U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 1-12350
Regenesis Holdings, Inc.
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(Name of Small Business Issuer in its Charter)
Florida 65-0827283
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
930 Washington Avenue, Fourth Floor, Miami Beach, Florida 33139
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(Address of Principal Executive Offices) (Zip Code)
(305) 695-4400
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(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the 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. [ ]
State issuer's revenues for its most recent fiscal year. $ -0-.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.
Not applicable. There has been no public trading market for the
issuer's securities during the past 60 days.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 7,871,461 as of March 31, 2000.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Other than historical and factual statements, the matters and items discussed in
this Annual Report on Form 10-KSB are forward-looking statements that involve
risks and uncertainties. Actual results of the Company may differ materially
from the results discussed in the forward-looking statements. Certain factors
that could contribute to such differences are discussed with the forward-looking
statements throughout this report.
General
Regenesis Holdings, Inc. (the "Company" or "Regenesis") was organized under the
laws of the State of Florida on July 6, 1993 under the name International Pizza
Corporation. On October 30, 1995, the Company changed its name to QPQ
Corporation, and on November 4, 1997, changed its name to Regenesis Holdings,
Inc. On August 8, 1997, the Company effected a reverse split of its outstanding
common stock at the rate of 1:20, and on September 17, 1997, it effected a
reverse split of its outstanding common stock at the rate of 1:3. The
information in this Report gives retroactive effect to such recapitalizations of
the Company.
The Company was originally formed to develop and operate Domino's Pizza outlets
in the Republic of Poland, through its wholly-owned subsidiary, Pizza King
Polska Sp z.o.o. ("Pizza King"). From August 1995 through September 3, 1997, the
Company also operated medical centers offering primary care medical services and
medically supervised weight loss programs, through its wholly-owned subsidiary
QPQ Medical Centers, Inc. ("QPQ Medical").
Pursuant to an agreement dated May 23, 1997, the Company transferred its
interest in Pizza King, as well as certain related assets, to an unaffiliated
party in June 1997. Also in June 1997, the Company sold certain of its operating
weight loss centers, and on September 3, 1997, the Company sold its interest in
QPQ Medical, all to an unaffiliated party. The Company recorded a loss from
discontinued operations totaling $1,968,524 in connection with these sales.
As of December 31, 1999, the Company had no operating subsidiaries had generated
no revenues from its business operations, and had minimal cash and a working
capital deficiency of $917,356. The Company's ability to meet its general and
administrative obligations is dependent upon its ability to secure and develop
new business opportunities through acquisitions or business combinations. The
Company intends to search for, investigate and attempt to secure and develop
business opportunities through acquisitions and/or similar business
combinations. However, there is no assurance that it will be successful in such
endeavors.
On December 22, 1998, Zirk Engelbrecht and Mario Gambuzzo, comprising all of the
directors of the Company, appointed Mitchell Sandler as director and, on the
same date, each of Messrs. Engelbrecht and Gambuzzo resigned. As a result, a
change in control of the Company's Board of Directors took place.
On January 20, 1999, Mr. Sandler appointed Russell Adler as a director of the
Company and the Chairman of its Board of Directors. Mr. Sandler remains the
Company's Executive Vice President and a member of the Board of Directors.
Messrs. Sandler and Adler have directed the Company's shift of focus to
operations in the internet, entertainment and related technology markets.
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On March 18, 1999, the Company acquired all of the operating assets of NetDisc,
Inc. ("NetDisc") in exchange for 10,000 shares of the Company's common stock.
NetDisc is engaged in Internet advertising, and has developed CD Rom/Internet
technology which directs users to the websites of advertisers. NetDisc did not
generate any operating revenues for the year ended December 31, 1999. The
Company assumed none of NetDisc's liabilities. As of the date of acquisition,
NetDisc had work in progress for the Road & Track magazine insert and minimal
assets.
The company has entered into a preliminary letter of intent (the "Preliminary
LOI") to acquire all of the assets and assume certain liabilities of the entity
formerly known as Red Ant Entertainment ("Red Ant").
In accordance with the terms of the Preliminary LOI both the Company and the
seller each loaned $75,000 to MCC Acquisitions, LLC ("MCC") the owner of the
assets and such funds were simultaneously advanced to Management West
International, Inc. ("Management West") the entity that is managing the assets
until the acquisition by the Company is completed. In addition, the Company
advanced an additional $80,492 to Management West to cover a portion of their
operating expenses for the period through December 31, 1999. The Company is
continuing to advance funds to cover operating expenses and for the period from
January 1, 2000 through March 31, 2000, advanced an aggregate of $140,000.
Pursuant to the terms of the Preliminary LOI, the purchase price will be
comprised of $300,000 of cash, 300,000 shares of restricted common stock of the
Company, a three-year warrant to purchase 100,000 shares of common stock of the
Company at an exercise price of $3.00 per share, plus the liabilities assumed.
The Company's $75,000 loan to MCC will be forgiven. All operating advances made
by the Company through the date of closing of the purchase will be considered as
part of the purchase price for financial reporting purposes, accordingly, such
advances are being capitalized as advances toward pending acquisition in the
accompanying financial statements. The acquisition will be accounted for under
the purchase method of accounting. In the event the acquisition is not
completed, any amounts capitalized and not refunded will be charged against
operations.
On April 20, 1999, the Company successfully launched the NetDisc concept and
delivered 125,000 NetDiscs to a targeted readership of Road & Track magazine, a
Hachette Publication.
The Company has purchased several Internet URL's through which it intends to
conduct e-commerce inter- related, with its NetDisc and music distribution.
The Company continues to pursue exclusive and non-exclusive agreements with
national publications to distribute interactive CD rom's and advertising
content.
The Company is currently evaluating other transactions consistent with its focus
on the Internet and entertainment and technology markets. While the Company
intends to seek other business opportunities through acquisitions, mergers or
other venture activities, the Company is not a party to any current agreements
to consummate such a transaction.
Employees
The Company currently has five employees, all of which are full-time. The
Company's address and phone number are: 930 Washington Avenue, Fourth Floor,
Miami Beach, Florida 33139; (305) 695-4400.
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The Company files annual, quarterly and special reports, proxy statements and
other information with the SEC. The Company's SEC filings are available to the
public over the Internet at the SEC's website at http://www.sec.gov. You may
also read and copy any document the Company files at the SEC's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC- 0330 for further information on the public reference room.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently leases approximately 4,000 square feet of office space at
its Miami Beach, Florida corporate headquarters from an unaffiliated party
pursuant to the terms of a lease expiring May 2002. Its monthly lease payments
are $4,367.
On May 12, 1999, the Company entered into an office service agreement for a New
York office. The agreement, which expires on May 31, 2000, requires monthly
payments of $4,626 and may be terminated by either party upon thirty days
written notice. Upon expiration of the initial term of the agreement, there is
an automatic extension for the same period of time as the initial term with an
increase in the base rent of 8%. The terms of the agreement will remain the same
as the initial term if extended.
ITEM 3. LEGAL PROCEEDINGS
In December, 1998 the Company filed a Complaint in the Circuit Court of the
Fifteenth Judicial Circuit in and for Palm Beach County, Florida entitled
Shulman & Associates, Inc., Manny J. Shulman, Franklyn B. Weichselbaum, Mitchell
Rubinson and Regenesis Holdings, Inc. v. Elizabeth Shwiff, Fincross, Ltd.,
Elpoint Corporation, Elpoint Co., L.L.C., Russian Securities Co., Gennady
Yakovlev, Oleg Pavlioutchouk and Maxim Shishlyannikov, Case No. CL 98-11409 AD,
for defamation and liable in connection with certain information released about
the Company.
In a collateral action, the Company was named in a lawsuit involving several of
the same parties in the United States District Court for the Northern District
of California in the matter entitled Elpoint Co., L.L.C., et al. v. Mitchell
Rubinson, et al., Case No. 99-1107 CRB. Although the Company was named as a
indispensable party, the allegations were in the nature of a shareholder
derivative claim and no relief was sought against the Company by the plaintiffs.
On May 19, 1999, a majority of the parties named in the aforementioned lawsuits,
including another California state court action entitled Elpoint, L.L.C., et al.
v. Mitchell Rubinson, et al., Case No. 301428, filed in the Superior Court,
attended mediation which resulted in a settlement which required, among other
things, the dismissal of all three lawsuits. The Company was not a named party
in the California state court action. Additionally, the Company is not obligated
to contribute financially to the settlement. Although, the Company did not
attend the mediation, the Company was an intended beneficiary of the settlement.
Mitchell Rubinson and Larry Rutstein, former officers of the Company,
purportedly reserved certain indemnification rights against the Company as part
of the settlement and notified the Company of such a reservation subsequent to
their execution of the settlement agreement. The Company cannot opine upon the
validity of such claims as no action has been filed against the Company in that
regard. However, the Company would vigorously defend any such claims in the
event they are filed.
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On December 16, 1999, the Judge presiding over the Superior Court of California
state court action entered an order granting the plaintiff's motion to enforce
the settlement under California Code of Civil Procedure ss. 664.6. Since the
settlement agreement purports to resolve all of the aforementioned matters, the
Company intends to dismiss the Florida lawsuit and obtain releases from the
defendants.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock was traded on the OTC Bulletin Board under the symbol
"RGNS" until December 15, 1998, when it ceased trading due to its failure to
comply with the requirements of Rule 15c2-11. The following table sets forth the
high and low bid quotations for the common stock for the periods indicated as
reported by Nasdaq. These quotations reflect prices between dealers, do not
include retail mark-ups, markdowns, commissions and may not necessarily
represent actual transactions.
