share amount reported for the year
ended December 31, 1996. The basic and diluted net loss per common share in
the accompanying statements of operations is based upon the net loss divided
by the weighted average number of shares outstanding during each period.
Diluted per share data is the same as basic per share data since the inclusion
of all potentially dilutive common shares that would be issuable upon the
exercise of options and warrants and the assumed conversion of preferred stock
would be anti-dilutive.
Furniture, Equipment and Leasehold Improvements - Furniture,
equipment and leasehold improvements are stated at cost. Maintenance and
repairs are charged to expense when incurred. Additions, major renewals and
betterments are capitalized. Leasehold improvements, upon completion, are
amortized over the shorter of the life of the respective lease or the expected
life of the improvement. Furniture and equipment are being depreciated over
lives ranging from three to five years on a straight-line basis. When items
are sold, or otherwise disposed of, the related costs and accumulated
amortization or depreciation are removed from the accounts and any resulting
gains or losses are recognized.
Income Taxes - Deferred income taxes are recognized for the tax
consequences in future years for differences between the tax basis of assets
and liabilities and their financial reporting amounts at each year-end based
on enacted tax laws and statutory tax rates applicable to the time periods in
which the differences are expected to affect taxable income. Valuation
allowances are established, when necessary, to reduce deferred tax assets to
the amount expected to be realized. Income tax expense is the tax payable for
the period and the change during the period in the deferred tax asset and
liability.
Acquisition Costs of Development Rights - All costs associated with
the acquisition of Domino's Development Rights were capitalized. The cost of
these rights were amortized on a straight line basis over a period of 10 years
(See Note 5).
Deferred Charges - All costs incurred in connection with the
organization of the Company were deferred and amortized on a straight-line
basis over 5 years, ended December 31, 1997.
Advertising and Promotion Expense - Production costs of future media
advertising were deferred until the advertising occurred. All other
advertising and promotion costs were expensed when incurred.
Credit Risk - Financial instruments, which potentially subject the
Company to concentrations of credit risk, consist principally of notes
receivable. In the opinion of management, the $350,000 of notes receivable are
fully collectable. See Note 6 for additional information regarding the status
of the $350,000 of notes receivable at December 31, 1997.
F-12
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Recently Issued Accounting Standards - The Company is required to
adopt SFAS No 130, Reporting Comprehensive Income, in the first quarter of
1998. SFAS No 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of financial statements.
The object of SFAS No. 130 is to report comprehensive income, a measure of all
changes in equity of an enterprise that result from transactions and other
economic events in a period, other than transactions with owners. Management
believes that the adoption of SFAS No. 130 will not have a material impact on
the Company's consolidated financial statements and the Company has elected to
disclose comprehensive income in the consolidated statement of shareholders'
equity upon adoption.
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, establishes standards for the way that public business
enterprises report information about operating segments and for related
disclosures about products and services, geographic area and major customers.
Regenesis will implement the disclosure provisions of SFAS No. 131 effective
December 31, 1998.
3. RESTRICTED CASH:
At December 31, 1996, the Company had $300,000 of restricted cash,
classified as a current asset, which represented collateral for PK Polska's
outstanding line of credit.
4. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Furniture, equipment and leasehold improvements at December 31, 1997
and 1996 are as follows:
December 31, December 31,
1997 1996
----------- -----------
Furniture and Equipment 16,461 318,381
Restaurant Equipment -- 735,509
Medical Equipment -- 413,028
Leasehold Improvements -- 1,160,673
----------- -----------
16,461 2,627,591
Less: accumulated depreciation
and amortization (2,448) (639,340)
----------- -----------
$ 14,013 $ 1,988,251
=========== ===========
Depreciation and amortization expense $ 13,624 $ 331,450
=========== ===========
5. DOMINO'S DEVELOPMENT RIGHTS:
From June 1993, through June 1997, the Company's wholly owned Polish
subsidiary operated four Domino's Pizza stores in the Republic of Poland
pursuant to the terms of a
F-13
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Development Agreement between Domino's Pizza, Inc. and the Company, which
granted the Company the exclusive right to develop and/or franchise Domino's
stores in Poland, subject to certain terms and conditions. The Company paid
Domino's a development fee of $300,000.