Period High Low
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First Quarter ended 3/31/98 $5.500 $2.750
Second Quarter ended 6/30/98 $4.875 $1.000
Third Quarter ended 9/30/98 $4.000 $0.250
Fourth Quarter ended 12/15/98 $1.031 $0.063
First Quarter ended 3/31/99 $.063 $.063
Second Quarter ended 6/30/99 $.063 $.063
Third Quarter ended 9/30/99 $.07 $.05
Fourth Quarter ended 12/31/99 $.07 $.05
As of March 31, 2000, there were approximately 300 holders of record of the
7,871,461 shares of common stock that were issued and outstanding. The transfer
agent for the common stock is Continental Stock Transfer and Trust Company, 2
Broadway, New York, New York, telephone (212) 509-4000.
The Company has never paid cash dividends on its common stock, and presently
intends to retain future earnings, if any, to finance the expansion of its
business and does not anticipate that any cash dividends will be paid in the
foreseeable future. The future dividend policy will depend on the Company's
earnings, capital requirements, expansion plans, financial condition and other
relevant factors.
The Securities and Exchange Commission has adopted regulations which generally
define a "penny stock" to be any equity security that has a market price (as
defined) of less than $5.00 per share, subject to certain exceptions. The
Company's common stock may be deemed to be a "penny stock" and thus will become
subject to rules that impose additional sales practice requirements on
broker/dealers who sell such securities to persons other than established
customers and accredited investors, unless the common stock is listed on The
Nasdaq SmallCap Market. Consequently, the "penny stock" rules may restrict the
ability of broker/dealers to sell the Company's securities, and may adversely
affect the ability of holders of the Company's common stock to resell their
shares in the secondary market.
Recent Sales of Unregistered Securities
On February 1, 1999, the Company sold 35,000 shares of its Series C Preferred
Stock for a purchase price of $350.00 or $.01 per share, to Mr. Adler, the
Chairman of the Board of the Company. Inasmuch as
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Mr. Adler, as an executive officer and a director of the Company, is an
accredited investor, issuance of such securities was exempt from the
registration requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2) of such Act and the rules and regulations thereunder.
On February 3, 1999, the Company sold 10,000 and 3,000 shares of its Series C
Preferred Stock for a purchase price of $130.00 or $.01 per share, to Mr. Adler
and Mr. Sandler, Chairman of the Board and President of the Company,
respectively. Inasmuch as each of Messrs. Adler and Sandler is an executive
officer and a director of the Company, and therefore an accredited investor,
issuance of such securities was exempt from the registration requirements of the
Securities Act pursuant to the exemption set forth in Section 4(2) of such Act
and the rules and regulations thereunder.
In February 1999 and April 1999, the Company granted options under its 1997
Stock Option Plan to purchase an aggregate of 950,000 shares of its common stock
to Mr. Adler (500,000), Mr. Gallo (150,000), Mr. Sandler (150,000) and Mr.
Brownstein (150,000). Such options had an exercise price of $.25 per share and
were exercised in full in December 1999. Inasmuch as each of the individuals is
an officer and director of the Company and had access to relevant information
concerning the Company, the issuance of such securities was exempt from the
registration requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2) of such Act and the rules and regulations thereunder.
On February 15, 1999, the Company consummated the sale of 950,000 of shares of
common stock for an aggregate purchase price of $9,500.00, or $.01 per share, to
29 investors. Inasmuch as each of such investors is either an accredited
otherwise qualified investor, or had a pre-existing relationship with the
Company and had access to relevant information concerning the Company, the
issuance of such securities was exempt from the registration requirements of the
Securities Act pursuant to the exemption set forth in Section 4(2) of such Act
and the rules and regulations thereunder.
On February 17, 1999, Mr. Adler transferred 29,000 of his shares of Series C
Preferred Stock in the following manners to the following transferees, each of
which is an officer of the Company: 5,000 shares to Mr. Sandler; 13,333.33
shares to Mr. Gallo; and 10,666.66 shares to Mr. Brownstein. Messrs. Adler,
Sandler and Gallo are also directors of the Company. Each of Messrs. Adler,
Sandler, Gallo and Brownstein then converted all of his shares of Series C
Preferred Stock into an aggregate of 900,000 shares of common stock of the
Company, as follows: Mr. Adler: 300,000 shares; Mr. Sandler: 150,000 shares; Mr.
Gallo: 250,000 shares; and Mr. Brownstein: 200,000 shares.
On February 23, 1999, the Company consummated the sale of 500,000 of its shares
of common stock for an aggregate purchase price of $100,000, or $.20 per share,
to four institutional investors. Inasmuch as each of such institutional
investors is an accredited investor and had access to relevant information
concerning the Company, the issuance of such securities was exempt from the
registration requirements of the Securities Act pursuant to the exemption set
forth in Section 4(2) of such Act and the rules and regulations thereunder.
On March 18, 1999, in connection with the acquisition of all of the operating
assets of NetDisc, the Company issued 10,000 shares of its common stock to the
seller of such assets. NetDisc is engaged in the Internet advertising business
and has developed CD Rom/Internet technology which directs users to the websites
of advertisers. Inasmuch as the seller of the assets had access to relevant
information concerning the Company, including financial information, the
issuance of such securities was exempt from
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<PAGE>
the registration requirements of the Securities Act pursuant to the exemption
set forth in Section 4(2) of such Act and the rules and regulations thereunder.
Also on March 18, 1999, the Company granted 100,000 shares of its common stock
to Mark Jelaso, the marketing director of the Company, pursuant to the terms of
Mr. Jelaso's employment agreement. Inasmuch as Mr. Jelaso had access to relevant
information concerning the Company, issuance of such securities was exempt from
the registration requirements of the Securities Act pursuant to the exemption
set forth in Section 4(2) of such Act and the rules and regulations thereunder.
On March 30, 1999, the Company consummated the sale of 100,000 shares of its
common stock for a purchase price of $100,000, or $1.00 per share, to an
institutional investor. Inasmuch as the purchaser was an accredited investor and
had access to relevant information concerning the Company, including financial
information, the issuance of such securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set forth in
Section 4(2) of such Act and the rules and regulations thereunder.
On August 12, 1999 and December 30, 1999, the Company borrowed an aggregate of
$100,000 from a third party, a principal of whom is also a shareholder in the
Company. The loan is payable in full on or before July 1, 2000 and bears
interest at 2% above the base rate of the Bank of England, from time to time,
compounded daily and all interest is payable at maturity.
On September 8, 1999, the Company borrowed $100,000 from a third party. The loan
bears interest at the rate of 12% per annum and all interest is payable at
maturity. The loan is payable in full with 60 days after receiving a notice of
demand from the lender. At the option of the lender, the loan is convertible
into 75,000 shares of the Company's common stock at a per share price of $1.33.
In connection with the loan the Company issued to the lender a two year warrant
to purchase 20,000 shares of the Company's common stock at an exercise price of
$2.50 per share and one year option to purchase an additional 100,000 shares of
the Company's common stock at a price to be determined by negotiation between
the parties.
On October 31, 1999, the Company borrowed $75,000 from a third party. The loan
was payable in full on its extended due date of April 14, 2000. The unpaid
principal balance on the loan as of December 31, 1999, was $50,000. The loan
bears interest at 12% per annum and all interest is payable at maturity. At May
15, 2000, the unpaid balance on the loan was $30,000.
On December 29, 1999, certain officers and directors exercised options to
purchase 950,000 shares of common stock at an exercise price of $0.25 per share.
On January 5,2000, the Company granted options to three officers to purchase an
aggregate of 800,000 shares of common stock at an exercise price of $0.25 per
share.
On January 31, 2000, the Company consummated the sale of 50,000 shares of its
common stock for a purchase price of $100,000, or $2.00 per share, to an
institutional investor. Inasmuch as the purchaser was an accredited investor and
had access to relevant information concerning the Company, including financial
information, the issuance of such securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set forth in
Section 4(2) of such Act and the rules and regulations thereunder.
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On March 2, 2000, the Company consummated the sale of 50,000 shares of its
common stock for a purchase price of $150,000, or $3.00 per share, to an
institutional investor. Inasmuch as the purchaser was an accredited investor and
had access to relevant information concerning the Company, including financial
information, the issuance of such securities was exempt from the registration
requirements of the Securities Act pursuant to the exemption set forth in
Section 4(2) of such Act and the rules and regulations thereunder.
No underwriters were involved in any of the transactions described above, and no
commissions were paid in connection therewith.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR
PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. The forward-looking statements contained
in this Report are subject to certain risks and uncertainties. Actual results
could differ materially from current expectations. Among the factors that could
affect the Company's actual results and could cause results to differ from those
contained in the forward-looking statements contained herein is the Company's
ability to implement its business strategy successfully, which will depend on
business, financial, and other factors beyond the Company's control, including,
among others, prevailing changes in consumer preferences, access to sufficient
quantities of raw materials, availability of trained laborers and changes in
tobacco products regulation. There can be no assurance that the Company will
continue to be successful in implementing its business strategy. Other factors
could also cause actual results to vary materially from the future results
covered in such forward- looking statements. Words used in this Report such as
"expects," "believes," "estimates" and "anticipates" and variations of such
words and similar expressions are intended to identify such forward-looking
statements.
The following should be read in conjunction with the Financial Statements of the
Company and the notes thereto included elsewhere in this report.
OVERVIEW
Regenesis was organized under the laws of the State of Florida on July 6, 1993
under the name International Pizza Corporation. On October 30, 1995, the Company
changed its name to QPQ Corporation, and on November 4, 1997, changed its name
to Regenesis Holdings, Inc.
While the Company had no operating subsidiaries or business operations, and had
minimal cash and working capital at December 31, 1998, in February 1999, it
commenced its Internet and entertainment business with the development of the
NetDisc product line. As of December 31, 1999, the Company has not generated any
operating revenues from its NetDisc production line. In addition, it entered
into a Preliminary LOI for the acquisition of Red Ant.
On December 15, 1998, the Company's common stock was delisted from the OTC
Bulletin Board for failure to comply with Rule 15c-211 and has not traded
publicly since that date.
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Results of Operations
As noted in the Company's Report of Independent Certified Public Accountants,
the Company has experienced significant operating losses and has an accumulated
deficit which raises doubts about the Company's ability to continue as a going
concern. The Company incurred net losses of $1,677,720 and $436,213 for the
years ended December 31, 1999 and 1998, respectively. At December 31, 1999, the
Company had an accumulated deficit of $14,153,079. The Company is continuing its
efforts to generate revenues from its NetDisc operations, as well as complete
its pending acquisition of the assets of the entity formally known as Red Ant
Entertainment and attain a profitable level of operations. However, there is no
assurance that the Company's efforts will be successful. There are many events
and factors in connection with the development, manufacture and sale of the
Company's products over which the Company has little or no control, including
without limitation, marketing difficulties, lack of market acceptance of our
products, superior competitive product based on future technological innovation
and the inability to raise sufficient capital to implement the Company's planned
business activities. There can be no assurance that the future operations will
be profitable or will satisfy future cash flow requirements. The report of
Moore Stephens Lovelace, P.A., our independent auditors, with respect to our
financial statements and the related notes thereto, indicate that, at the date
of their report, we incurred net losses and had negative cash flow from
operations. Moore Stephens Lovelace, P.A., qualified their report to indicate
that these matters raise substantial doubt, at such date, about our ability to
continue as a going concern. Our financial statements do not include any
adjustments that might result from this uncertainty.
RESULTS OF OPERATIONS
For the years ended December 31, 1999 and 1998 the Company generated no
revenues, and incurred net losses of $1,677,720 and $436,213, respectively.
Operating expenses for the years ended December 31, 1999 and 1998 aggregated
$1,677,992 and $399,589, respectively. For the years ended December 31, 1999 and
1998, operating expenses were comprised as follows:
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Salaries and wages including related taxes $ 837,230 $ 72,275
Legal and professional 199,680 233,412
Marketing and promotion 137,200 -
Travel 117,337 3,948
Consulting fees 92,090 -
Rent 91,929 -
Office expense 69,642 23,547
Depreciation and amortization 3,744 -
Other general and administrative 129,140 66,407
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$ 1,677,992 $399,589
</TABLE>
Salaries and wages including related taxes increased $764,955 in 1999 as a
result of employment of five executive officers, as well as employment of
administrative and support staff that were not employed by the Company during
1998.
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Legal and professional fees decreased $33,732 in 1999 as a result of a decrease
in legal fees of $63,511 in 1999 which was partially offset by a $29,779
increase in external accounting fees. Legal fees in 1998 include $127,500
relating to the issuance of 30,000 shares of common stock in payment for
services performed.
The $137,200 of marketing and promotion costs in 1999, relates to the initial
marketing launch of the Company's NetDisc products, including the cost of
producing the CD Rom discs.
Travel expense increased by $113,389 in 1999 as a result of the travel costs
associated with the raising of capital, as well as the pursuit of potential
acquisitions and the initial marketing and promotion of the NetDisc CD Rom
product.
Consulting fees of $92,090 in 1999 consist of $50,350 of compensation expense
associated with the issuance of common stock to various individuals in exchange
for services performed, as well as $41,740 of consulting fees paid in connection
with general corporate matters.
Rent expense in 1999 aggregated $91,929 and related to the opening of corporate
offices in Miami, Florida and New York City.
Office expenses increased by $46,095 as a result of the opening of corporate
offices in Miami, Florida and New York City and the overall increase in
administrative activity in 1999 as compared to 1998.
Depreciation and amortization aggregated $3,744 in 1999, due to the acquisition
of a total of approximately $23,000 of furniture and equipment over the course
of the year, as well as the amortization of the excess of costs over the fair
value of net assets acquired associated with NetDisc.
Other general administrative expenses increased by $62,733 in 1999 due to an
overall increase in general corporate activity, as well as the opening of
corporate offices in Miami, Florida and New York City.
Interest and other income consisted of $12,900 in 1999 relating to the
collection of NetDisc accounts receivable subsequent to the acquisition of
NetDisc, all of which had been considered as uncollectible at the acquisition
date. During 1998, the Company earned interest income of $1,714.
Interest expense in 1999 aggregated $12,428 resulting from $275,000 of
borrowings during the year. There were no borrowings during 1998.
During 1998, the Company established a $38,338 provision for doubtful accounts
in connection with uncollectible notes receivable.
LIQUIDITY AND CAPITAL RESOURCES
For the years ended December 31, 1999 and 1998, net cash used in operating
activities was $842,086 and $221,539, respectively. The increase was primarily
attributable to additional expenses relating to the employment of executive
officers and support staff, as well as the opening of corporate offices in
Miami, Florida and New York City.
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Net cash used in investing activities for 1999 was $198,612, which was
attributable to $155,492 of advances in connection with a pending acquisition
along with an aggregate $43,120 relating to payments for furniture and equipment
and other assets. In 1998, net cash provided by investing activities of
$238,300, was attributable to collections on notes receivable.
Net cash provided by financing activities for 1999 was $1,121,785 which was
comprised of an aggregate of $698,750 relating to the sale of common stock in
private placements and the exercise of stock options by officers, $250,000 of
net proceeds from loans from third parties, as well as net proceeds of $173,035
of loans from officers and stockholders. Net cash provided by financing
activities for 1998 was $3,487, which was primarily attributable to loan
proceeds received from officers.
As of December 31, 1999, the Company had cash of $101,835 and a working capital
deficiency of $917,356.
The Company's ability to meet its future obligations in relation to the orderly
payment of its recurring obligations on a current basis is totally dependent on
its ability to generate revenues from its NetDisc operations, as well as
complete its pending acquisition of the assets of the entity formally known as
Red Ant Entertainment and attain a profitable level of operations. Since the
Company has no current source of liquidity, the Company is unable to predict how
long it may be able to survive without a significant infusion of capital from
outside sources and it is further unable to predict whether such capital
infusion, if available, will be on terms and conditions favorable to the
Company.
ITEM 7. FINANCIAL STATEMENTS
The financial statements required to be included in this Form 10-KSB are
appended hereto commencing on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The information required by this Item has been previously filed with the
Commission within the meaning of Rule 12b-2 of the Exchange Act.
-12-
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names, positions with the Company and ages of
the executive officers and directors of the Company. Directors of the Company
will be elected at the Company's annual meeting of stockholders. One half of the
total number of directors are elected at each annual meeting, and, therefore,
each director serves for two years or until his successor is elected and
qualifies. Officers are elected by the Board and their terms of office are,
except to the extent governed by employment contract, at the discretion of the
Board.
<TABLE>
<CAPTION>
Name Age Positions Held
---- --- --------------
<S> <C> <C>
Russell Adler 39 Chairman of the Board
Lawrence Gallo 35 Chief Executive Officer, President and Director
Mitchell Sandler 40 Vice President, Director
Joel F. Brownstein 58 Chief Financial Officer, Treasurer
</TABLE>
Russell Adler has served as the Chairman of the Board of the Company and as a
member of its Board of Directors since January 1999. From December 1996 to
November 1998, Mr. Adler served as consultant and counsel to Equity Management
Partners, Inc., an investment banking firm. From January 1996 to August 1997,
Mr. Adler served as President of Strategic Holdings Corp., an investment banking
firm. From 1993 to December 1995, Mr. Adler was employed as vice president of
operations for The Silicon Group, Inc., a semiconductor and computer software
development company. From 1987 to 1990, Mr. Adler served as consultant and
counsel to the Chairman of J.W. Gant, a registered broker-dealer. Between 1984
and 1987, Mr. Adler served as president of Air & Waterworks, Inc., a
manufacturer of water coolers. From June 30, 1998 through December 1998, Mr.
Adler served as a director for First Equity Corporation of Florida, a registered
broker/dealer. Mr. Adler is a member in good standing of the Florida Bar. He
received a B.A. in Business and Sociology from William Penn College in 1982 and
a J.D. from Nova Southeastern University School of Law in 1986.
Mitchell Sandler has served as Vice President since April 1999 and served as
President from December 1998 until March 1999 and as director of the Company
since December, 1998. Between 1993 and December 1997, he served as President of
The Silicon Group, Inc., a semi-conductor and computer software development
company for multimedia. From 1984 and 1992, Mr. Sandler was employed by
All-American Semiconductor, a distributor of semi-conductors, first as salesman,
then as Regional Sales Manager for the southeast (United States). Mr. Sandler
holds an Associate's degree from Santa Fe Community College and attended the
University of Florida.