The Company was required to pay Domino's a franchise fee for each
store opened and a monthly royalty fee based upon a percentage of gross sales.
As more fully described in Note 11, the Company sold its wholly owned
Polish subsidiary that operated the Domino's Pizza stores.
6. TRANSACTIONS WITH LATOR INTERNATIONAL, INC:
On October 8, 1997, the Company agreed to purchase all of the
outstanding Common Stock of Lator International, Inc. ("Lator") in exchange
for 300,000 shares of the Company's Series A Preferred Stock. Completion of
the acquisition was contingent upon Lator's acquisition of one hundred percent
of the outstanding Common Stock of 9006-1474 Quebec, Inc., d/b/a Torland
("Torland") on or before December 31, 1997. Lator was formed for the purpose
of marketing Canadian Sphagnum Peat Moss. Torland leases certain peat moss
bogs in Canada and harvests and sells the peat moss primarily in the
Southeastern United States.
As a result of Lator's inability to obtain the necessary financing
and complete the acquisition of Torland, in May 1998, the Company
retroactively cancelled it's acquisition of Lator, and entered into a
Termination and Release Agreement ("The Agreement") with all parties to the
original agreement; accordingly, the accompanying Financial Statements do not
include the accounts of Lator. Pursuant to the Agreement amounts advanced to
Lator by the Company, aggregating $350,000 at December 31, 1997 are to be
repaid in full by Lator, although no specific repayment terms are specified in
the agreement. As indicated in the following table, the notes are presently
past due based upon their original terms. The notes are unsecured and pursuant
to the Agreement all interest due on the notes has been waived by the Company.
No interest was accrued on the notes as of December 31, 1997, and no interest
was received during the year ended December 31, 1997.
Subsequent to December 31, 1997, the Company has received repayments
of approximately $60,000 on the above described notes.
The terms and original repayment conditions of the promissory notes
are as follows:
Date of Interest Original Original
Note Rate Maturity Date Principal
- -------- ------- --------------- ---------
July 17, 1997 10% January 16, 1998 $225,000
September 16, 1997 10% March 15, 1998 75,000
October 17, 1997 10% On Demand 50,000
--------
Total $350,000
F-14
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
After receipt of the $350,000 of advances from the Company, Lator
advanced the funds to Torland.
7. 8 % CONVERTIBLE DEBENTURES:
In March 1997, the Company entered into Securities Subscription
Agreements (the "Agreements") for the sale of $1,280,000 of 8% Convertible
Debentures (the "Debentures") with a maturity date of March 31, 1998, for
which the Company received net proceeds of $1,066,667. Interest on the
debentures was payable quarterly.
The Debentures were originally convertible into shares of common
stock at a conversion price per share equal to the lower of (a) 75% of the
average closing bid price of the common stock for five business days
immediately preceding the conversion date or (b) 75% of the average of the
closing bid price of the common stock for the business day immediately
preceding the date of the individual Subscription Agreement.
Pursuant to a settlement entered into with all holders of the
Debentures the holders agreed to accept three shares of Common Stock in
exchange for each $1 of principal amount of each Debenture. In addition, all
accrued interest on the debentures was satisfied by issuance of the Common
Stock. On June 4, 1997, the Company issued 64,000 shares of Common Stock in
exchange for all of the outstanding Debentures.
The $165,927 of unamortized costs associated with issuance of the
debentures has been charged against additional paid in capital in the
accompanying consolidated financial statements at December 31, 1997.
The Debentures were originally issued in reliance upon the exemption
from registration afforded by Regulation S as promulgated by the Securities
and Exchange Commission under the Securities Act of 1933, as amended.
8. DEFERRED TAXES:
As of December 31, 1997 and 1996, the Company had net operating loss
carryforwards of approximately $5,627,000 and $2,647,000 respectively, for
U.S. tax purposes, which expire in various years through 2012. Deferred tax
assets as of December 31, 1997 and 1996 of approximately $2,110,000 and
$993,000 respectively, were subject to and presented net of a 100% valuation
allowance.