Lawrence Gallo has served as President and Chief Executive Officer since April
1999 and a director of the Company since January 1999. From January 1998 until
the present, Mr. Gallo served as director of Launch Management, a financial,
creative and business management consultant to sports figures and entertainers,
which he founded. From January 1998 to February 1998 Mr. Gallo served as
director of Modern Records. From March 1997 to December 1997 Mr. Gallo served as
Senior Vice President of Hoeing, Inc., a New York based brokerage firm. From
January 1986 to March 1997, Mr.
-13-
<PAGE>
Gallo was employed by Lehman Brothers, Inc., initially serving as Senior Vice
President of Institutional Investment Services, then as Director of Equity
Finance in London, England. Mr. Gallo is a founding member of The Global Fund
Managers' Association, comprised of alternative investment managers and venture
capital organizations.
Joel F. Brownstein has served as Chief Financial Officer of the Company since
April 1999. From February 1992 until the present, Mr. Brownstein served as
President of The Brownstein Group, an investment consulting firm for public and
private companies. From 1990 to 1994 he served as Vice President of Corporate
Development for Pinnacle Technologies, a manufacturer of solvent-free inks,
plastics and coatings. Between 1985 and 1987, Mr. Brownstein was employed by
Securitech Group, a manufacturer of hardware, as Vice President of Corporate
Development. Mr. Brownstein has also served as Vice President-Director of
Research for Doley Daniels & Cartwright, a broker-dealer specializing in
international securities research, as Vice President of Sales and Marketing for
Marsan Securities, Inc., a broker-dealer, as Senior Bank Examiner for the
Federal Reserve Bank of New York and as a securities analyst/portfolio manager
for Marine Midland Banks and Manufacturer Hanover Trust. Mr. Brownstein holds a
B.A. from Adelphi University, an M.B.A. in Finance and Investments from Baruch
College and has completed coursework for an M.B.A. in Marketing and Real Estate
Law.
CONSULTANTS
The company intends to rely on consultants from time to time to assist it in
pursuing its business plan. Subsequent to the end of the Company's fiscal year,
the Company engaged Mr. Brandon "Randy" Phillips, Mr. Les Garland and Mr. Edwin
Ruh as consultants.
Mr. Phillips
------------
Mr. Phillips attended Loyola University School of law from 1977 to 1979 and then
became the executive producer of "The Rock Place" on NBC television network. In
1983 he founded Steifel-Phillips Entertainment, one of the premier artist
management and film production companies based in Los Angeles. Clients included
Rod Stewart, Toni Braxton, Prince, The Bangels, Simple Minds, Guns and Roses,
Missing Persons, Billy Squire, Matthew Brodrick and Jonathan Demme. Film credits
include Midnight in the Garden of Good and Evil (Warner Brothers film starring
John Cusack and Kevin Spacey, directed by Clint Eastwood), That is then, This is
Now (Paramount Pictures starring Morgan Freemen and Emilio Estevez). From 1991
to 1995 Mr. Phillips was the President/CEO of Gasoline Alley Music, a joint
venture recording and publishing company with MCA Records. Artists included
multi-platinum groups SHAI and Sublime. From 1997 to 1999 Mr. Phillips was CEO
of Red Ant Entertainment, a music company distributed by BMG and funded by
Wasserstein Perrella. The assets of the entity formerly known as Red Ant
Entertainment are in the process of being acquired by Regenesis pursuant to the
terms of a preliminary letter of intent. In connection with consulting services
to be provided by Mr. Phillips, he is to receive 500,000 shares of the Company's
common stock pursuant to a consulting agreement.
Mr. Garland
-----------
Mr. Garland is an internationally acclaimed Rock Radio and television
personality, who became one of the most influential radio programmers of the
70's, exerting even more influence on the 80's as one of the funder/developers
of MTS: Music Television and VH-1. In the early 90's, Mr. Garland headed up the
national and international roll-out of THE BOX. As founding President of
BlueTape, a Chris Blackwell Company,
-14-
<PAGE>
Garland continues to define his career by remaining on the front edge of popular
mass entertainment with the 1999 launch of sputnik7.com.
Mr. Garland accepted the role of keynote speaker at the Montreau Jazz Festival,
the Australian Radio roadcasters Convention, the New Music Seminar, Billboard
International Music Convention in Portugal and the International Music and Media
Conference. In 1998, he was featured at the Radio & Records convention "Legends
of Top 40" live presentation. Mr. Garland is a frequent participant at college
symposia and has also served on the board of the national Association of College
Broadcasters. Profiles of Garland have appeared in numerous publications
including TIME, CQ, PEOPLE, MS, USA TODAY, NEW YORK TIMES, NEWSWEEK and FORBES.
Televison exposure has included Good Morning America, CBS Morning News, Phil
Donahue, Entertainment Tonight and a cameo on Late Night With David Letterman in
the company of Eddie Murphy. In connection with consulting services to be
provided by Mr. Garland, he is to receive 500,000 shares of the Company's common
stock and $20,000 per month pursuant to a consulting agreement.
Mr. Ruh
-------
From 1995 to 1998, Mr. Ruh was Managing Director of Gerken Capital Associates, a
private investment bank, and General Partner to the Sino-Asia Industrial Equity
Fund, a $200 million direct-investment equity fund. From 1987 to 1995, Mr. Ruh
was the senior Vice President in the Investment Structured Finance Division of
The Fuji Bank, Limited (the "Bank"). Founding member of the Bank's North
American project finance operation, Mr. Ruh was responsible for directing the
Bank's activities in financial advisory, equity funding, private placement,
securitization and privatization services, in addition to serving as head of the
Bank's world- wide sports and entertainment practice.
Mr. Ruh has nearly two decades of project experience during which time he
initiated, closed and syndicated over 100 transactions exceeding $18 million for
(i) multipurpose S&E facilities; and (ii) alternative energy and co-generation,
natural resource development, infrastructure, real estate, transportation and
telecommunications projects. Mr. Ruh developed the esteemed RACER(C) methodology
to analyze senior debt's return on project finance transactions. From 1984 to
1987, Mr. Ruh was a Project Finance Officer with Mellon Bank, N.A. From 1981 to
1984, he was National Marketing Director for the General Refractories company.
Frequently quoted in newspapers and broadcasts, Mr. Ruh is widely recognized as
a financial visionary in Project Finance and has authored and/or co-authored 24
articles or working papers ranging from Tundish Metallurgy to Internet
Philanthropy. Mr. Ruh lectures at major universities and investment seminars and
advices a variety of clients ranging from governments, emerging market
countries, and the largest multi-national corporations to 501(c)(3)
organizations. Mr. Ruh holds a Masters of Public Administration from Harvard
University; Masters Degrees in Business Administration and Public Policy from
the Heinz School, Carnegie Mellon University; a Master's Certificate in
Materials Science from the University of Michigan; and a Bachelor of Science in
Biomedical Engineering from Pennsylvania State University. Mr. Ruh is a member
of the World Sports Humanitarian Hall of Fame; the Mayflower Society and the
Board of Trustees, Bay Head Chapel. He also is a volunteer with many charitable
and philanthropic organizations, including the Orton Dyslexic Society and the
Special Olympics. From 1979 to 1981, Mr. Ruh toured on the United States Tennis
Association professional circuit.
Mr. Ruh is also founder and CEO of Adventure Assets (Adventas) found at
www.adventas.com. A globally- oriented, Internet-enhanced, sports and
entertainment studio, Adventure Assets (1) develops, capitalizes and manages
original sports and entertainment projects through a $400 million Sports and
Entertainment Technology Equity Fund; and (2) exploits emerging e-commerce
technologies to create a hybrid form of online
-15-
<PAGE>
finance and entertainment -e-Motion Adventures. In connection with consulting
services to be provided by Mr. Ruh, he is to receive 50,000 shares of the
Company's common stock pursuant to a consulting agreement.
ITEM 10. EXECUTIVE COMPENSATION
Cash Compensation
The following table shows, for the year ended December 31, 1999, the cash and
other compensation paid by the Company to its Chief Executive Officer and to
each of the executive officers of the Company who had annual compensation in
excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards
------
Securities
Other Under-
Annual Restricted Lying All Other
Name and Principal Compen- Stock Options/ LIP Compen-
Position Year Salary Bonus sation Award(s) SAYS Payout sation
($) ($) (#) ($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lawrence Gallo 1999 $ 6,235(1) 0 0 $33,250 150,000(2) 0 $25,000(3)
Mitchell Sandler 1999 $ 14,957(1) 0 0 $19,950 150,000(2) 0 $ 0
Russell Adler 1999 $106,737(1) 0 0 $39,900 500,000(2) 0 $ 0
Joel Brownstein 1999 $ 8,486(1) 0 0 $26,600 150,000(2) 0 $22,657(4)
</TABLE>
(1) Represents actual cash compensation paid during 1999. The unpaid
balance due each individual under the terms of their employment
agreement is reflected as accrued payroll in the December 31, 1999
financial statements.
(2) Options were exercised in December 1999 and the Company received
$237,500 of cash proceeds.
(3) Represents consulting fees paid to Mr. Gallo prior to his employment
by the Company.
(4) Represents $15,000 payable to Mr. Brownstein for assisting the Company
in raising capital and $7657 of consulting fees of which $1,525 were
paid prior to his employment and $6,132 were paid after his employment.
Employment Agreements
The Company has entered into employments with each of Mr. Adler, Mr. Sandler,
Mr. Gallo, Mr. Brownstein and Mr. Jelaso.
-16-
<PAGE>
On February 15, 1999, the Company entered into an employment agreement with Mr.
Adler, which provides for Mr. Adler's employment as Chairman of the Board of
Directors. This agreement provides for: (i) a base annual salary of $140,400;
(ii) the issuance of 300,000 shares of the Company's common stock; and (iii) the
grant of options to purchase 500,000 shares of the Company's common stock at a
purchase price of $.25 per share. In addition, the Board of Directors or the
Compensation Committee of the Board of Directors, may, in its sole discretion,
award to Mr. Adler a bonus based on certain levels of either sales or profits
attained by the Company. This agreement also provides that Mr. Adler shall be
entitled to additional compensation to be negotiated on a case-by-case basis for
those corporate finance transactions brought to the Company by him. The term of
this agreement is four years. On October 15, 1999, the Company amended Mr.
Adler's employment agreement to include the issuance of an additional 300,000
common shares to be registered upon a Form S-8 as soon as practical and extended
the employment agreement for an additional twelve month term.
On April 1, 1999, the Company entered into an employment agreement with Mr.
Sandler, which provides for Mr. Sandler's employment as Vice President and
Secretary. This agreement provides for a base annual salary of $135,000 to be
paid to Mr. Sandler commencing March 1, 1999, as well as the issuance of 150,000
shares of common stock and the grant of options to purchase 150,000 shares of
the Company's common stock at a purchase price of $.25 per share, which options
are to be registered for resale as soon as practical. In addition, this
agreement provides that Mr. Sandler shall be entitled to additional compensation
to be negotiated on a case- by-case basis for those corporate finance
transactions brought to the Company by him. The term of this agreement is three
years. On October 15, 1999, the Company amended Mr. Sandler's employment
agreement to include the issuance of an additional 150,000 common shares and
extended the employment agreement for an additional twelve month term.
On April 18, 1999, the Company entered into an employment agreement with Mr.
Gallo, which provides for Mr. Gallo's employment as President of the Company.
This agreement provides for a base annual salary of $150,000, the issuance of
250,000 shares of common stock of the Company, as well as the grant of options
to purchase 150,000 shares of common stock at a purchase price of $.25 per
share. The term of this agreement is one year. On October 15, 1999, the Company
amended Mr. Gallo's employment agreement to include the issuance of an
additional 250,000 common shares and extended the employment agreement for an
additional twelve month term.
Also on April 18, 1999, the Company entered into an employment agreement with
Mr. Brownstein, which provides for Mr. Brownstein's employment as Chief
Financial Officer and Treasurer of the Company. This agreement provides for a
base annual salary of $135,000 , the issuance of 200,000 shares of common stock
of the Company and the grant of options to purchase 150,000 shares of common
stock at a purchase price of $.25 per share. The term of this agreement is one
year. On October 15, 1999, the Company amended Mr. Brownstein's employment
agreement to include the issuance of an additional 200,000 common shares as soon
as practical and extended the employment agreement for an additional twelve
month term.
On April 1, 1999, the Company entered into an employment agreement with Mr.
Jelaso, which provides for Mr. Jelaso's employment as Director of Marketing of
the Company. This agreement provides for a base annual salary of $125,000 and
the grant of 100,000 shares of common stock. The term of this agreement is three
years. Mr. Jelaso resigned his position with the Company in October 1999, and
the Company has made no payments to the employee under the terms of the contract
since the date of his resignation and has retained the stock issuance.
-17-
<PAGE>
Option Grants in Last Fiscal Year
During 1999 options were granted for 1,000,000 shares at exercise prices
ranging from $0.25 to $1.00 per share.
Incentive and Non-Qualified Stock Option Plan
On October 3, 1997, the Company adopted 1997 Stock Option Plan (the "Plan")
which authorizes the issuance of options to purchase a maximum 1,000,000 shares
of common stock. On November 1, 1999 the Plan was amended to authorize the
issuance of options to purchase a maximum of 4,000,000 shares of common stock.
The Company believes the Plan will work to increase the proprietary interest in
the Company of its directors, officers, employees and consultants, and to align
more closely their interests with the interests of the Company's stockholders.
The Plan will also maintain the Company's ability to attract and retain the
services of experienced and highly qualified employees and directors.
Under the Plan, the Company has reserved an aggregate of 4,000,000 shares of
common stock for issuance pursuant to options granted under the Plan ("Plan
Options"). The Board of Directors of the Company administers the Plan including,
without limitation, the selection of the persons who will be granted Plan
Options under the Plan, the type of Plan Options to be granted, the number of
shares subject to each Plan Option and the Plan Option price.
The Plan authorizes the issuance of incentive stock options ("ISOS") as defined
in Section 422A of the Internal Revenue Code of 1986, non-statutory options
("NSOs") and together with ISOS,("Options"). In addition, the Plan also allows
for the inclusion of a reload option provision ("Reload Option"), which permits
an eligible person to pay the exercise price of the Plan Option with shares of
common stock owned by the eligible person and receive a new Plan Option to
purchase shares of common stock equal in number to the tendered shares.
Any ISOS granted under the Plan must provide for an exercise price of at least
100% of the fair market value of the underlying shares on the date of such
grant, but the exercise price of any ISOS granted to an eligible person owning
more than 10% of the Company's common stock must be at least 110% of such fair
market value as determined on the date of the grant. The aggregate fair market
value of the shares covered by the ISOS granted under the Plan that become
exercisable by a Plan participant for the first time in any calendar year is
subject to a $100,000 limitation. The exercise price of each NSO is determined
by the Board of Directors or a committee thereof, in its discretion, provided
that the exercise price of an NSO is not less than fair value on the date of the
grant. The Board of Directors (or committee thereof), shall determine the term
of the Options; provided, however, that in no event may an ISO be exercisable
more than 10 years after the date of its grant and, in the case of an ISO
granted to an eligible employee owning more than 10% of the Company's common
stock, no more than five years after the date of the grant. Any option which is
granted shall be vested and exercisable at such time as determined by the Board
of Directors or a committee thereof.
The per share purchase price of shares subject to Plan Options granted under the
Plan may be adjusted in the event of certain changes in the Company's
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
As of December 31, 1999, there were options outstanding to purchase 50,000
shares of common stock granted pursuant to the Plan.
-18-
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the Company's
common stock, par value $.01 beneficially owned as of March 31, 2000 for (i)
each stockholder known by the Company to be the beneficial owner of five (5%)
percent or more of the Company's outstanding common stock, (ii) each of the
Company's directors, (iii) each named executive officer (as defined in Item
402(a)(2) of Regulation S-B), and (iv) all executive officers and directors as a
group. At March 31, 2000 there were 7,871,461 shares of common stock
outstanding.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owner(1) Beneficial Ownership(2) of Class
------------------- ----------------------- --------
<S> <C> <C>
Russell Adler 1,980,000(3) 25.1%
Mitchell Sandler 793,801(4) 10.1%
Lawrence Gallo 800,000(5) 10.2%
Joel F. Brownstein 698,000 8.9%
Renee Adler 717,500(6) 9.1%
Les Garland 500,000 6.3%
Brandon Phillips 500,000 6.3%
All directors and officers
as a group (4 persons) 4,189,301 53.2%
</TABLE>
----------------------
(1) Unless otherwise indicated, the address of each of the persons named in
the table is 930 Washington Avenue, Fourth Floor, Miami Beach, Florida
33139. Unless otherwise noted, the Company believes that each of the
persons named in the table have sole voting and dispositive power with
respect to all the shares of common stock of the Company beneficially
owned by such person.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days upon the exercise of warrants or
options or the conversion of convertible securities. Each beneficial
owner's percentage ownership is determined by assuming that warrants or
options that are held by such person (but not those held by any other
person) and that are exercisable within 60 days have been exercised.
(3) Includes presently exercisable options to purchase 500,000 shares of
common stock at a purchase price of $.25 per share. Also includes 100,000
shares of common stock held by Ms. Christine Adler, Mr. Adler's spouse,
over which Mr. Adler disclaims all voting and dispositive power. Does not
include shares of common stock held by Rene Adler, Mr. Adler's mother.
Also does not include shares of common stock held by Mr. Mel Adler and
444 Corporation, a corporation of which Mr. Adler's father is a
principal.
(4) Includes presently exercisable options to purchase 150,000 shares of
common stock at a purchase price of $.25 per share.
(5) Includes presently exercisable options to purchase 150,000 shares of
common stock at a purchase price of $.25 per share.
-19-
<PAGE>
(6) Does not include shares of common stock held by Mr. Adler, Rene Adler's
son. Includes 150,000 shares of common stock held by 444 Corporation, a
corporation of which Rene Adler's husband is a principal and 300,000
shares of common stock and 50,000 purchase warrants at an exercise price
of $1.00 held by Mr. Mel Adler and over which she disclaims all voting
and dispositive power. Rene Adler's address is 930 Washington Avenue,
Fourth Floor, Miami Beach, Florida 33139.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Related Party Transactions
During the year ended December 31, 1999, the Company incurred an aggregate of
$47,657 of consulting fees an commissions payable to its chief Executive Officer
and president and its chief Financial Officer and Treasurer of which $26,525 was
incurred prior to their appointment as executive officers of the Company and
$21,132 was incurred after their appointment as executive officers of the
Company. The employment agreement for the Chief Financial Officer and Treasurer
provided for the payment of $15,000 of commissions for his assistance in raising
capital for the Company.