At December 31, 1997, the Company has capital loss carryforwards of
approximately $597,000, which expire in 2002.
F-15
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. SHAREHOLDERS' EQUITY:
On August 8, 1997, the Company declared a 1-for-20 reverse stock
split, effective on August 22, 1997, and on September 17, 1997, the Company
declared a 1 for 3 reverse stock split, effictive on October 8, 1997. All
information relating to outstanding shares of common stock in the accompanying
financial statements for all periods presented has been restated to reflect
the reverse splits.
The Company's Stock Option Plan (the "Plan") and Directors Stock
Option Plan (the "Directors Plan") (collectively the "Plans"), authorized the
issuance of 16,667 and 833 shares of common stock options, respectively.
The following table reflects the option activity for the years ended
December 31, 1997 and 1996:
1997 1996
-------- ------
Outstanding at beginning of year 8,375 9,033
Options granted -- 2,375
Options exercised -- --
Options expired (8,375) (3,033)
------- ------
Options outstanding at end of year -- 8,375
======= ======
Options exercisable at end of year -- 5,200
======= ======
Price range of options outstanding
at end of year -- $ 41.40 - $172.50
======= =================
On October 3, 1997, the Company established its 1997 Stock Option
Plan ("The 1997 Plan") which authorizes the issuance of options to purchase a
maximum of 1,000,000 shares of Common Stock. All shares to be issued under The
1997 Plan have been registered pursuant to a Form S-8 Registration Statement,
which was filed and became effective on October 3, 1997.
The following table reflects the option activity under The 1997 Plan
for the period from October 3, 1997 (its inception) through December 31, 1997:
Option Price Market Price Average
Number of at Date at Date Term in
Shares of Grant of Grant Years
---------- ------------- ---------------- --------
Options granted 496,369 $.01-$3.60 $2.125-$5.64 3.3
Options exercised (426,000) $.20-$ .75 $2.125-$3.25 3.0
-----------
F-16
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Options outstanding at
December 31, 1997 70,369 $.01-$3.60 $3.250-$5.64 5.0
=========
Options exercisable at
December 31, 1997 70,369 $.01-$3.60 $3.250-$5.64
=========
Available for grant at
December 31, 1997 503,631
=========
The weighted average remaining term of options exercisable at
December 31, 1997 approximated 4.9 years.
The difference between the option price and quoted market value of
the 426,000 options exercised aggregating $1,142,825 was charged to consulting
fees and is included in general and administrative expenses in the
accompanying consolidated statement of operations for the year ended December
31, 1997.
The 70,369 options outstanding, were granted to the Company's
President and Chief Executive Officer (68,702) and a Director of the Company
(1,667) and the difference between the option price and quoted market value
aggregating $225,995 was charged to compensation expense and is included in
general and administrative expenses in the accompanying consolidated
statements of operations for the year ended December 31, 1997. In addition,
the President received 6,086 shares of Common Stock in payment of $34,554 of
compensation. See Note 10 for additional information regarding expenses paid
by issuance of Common Stock.
The options granted to the Company's President and Chief Executive
Officer were issued pursuant to an agreement with the Company's Board of
Directors on December 15, 1997, in satisfaction of all shares of Common Stock
and options to purchase Common Stock which were issuable pursuant to the
anti-dilutive provision of his employment agreement.
SFAS No 123, "Accounting for Stock-Based Compensation" ("SFAS 123")
was issued during 1995 and was effective for the year ended December 31, 1996.
This pronouncement establishes financial accounting and reporting standards
for companies to recognize compensation expenses for grants of stock, stock
options and other equity instruments to employees based on new fair value
accounting rules. Companies that choose not to adopt the new fair value
accounting rules are required to disclose proforma net income and earnings per
share under the new method. The Company has adopted the disclosure provisions
of SFAS 123. Had compensation cost for the Company's stock option plans been
determined based upon fair values at the grant dates for awards under these
plans consistent with the methodology prescribed under SFAS 123 for options
granted in 1997 and 1996, the Company's net loss and net loss per share for
those years would have been increased by approximately $1,360.000 and $50,000
or $4.85 and $.44 per share respectively. The fair value of the options
granted during 1997 and 1996 is estimated as $2,540.000 and $248,000,
respectively on the date of such grants using the Black-Scholes option-pricing
model with the following assumptions: volatility of 1,350% in 1997 and 235% in
1996, expected dividends of 0, risk-free interest rate of 5%, and terms of 3
to 5 years in 1997 and 8.4 to 10 years in 1996.