During the year ended December 31, 1999, the Company received working capital
advances of $52,025 from the father of the Chairman of the Board, who together
with his wife and entities controlled by such individuals are major shareholders
of the Company. During 1999, the Company repaid $48,166 of such advances. On
December 29,1999, the Company entered into a three year consulting agreement
with the father of the Chairman of the Board and an entity controlled by such
individual (the "Consultant"), to provide general business services to the
Company in exchange for an annual consulting fee of $75,000, payable in equal
monthly installments of $6,250, plus a car allowance of $750 per month. As
additional consideration for the agreement, the Company granted the Consultant
50,000 shares of the Company's common stock, valued at $2,500 which amount is
included in other assets in the accompanying financial statements at December
31, 1999. In addition, the Consultant received a two year option to purchase
50,000 shares of the Company's common stock at an exercise price of $1.00 per
share. The agreement further provides that the company will provide the
Consultant with a private office and office support services and will reimburse
the Consultant for all expenses incurred in connection with his activities on
behalf of the Company.
In January 2000, the Company purchased the URL address Music 411.com from the
father of the Chairman of the Board of Directors in exchange for 250,000
restricted shares of the Company's common stock which was valued at $12,500.
-20-
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
<TABLE>
<CAPTION>
Exhibits Description of Documents
-------- ------------------------
<S> <C>
6.2 URL Purchase Agreement by and between Regenesis Holdings, Inc. and Mel Adler , dated as of January 25, 2000. (9)
10.1 Agreement on Transfer the Shares as Collateral dated May 23, 1997 by and between QPQ Corporation and
International Fast Food Corporation. (4)
10.2 Stock Purchase Agreement dated as of September 3, 1997 by and between QPQ Corporation and Linde Group. (5)
10.3 Lease Agreement dated 5/12/99 by and between Omni offices, Inc. and Regenesis Holdings Inc. (3)
10.4 Lease Agreement dated 5/10/99 by and between Finance Team of America and Regenesis Holdings Inc. (3)
10.5 Employment Agreement dated 4/1/99 between Regenesis Holdings Inc. and Mitchell B. Sandler. (3)
10.6 Employment Agreement date as of 2/15/99 between Regenesis Holdings Inc. and Russell Adler. (3)
10.7 Employment Agreement dated 4/18/99 between Regenesis Holdings Inc. and Lawrence Gallo. (3)
10.8 Employment Agreement dated 4/18/99 between Regenesis Holdings Inc. and Joel F. Brownstein. (3)
10.9 Employment Agreement dated 4/18/99 between Regenesis Holdings Inc. and Mark Jelaso. (3)
10.10 Amendment to Employment Agreement dated 4/1/99 between Regenesis Holdings Inc. and Mitchell B. Sandler. (7)
10.11 Amendment to Employment Agreement date as of 2/15/99 between Regenesis Holdings Inc. and Russell Adler. (7)
10.12 Amendment to Employment Agreement dated 4/18/99 between Regenesis Holdings Inc. and Lawrence Gallo. (7)
10.13 Amendment to Employment Agreement dated 4/18/99 between Regenesis Holdings Inc. and Joel F. Brownstein. (7)
10.14 Consulting Agreement by and between Regenesis Holdings, Inc. and Ed Ruh (9)
10.15 Consulting Agreement by and between Regenesis Holdings, Inc. and Brandon Phillips (9)
10.16 Consulting Agreement by and between Regenesis Holdings, Inc. and Les Garland (9)
10.17 Consulting Agreement by and between Regenesis Holdings, Inc. and Mel Adler (9)
10.18 Amendment to Employment Agreement dated 1/05/00 between Regenesis Holdings Inc. and Gustavo Rodriquez. (9)
16.1 Accountant's letter date January 20, 1999 of Rachlin Cohen & Holtz, LLP (6)
16.2 Accountant's letter date January 20, 1999 of Moore Stephens Lovelace, P.A. (6)
16.3 Accountant's letter date February 28, 2000 of Rachlin Cohen & Holtz, LLP (8)
16.4 Accountant's letter date February 24, 2000 of Moore Stephens Lovelace, P.A. (8)
27 Financial Data Schedule. (9)
----------------------
(1) Incorporated by reference to exhibits from the Company's Form 10-KSB Report, as amended, as filed with
the Securities and Exchange Commission 6/10/98
(2) Incorporated by reference as an exhibit to the Company's Form 8-k as filed with the Commission 2/18/99
(3) Incorporated by reference to exhibits from the Company's Form 10-KSB Report, as amended, as filed with
the Securities and Exchange Commission 8/02/99 and 7/14/99.
(4) Incorporated by reference as an exhibit to the Company's Form 8-k as filed with the Commission 6/20/97.
(5) Incorporated by reference as an exhibit to the Company's Form 8-k as filed with the Commission 9/18/97
(6) Incorporated by reference as an exhibit to the Company's Form 8-k as filed with the Commission 1/20/99
(7) Incorporated by reference as an exhibit to the Company's Form S-8 Registration Statement as filed with
the Commission 12/20/99.
(8) Incorporated by reference as an exhibit to the Company's Form 8-k as filed with the Commission 3/02/00.
(9) Filed herewith.
</TABLE>
(b) Reports on Form 8-K
None
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<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
<TABLE>
<S> <C>
REGENESIS HOLDINGS, INC.
(Registrant)
Date: June 23, 2000 By: /s/ Lawrence Gallo
--------------------------------------------
Lawrence Gallo
President and Chief
Executive Officer
By: /s/ Joel Brownstein
--------------------------------------------
Joel Brownstein
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
date indicated.
Date: June 23, 2000
By: /s/ Lawrence Gallo By: /s/ Mitchell Sandler
-------------------------------------------- -------------------------------------------
Lawrence Gallo, Director Mitchell Sandler, Vice President, Director
President, Chief Executive
Officer (Principal Executive Officer)
By: /s/ Joel Brownstein By: /s/ Russell Adler
-------------------------------------------- -------------------------------------------
Joel Brownstein, Chief Financial Officer Russell Adler, Director
(Principal Financial Officer)
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
REGENESIS HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
-----------------------------
PAGE
----
<S> <C>
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1 to F-2
FINANCIAL STATEMENTS
Balance Sheet at December 31, 1999 F-3
Statements of Operations for the years ended December 31, 1999 and 1998 F-4
Statements of Changes in Stockholders' Equity for the years ended December 1999 and 1998 F-5
Statements of Cash Flows for the years ended December 31, 1999 and 1998 F-6 to F-7
Notes to Financial Statements F-8 to F-22
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors
Regenesis Holdings, Inc.
Miami Beach, Florida
We have audited the accompanying balance sheet of Regenesis Holdings, Inc. as of
December 31, 1999, and the related statements of operations, changes in
stockholders' equity, and cash flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1999 financial statements referred to above present fairly,
in all material respects, the financial position of Regenesis Holdings, Inc. as
of December 31, 1999, and the results of its operations and cash flows for the
year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered and continues to suffer
significant losses, has an accumulated deficit and, as of December 31, 1999, 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 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Moore Stephens Lovelace, P. A.
----------------------------------
Moore Stephens Lovelace, P. A.
Certified Public Accountants
Orlando, Florida
May 26, 2000
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors and Stockholders
Regenesis Holdings, Inc.
Miami Beach, Florida
We have audited the accompanying statements of operations, changes in
stockholders' equity and cash flows of Regenesis Holdings, Inc. for the year
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Regenesis
Holdings, Inc. for the year ended December 31, 1998 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company had no operations or sources of revenues
during 1998 and, accordingly, has suffered and continues to suffer losses. 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 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ RACHLIN COHEN & HOLTZ LLP
-----------------------------
RACHLIN COHEN & HOLTZ LLP
Miami, Florida
May 25, 1999
F-2
<PAGE>
REGENESIS HOLDINGS, INC.
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
CURRENT ASSETS
Cash $ 101,835
------------
Total Current Assets 101,835
Furniture and equipment, net of accumulated
depreciation of $3,670 23,028
Other assets 18,922
Advances toward pending acquisition 155,492
Excess of cost over fair value of net assets acquired,
net of accumulated amortization of $74 556
------------
Total Assets $ 299,833
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 81,495
Accrued payroll 402,168
Due to officers and stockholders 175,835
Other current liabilities 109,693
Loans payable 150,000
Convertible demand loan 100,000
------------
Total Current Liabilities 1,019,191
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Preferred Stock, $.01 par value, 10,000,000 shares
authorized; none issued and outstanding --
Common Stock, $.01 par value, 100,000,000 shares
authorized; 6,388,974 issued and outstanding 63,890
Additional paid-in capital 13,369,831
Accumulated deficit (14,153,079)
------------
Total Stockholders' Deficiency (719,358)
------------
Total Liabilities and Stockholders' Deficiency $ 299,833
============
F-3
<PAGE>
REGENESIS HOLDINGS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---- ----
Revenue $ -- $ --
----------- -----------
Operating expenses:
Salaries and wages including related taxes 837,230 72,275
Legal and professional 199,680 233,412
Marketing and promotion 137,200 --
Travel 117,337 3,948
Consulting fees 92,090 --
Rent 91,929 --
Office expenses 69,642 23,547
Depreciation and amortization 3,744 --
Other general and administrative expenses 129,140 66,407
----------- -----------
Total operating expenses 1,677,992 399,589
----------- -----------
Operating Loss (1,677,992) (399,589)
Other Income (Expenses):
Interest and other income 12,900 1,714
Interest expense (12,428) --
Provision for doubtful accounts -- (38,338)
----------- -----------
Total other income (expenses), net 472 (36,624)
----------- -----------
Net Loss $(1,677,520) $ (436,213)
=========== ===========
Basic and Diluted Net Loss per Common Share $ (0.42) $ (0.59)
=========== ===========
Weighted Average Common Shares Outstanding 3,999,200 733,308
=========== ===========
F-4
<PAGE>
REGENESIS HOLDINGS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 and 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------- ----------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balances, December 31, 1997 -- $ -- 663,643 $ 6,636
Issuance of common stock in satisfaction of liabilities and
payment of legal and professional expenses -- -- 30,000 300
Issuance of common stock upon exercise of stock options -- -- 68,702 687
Net Loss -- -- -- --
------------ ------------ ------------ ------------
Balances, December 31, 1998 -- -- 762,345 7,623
Issuance of Series C Preferred Stock 48,000 480 -- --
Conversion of Series C Preferred Stock into common stock (48,000) (480) 900,000 9,000
Issuance of common stock in private placement transactions -- -- 1,736,417 17,365
Issuance of common stock to officers pursuant to their
employment agreements -- -- 1,925,000 19,250
Issuance of common stock to acquire Net Disc, Inc. assets -- -- 10,000 100
Issuance of common stock for services and expenses -- -- 105,212 1,052
Issuance of common stock upon exercise of stock options -- -- 950,000 9,500
Issuance of options and warrants -- -- -- --
Net Loss -- -- -- --
------------ ------------ ------------ ------------
Balances, December 31, 1999 -- $ -- 6,388,974 $ 63,890
============ ============ ============ ============
[restubbed table]
Additional
Paid-In
Capital Deficit Total
------- ------- -----
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1997 $ 12,344,281 $(12,039,346) $ 311,571
Issuance of common stock in satisfaction of liabilities and
payment of legal and professional expenses 127,200 -- 127,500
Issuance of common stock upon exercise of stock options -- -- 687
Net Loss -- (436,213) (436,213)
------------ ------------ ------------
Balances, December 31, 1998 12,471,481 (12,475,559) 3,545
Issuance of Series C Preferred Stock 56,700 -- 57,180
Conversion of Series C Preferred Stock into common stock (8,520) -- --
Issuance of common stock in private placement transactions 494,235 -- 511,600
Issuance of common stock to officers pursuant to their
employment agreements 108,500 -- 127,750
Issuance of common stock to acquire Net Disc, Inc. assets 530 -- 630
Issuance of common stock for services and expenses 5,013 -- 6,065
Issuance of common stock upon exercise of stock options 228,000 -- 237,500
Issuance of options and warrants 13,892 -- 13,892
Net Loss -- (1,677,520) (1,677,520)
------------ ------------ ------------
Balances, December 31, 1999 $ 13,369,831 $(14,153,079) $ (719,358)
============ ============ ============
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
REGENESIS HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,677,520) $ (436,213)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,744 --
Provision for doubtful accounts -- 38,338
Loss on disposal of property and equipment -- 14,013
Expenses paid by issuance of common stock 252,737 127,500
Other operating expenses -- 2,420
Changes in operating assets and liabilities:
Prepaid expenses -- 18,000
Accrued Payroll 402,168 --
Accounts payable and other current liabilities 176,785 14,403
----------- -----------
Net cash used in operating activities (842,086) (221,539)
----------- -----------
Cash Flows from Investing Activities:
Notes receivable from Lator International, Inc. -- 238,300
Advances toward pending acquisition (155,492) --
Payments for furniture and equipment (26,698) --
Payments for other assets (16,422) --
----------- -----------
Net cash provided by (used in) investing activities (198,612) 238,300
----------- -----------
Cash Flows from Financing Activities:
Net proceeds from issuance of common stock 461,250 --
Proceeds from exercise of stock options by officers and directors 237,500 687
Proceeds from loans payable 175,000 --
Proceeds from convertible note 100,000 --
Payment on loans payable (25,000) --
Proceeds of loans from officers and shareholders 173,035 2,800
----------- -----------
Net cash provided by financing activities 1,121,785 3,487
----------- -----------
Net Increase in Cash 81,087 20,248
Cash, Beginning of year 20,748 500
----------- -----------
Cash, End of year $ 101,835 $ 20,748
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ -- $ --
=========== ===========
Supplemental Schedule of Non Cash Investing and Financing Activities:
Year Ended December 31, 1999:
Issuance of 48,000 shares of Series C Preferred Stock valued at $57,180
Issuance of 10,000 shares of common stock to acquire the assets of
Net Disc, Inc. valued at $630
</TABLE>
F-6
<PAGE>
REGENESIS HOLDINGS, INC.
STATEMENTS OF CASH FLOWS, (Continued)
YEARS ENDED DECEMBER 31, 1999 AND 1998
Issuance of 1,925,000 shares of common stock to officers and directors in
connection with their employment agreements, including amendments
thereto, valued at $127,750.
Excess of estimated fair market value of 950,000 shares of common stock
over the aggregate selling price of $9,500.
Issuance of 50,000 shares of common stock in payment of deferred
consulting fees, valued at $2,500.
Issuance of 27,500 shares of common stock in payment of employee salaries
and wages, valued at $1,625.
Issuance of 3,000 shares of common stock in payment of legal fees, valued
at $210.
Issuance of 24,712 shares of common stock in payment of loan fees and
interest expense, valued at $1,730.
Issuance of options to purchase 370,000 shares of common stock and and
warrants to purchase 216,000 shares of common stock, valued at an
aggregate of $13,892.
Year Ended December 31, 1998:
Accounts payable of $76,345 were forgiven by the assignees of the Lator
Notes Receivable.
Issuance of 30,000 shares of common stock in satisfaction of liabilities
and payment of legal, professional and consulting fees.
F-7
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In 1997, Regenesis Holdings, Inc. ("the Company") sold all of its
existing operations, which consisted of Domino's Pizza franchises
in Poland and Medical Centers located in Southeast Florida, and
became a holding company, with no operating subsidiaries. In 1999,
the Company acquired the assets of NetDisc, Inc. ("NetDisc") for
the purpose of pursuing internet advertising opportunities,
although to date, the Company has generated no revenues from such
activities (see Note 2).
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. As
shown in the accompanying financial statements during the years
ended December 31, 1999 and 1998, the Company incurred losses of
$1,677,520 and $436,213 respectively and had a working capital
deficiency and a stockholders deficiency of $917,356 and $719,358,
respectively, at December 31, 1999. These factors among others
raise substantial doubt about the Company's ability to continue as
a going concern for a reasonable period of time. The accompanying
financial statements do not include any adjustments relating to the
outcome of this uncertainty.
Liquidity and Plan of Operations
As of December 31, 1999, the Company had cash of $101,835 and a
working capital deficiency of $917,356.
The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on
a timely basis. The Company's primary source of liquidity has been
from the cash generated through the private placement of equity and
debt securities and from advances from its officers and directors.
The Company is presently exploring possibilities with respect to
expansion of its Net Disc operations and is attempting to acquire
additional businesses (see Note 3) in order to eventually achieve
profitable operations. However, there can be no assurance that the
Company will be successful in achieving profitable operations or
acquiring additional capital or that such capital, if available,
will be on terms and conditions acceptable to the Company.
F-8
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
December 31, 1999 and 1998
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 revenue and expenses during the reported
period. Actual results could differ from these estimates.
Fair Value of Financial Statements
Cash, accounts payable, accrued payroll, other current liabilities,
loans payable, convertible demand loans and amounts due to officers
and directors are reflected in the financial statements at fair
value because of the short term maturity of these amounts.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash. Cash is
held in banks or other financial institutions and at times may
exceed federally insured limits. The Company has not incurred any
losses on its cash deposits and it does not believe its is exposed
to any significant credit risk therefrom.
Furniture and Equipment
Furniture and equipment is stated at cost. Depreciation is provided
on the straight line method at rates based upon the estimated
useful lives of individual assets or classes of assets. Furniture
and equipment are depreciated over 5 years.
Expenditures for repairs and maintenance are expensed as incurred.
Expenditures which materially increase values, or extend useful
lives are capitalized.
Other Assets
Deferred consulting fees included in other assets are being
amortized over the three year term of the related consulting
agreement commencing on January 1, 2000.
F-9
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
December 31, 1999 and 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Excess of Cost over Fair Value of Net Assets Acquired
Excess of cost over fair value of net assets acquired is amortized
on the straight line method over five years.
Income Taxes
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires recognition of
deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Under this method deferred tax
liabilities and assets are determined based upon the difference
between the financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which
the differences are expected to be reversed. The Company has
incurred losses since its inception. Due to the uncertainty of the
realization of the tax loss carryforward, the Company has
established a 100% valuation allowance against the carryforward
benefit.
Net Loss Per Share of Common Stock
The basic and diluted net loss per common share in the accompanying
statements of operations are based upon the net loss divided by the
weighted average number of shares outstanding during the periods
presented. Diluted net loss per common share is the same as basic
net loss per common share since the inclusion of all potentially
dilutive common shares that would be issuable upon exercise of
outstanding stock options and warrants would be anti-dilutive.
Stock Option Plan
The Company accounts for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25 "Accounting for Stock issued to Employees."
Compensation cost for stock options, if any, is measured as the
excess of the quoted market price of the Company's common stock at
the date of grant over the amount the employee must pay to acquire
the stock.
SFAS No.123
SFAS No. 123, "Accounting for Stock-Based Compensation" established
accounting and disclosure requirements using a fair-value based
method of accounting for stock-based employee compensation plans.