F-17
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On October 7, 1997, the Board of directors of the Company designated
300,000 shares of authorized Preferred Stock as Series A Preferred Stock with
a par value of $.01 per share. The Series A Preferred Stock has equal voting
rights with the Company's Common Stock; is convertible at the option of the
holder into five shares of Common Stock for each share of Series A Preferred
Stock; is redeemable at any time at the sole option of the Company at a
redemption price to be negotiated by the parties; entitled to dividends from
time to time as determined in the sole discretion of the Company out of funds
legally available for the payment of dividends; and is entitled to a
liquidation preference of $.01 per share upon voluntary or involuntary
dissolution or winding up of the Company.
During the year ended December 31, 1997, the Company issued 8,333
shares of Common Stock in a private offering and received net proceeds of
$50,000. As of December 31, 1997, such shares had not been issued, but are
reflected as outstanding in the accompanying financial statements, since the
proceeds from such offering were received prior to December 31, 1997. The
shares were issued in April 1998.
During the year ended December 31, 1997, the Company issued 463,753
shares of Common Stock and 70,369 options to purchase Common Stock in payment
of expenses and satisfaction of liabilities. In the opinion of the Company,
all such shares and options were valued at their estimated fair market value
on the date of issuance, after considering all factors that could reasonably
impact the fair market value of the shares and options. The Company did not
obtain any independent fairness opinions with regard to the issuance of any of
the shares and options.
In connection with its initial public offering in 1993, the Company
issued 23,428 of Redeemable Common Stock Purchase Warrants. Each Warrant
entitles the holder to purchase one share of Common Stock for $396.00,
exercisable through September 22, 1998. The Company also sold to the
Underwriters a Purchase Warrant which allows the holder to purchase for $8.70
each up to 2,083 Warrants which can be converted to one share of Common Stock
per Warrant at an exercise price of $540.00.
As of December 31, 1997, the Company had 617,011 shares of Common
Stock potentially issuable pursuant to its stock option plans and outstanding
warrants.
10. GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses for the years ended December 31,
1997 and 1996 are comprised as follows:
Years Ended December 31,
------------------------
1997 1996
---------- -----------
Consulting fees, including
$1,292,742 paid by issuance of
Common Stock in 1997 $1,402,553 $ 8,523
F-18
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Legal and professional, including
$62,569 paid by issuance of
Common Stock in 1997 269,236 145,166
Salaries and wages, including
$260,549 paid by issuance of
Common Stock and options to
purchase Common Stock in 1997 462,113 223,718
Depreciation and amortization 88,160 84,050
Directors fees 18,000 22,500
Rent 24,087 25,609
Travel 23,456 23,000
Provision for reduction of assets
to net realizable value 81,582 --
All other, including
$43,796 paid by issuance of
Common Stock in 1997 195,998 178,113
---------- ----------
Total $2,565,185 $ 710,679
========== ==========
11. DISCONTINUED OPERATIONS:
Effective June 23, 1997, the Company sold three of its four operating
medical centers to an unrelated party in exchange for cash of $25,000, which
was received on July 1, 1997 and notes receivable of $57,000. The Company
recorded a loss on disposition of assets of $228,088, which is included in
loss from operations, under Discontinued Operations in the accompanying
Consolidated Statements of Operations for the year ended December 31, 1997.
After completion of this sale it was the Company's intention to continue to
operate the remaining medical center. Subsequently, management of the Company
determined that it would be in the best interest of the Company to dispose of
the remainder of its medical center operation in order to eliminate the
continuing losses associated with such operation and the potential contingent
liabilities related to the weight loss business.
On September 3, 1997 the Company sold its 100% interest in QPQ
Medical to an unrelated party in exchange for $60,000 of cash, a $150,000 note
receivable, and the assumption of all liabilities of QPQ Medical by the
purchaser. In addition, QPQ Medical transferred computer equipment with a net
book value of $74,789 to the Company as additional consideration. The company
recorded a loss of $295,630 on the sale of QPQ Medical. The note bears
interest at 10% per annum, is payable in monthly principal installments of
$5,000 commencing October 1, 1997, with a balloon payment of $90,000 payable
on September 30, 1998. Interest is payable at maturity. The note is
collateralized by a first lien on all assets of QPQ Medical and certain other
assets owned by the purchaser.
F-19
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As a result of the failure of the purchasers to meet their payment
obligations under the $57,000 and $150,000 notes, as of December 31, 1997, the
Company recorded a provision for doubtful accounts of $202,167, to reduce such
notes to their estimated net realizable value at December 31, 1997, which
amount is included in other expenses in the accompanying financial statements.
In connection with the sale of QPQ Medical, the Company received
computer equipment worth a net book value of $74,789 as part of the
consideration for such sale. During the period from the sale of QPQ Medical
through December 31, 1997, the Company was unsuccessful in its various
attempts to sell the equipment, and as of December 31, 1997, recorded a
provision of $64,018 to reduce such equipment to its estimated net realizable
value of $3,000. The $64,018 provision is included in general and
administrative expenses in the accompanying consolidated financial statements.
On June 27, 1997, the Company sold its wholly-owned Polish subsidiary
PK Polska for $500,000, plus a release from all other obligations of the
Company relative to PK Polska, including bank guarantees. The Company also
relinquished its $300,000 certificate of deposit (which was used as collateral
for a $300,000 bank loan to PK Polska) and transferred the unamortized cost of
its Domino's Development rights to the purchaser. Following is a computation
of the loss incurred on the sale of QPQ Medical and PK Polska:
<TABLE>
<CAPTION>
Q P Q P K
Medical Polska Total
------------ ---------- ------------
<S> <C> <C> <C>
Net assets at date of sale $ 580,418 $ 312,068 $ 893,026
Certificate of deposit relinquished - 300,000 300,000
Transfer of net book value of
Domino's development rights - 189,103 189,103
------------ ----------- ------------
Total 580,418 801,711 1,382,129
Less proceeds received 284,788 500,000 784,788
------------ ----------- ------------
Loss on sale $ 295,630 $ 301,711 $ 597,341
============ =========== ============
</TABLE>
Following is a condensed summary of the results of operations of QPQ
Medical and PK Polska for all periods presented in the accompanying
consolidated financial statements:
Years Ended December 31,
--------------------------
1997 1996
----------- -----------
Revenue $ 1,260,707 $ 2,093,145
Net loss $(1,371,183) $(2,194,222)
F-20
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The 1997 amounts include the results of operations of PK Polska for
the period from January 1, 1997 through June 27, 1997, the results of
operations of three medical centers for the period from January 1, 1997,
through June 23, 2997 and the operation of one medical center for the period
from January 1, 1997 through September 3, 1997.
The 1996 amounts include a full year of operations for both PK Polska
and QPQ Medical.
12. RELATED PARTY TRANSACTIONS:
From January 13, 1997 through March 12, 1997, the company's former
Chairman of the Board, Chief Executive Officer and President along with his
Mother loaned the Company an aggregate of $397,000, repayable on demand, with
interest at 8% per annum. The loans were made for working capital purposes. On
March 17, 1997, the loans were repaid in full together with $3,022 of accrued
interest from proceeds received in connection with issuance of the 8%
Convertible Debentures.
During the year ended December 31, 1997, the Company incurred $7,676
of legal fees from the law firm of Selmon & Claire. Robert Claire a partner in
the law firm was a director of the Company during the period from October 1997
through March 1998.
13. COMMITMENTS AND CONTINGENCIES:
At December 31, 1997, the Company is subject to various claims
relating to items arising in the normal course of business. In the opinion of
the Company, the resolution of such claims will not result in a material
adverse effect on the Company's financial position as of December 31, 1997.
On November 20, 1996, the Company was notified by holders of Warrants
for the purchase of an aggregate of 637 shares of Common Stock issued on
September 22, 1993, pursuant to the Underwriter's Common Stock Purchase
Agreement, between the Company and Reich & Co., Inc., that pursuant to the
anti-dilution provisions contained in such Warrants, the Warrant exercise per
share of Common Stock underlying the Warrants was reduced to $15.00 per share.
The claim alleged that the number of shares for which the Warrants are
exercisable increased to an aggregate of 22,950 shares. Additionally, the
warrant holders demanded registration of such shares. On May 14, 1997, the
Company repurchased the warrants for a total purchase price of $201,000. The
accompanying consolidated financial statements for the year ended December 31,
1997 include a loss on underwriter warrant settlement in the amount of
$201,000.
On April 18, 1997, the Company entered into a two year consulting
agreement with an unrelated individual to provide advice and consult with the
Company concerning identifying, evaluating, structuring, negotiating and
closing business acquisitions, including asset purchases,
F-21
<PAGE>
REGENESIS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
consolidations, mergers, joint ventures and strategic alliances with companies
located in Russia and the former Soviet Republic. The Company issued 5,000
shares of common stock as initial compensation and further agreed to issue
10,000 shares of common stock upon the successful completion of an acquisition
or merger introduced to the Company by the consultant. If any such acquisition
or merger is not completed due to the fault of the Company the 10,000 shares
will be issued to the consultant as a breakup fee.
On May 9, 1997, the Company entered into a five year employment
agreement with its President providing for annual salary of $120,000 with
annual increases equal to the greater of the annual increase in CPI or 6% of
the previous year's base salary. The President received a signing bonus in the
form of 6,086 shares of common stock and received options to purchase an
aggregate of 68,702 shares of common stock at an amended exercise price of
$.01 per share. The options vested immediately and were expired in full on May
12, 1998.
F-22
<PAGE>
Regenesis Holdings, Inc.
Form 10-KSB, December 31, 1997
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-START] JAN-01-1997
[PERIOD-END] DEC-31-1997
[EXCHANGE-RATE]
<TABLE>
<S> <C>
[CASH] 500
[SECURITIES] 0
[RECEIVABLES] 305,150
[ALLOWANCES] 202,167
[INVENTORY] 0
[CURRENT-ASSETS] 121,483
[PP&E] 16,461
[DEPRECIATION] (2,448)
[TOTAL-ASSETS] 388,496
[CURRENT-LIABILITIES] 76,925
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 6,636
[OTHER-SE] 304,935
[TOTAL-LIABILITY-AND-EQUITY] 388,496
[SALES] 0
[TOTAL-REVENUES] 0
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 2,948,595
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 31,375
[INCOME-PRETAX] (2,979,970)
[INCOME-TAX] 0
[INCOME-CONTINUING] (2,979,970)
[DISCONTINUED] (1,968,524)
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (4,948,494)
[EPS-PRIMARY] (17.66)
[EPS-DILUTED] (17.66)
</TABLE>
F-23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF QPQ CORPORATION FOR THE TWELVE MONTHS ENDED DECEMBER
31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 438,731
<SECURITIES> 0
<RECEIVABLES> 171,972
<ALLOWANCES> 0
<INVENTORY> 57,718
<CURRENT-ASSETS> 1,077,060
<PP&E> 2,627,591
<DEPRECIATION> (639,340)
<TOTAL-ASSETS> 3,393,987
<CURRENT-LIABILITIES> 838,085
<BONDS> 0
0
0
<COMMON> 76,535
<OTHER-SE> 2,179,367
<TOTAL-LIABILITY-AND-EQUITY> 3,393,987
<SALES> 2,093,145
<TOTAL-REVENUES> 2,093,145
<CGS> 3,532,435
<TOTAL-COSTS> 3,532,435
<OTHER-EXPENSES> 1,390,848
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,844
<INCOME-PRETAX> (2,866,982)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,866,982)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,866,982)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
</TABLE>