The Company has elected to remain on its current method of
accounting as described above, and has adopted the disclosure
requirements of SFAS No. 123.
F-10
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
December 31, 1999 and 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassifications
Certain reclassifications have been made in the 1998 financial
statements to conform to the 1999 presentation.
NOTE 2. ACQUISITION OF ASSETS OF NETDISC, INC
On March 18, 1999, the Company acquired substantially all of the
operating assets and business operations of NetDisc, Inc.
("NetDisc") for 10,000 shares of the Company's Common Stock. The
Company assumed none of NetDisc's liabilities. The 10,000 shares of
Common Stock were valued at a price of $.063 per share which
represents the last publicly traded price of the Company's Common
Stock on December 15, 1998, as quoted on the OTC Bulletin Board.
The Company believes that the December 15, 1998, per share price
reasonably reflects the estimated fair market value per share of
the Company's Common Stock on the date of acquisition.
As of the date of acquisition, NetDisc had minimal operations and
minimal assets. Accordingly, the $630 value of the 10,000 shares of
Common Stock issued to acquire the assets of NetDisc has been
included in the accompanying balance sheet as excess of cost over
fair market value of net assets acquired. Subsequent to the
acquisition, the operations of NetDisc were merged into the
Company.
NOTE 3. PENDING ACQUISITION
The Company has entered into a preliminary letter of intent (the
"Preliminary LOI") to acquire all of the assets and assume certain
liabilities of the entity formerly known as Red Ant Entertainment
("Red Ant").
In accordance with the terms of the Preliminary LOI both the
Company and the seller each loaned $75,000 to MCCC Acquisition, LLC
("MCCC") the owner of the assets and such funds were simultaneously
advanced to Management West International, Inc. ("Management West")
the entity that is managing the assets until the acquisition by the
Company is completed. In addition, the Company advanced an
additional $80,492 to Management West to cover a portion of their
operating expenses for the period through December 31, 1999. The
Company is continuing to advance funds to cover operating expenses
and for the period from January 1, 2000 through March 31, 2000,
advanced an aggregate of $140,000.
Pursuant to the terms of the Preliminary LOI, the purchase price
will be comprised of $300,000 of cash, 300,000 shares of restricted
common stock of the Company, a three year warrant to purchase
100,000 shares of common stock of the Company at an exercise price
of $3.00 per share, plus the liabilities assumed. The Company's
$75,000 loan to MCCC will be forgiven. All operating advances made
by the Company through the date of closing of the purchase will be
considered as part of the purchase price for financial reporting
purposes,
F-11
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
December 31, 1999 and 1998
accordingly, such advances are being capitalized as advances toward
pending acquisition in the accompanying financial statements. The
acquisition will be accounted for under the purchase method of
accounting. In the event the acquisition is not completed, any
amounts capitalized and not refunded will be charged against
operations.
NOTE 4. FURNITURE AND EQUIPMENT
<TABLE>
<CAPTION>
A summary of furniture and equipment at December 31, 1999, is as
follows:
<S> <C>
Furniture and equipment $ 16,323
Computers 10,375
-------
26,698
Less - accumulated depreciation ( 3,670)
-------
$ 23,028
Depreciation expense $ 3,670
=======
</TABLE>
NOTE 5. OTHER ASSETS
<TABLE>
<CAPTION>
A summary of other assets at December 31, 1999, is as follows:
<S> <C>
Deposits $ 16,422
Deferred consulting fees 2,500
---------
$ 18,922
=========
</TABLE>
NOTE 6. LOANS PAYABLE
On August 12, 1999 and December 30, 1999, the Company borrowed an
aggregate of $100,000 from a third party, a principal of whom is
also a shareholder of the Company. The loan is payable in full on
or before July 1, 2000 and bears interest at 2% above the base rate
of the Bank of England, compounded daily and all interest is
payable at maturity.
On October 13, 1999, the Company borrowed $75,000 from a third
party. The principal balance of the loan and all accrued interest
is payable in full on its extended due date of July 1, 2000. The
unpaid principal balance on the loan as of December 31, 1999, was
$50,000. The loan bears interest at 12% per annum and all interest
is payable at maturity. In accordance with the terms of the loan
agreement, the Company granted the lender an aggregate of 19,000
shares of the Company's common stock and further agreed to issue
the lender an additional 2,500 shares of the Company's common stock
for each seven day period beginning on December 16, 1999 through
the date of final payment of all principal and accrued interest.
For the year ended December 31, 1999, the Company issued and
aggregate of 24,712 shares of common stock to the lender in
accordance with the terms of the loan agreement, which were valued
at $1,730. The value of the shares issued is included in interest
expense in the accompanying financial statements. At May 31, 2000,
the unpaid principal balance on the loan was $30,000.
F-12
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
December 31, 1999 and 1998
NOTE 7. CONVERTIBLE LOAN
On September 8, 1999, the Company borrowed $100,000 from a third
party. The loan bears interest at the rate of 12% per annum and all
interest is payable at maturity. The loan is payable in full within
60 days after receiving a notice of demand from the lender. At the
option of the lender the loan is convertible into 75,000 shares of
the Company's common stock at a per share price of $1.33. In
connection with the loan the Company issued to the lender a two
year warrant to purchase 20,000 shares of the Company's common
stock at an exercise price of $2.50 per share and a one year option
to purchase an additional 100,000 shares of the Company's common
stock at a price to be determined by negotiation between the
parties. The warrant and the option were valued at an aggregate of
$2,333.
NOTE 8. INCOME TAXES
<TABLE>
<CAPTION>
The difference between the Company's effective income tax rate and
the federal statuary rate at December 31, 1999, is reconciled as
follows:
1999
----
<S> <C>
Federal benefit expected (34.0)%
State taxes (3.6)%
Other permanent differences 4.4 %
Increase in valuation allowance 33.2 %
------
0.0%
======
</TABLE>
Significant components of the Company's deferred tax assets and
liabilities at December 31, 1999, are approximately as follows:
1999
----
Deferred Tax Assets
Net operating losses $2,698,000
Other 126,000
------------
Gross deferred tax asset 2,824,000
Less valuation allowance (2,824,000)
------------
Deferred tax asset $ -
============
There were no deferred tax liabilities as of December 31, 1999.
As of December 31, 1999, the Company had estimated net operating
loss carryforwards of approximately $7,177,000 available to offset
future taxable income. The net operating loss carryforwards expire
through the year 2019. Under U.S. federal law, certain changes in
ownership of the Company may cause a limitation on future
utilization of these loss carryforwards.
As of December 31, 1999, the Company had capital loss carryforwards
of approximately $597,000, which expire in 2002.
F-13
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
December 31, 1999 and 1998
NOTE 9. STOCKHOLDERS' EQUITY
On February 1, 1999, the Board of Directors of the Company and a
majority of the stockholders filed an amendment to the Articles of
Incorporation, which provided for an increase in the number of
shares of common and preferred shares as follows: The maximum
number of shares of all classes of stock which the Corporation is
authorized to have outstanding at any one time is 110,000,000
shares, of which 10,000,000 shares shall be Preferred Stock, par
value $.01 per share, issuable in one or more classes or series
(the "Preferred Stock"), and 100,000,000 shares shall be Common
Stock, par value $.01 per share (the "Common Stock"). All or any
part of the Common Stock and Preferred Stock may be issued by the
Corporation from time to time and for such consideration as the
Board of Directors may determine.
On February 1, 1999, the Board of Directors of the Company
designated 300,000 shares of authorized Preferred Stock as Series B
Preferred Stock with a par value of $.01 per share. The Series B
Preferred Stock has equal voting rights with the Company's Common
Stock upon conversion to common stock; is convertible, at the
option of the holder, into twenty shares of Common Stock for each
share of Series B Preferred Stock; is redeemable at any time at the
sole option of the Company at a redemption price to be negotiated
by the parties; is 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.
On February 1, 1999, the Board of Directors of the Company
designated 300,000 shares of authorized Preferred Stock as Series C
Preferred Stock with a par value of $.01 per share. The Series C
Preferred Stock has equal voting rights with the Company's Common
Stock; is convertible, at the option of the holder, into fifty
shares of Common Stock for each share of Series C Preferred Stock;
is redeemable at any time at the sole option of the Company at a
redemption price to be negotiated by the parties; is 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. In connection with the conversion of 48,000 shares of
Series C Preferred Stock into 900,000 shares of common stock, the
Board of Directors of the Company redesignated the conversion price
to 18.75 shares of common stock for each share of Series C
Preferred Stock.
On October 3, 1997, the Company established its 1997 Stock Option
Plan ("the Plan"), which authorized the issuance of options to
purchase a maximum of 1,000,000 shares of common stock. On November
1, 1999, the Plan was amended to authorize the issuance of options
to purchase a maximum of 4,000,000 shares of common stock.
F-14
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
December 31, 1999 and 1998
NOTE 9. STOCKHOLDERS' EQUITY, Continued
The Plan authorizes the issuance of incentive stock options
("ISOS") as defined in Section 422A of the Internal Revenue Service
Code of 1986 and non statutory options ("NSOS"). In addition, the
Plan also allows for the inclusion of a reload option provision,
which permits an eligible person to pay the exercise price of the
Plan Option with shares of common stock owned by the eligible
person and receive a new Plan Option to purchase shares of common
stock equal in number to the tendered shares.
Any ISOS granted under the Plan must provide for an exercise price
of at least 100% of the fair market value of the underlying shares
on the date of such grant, but the exercise price of any ISOS
granted to an eligible person owning more than 10% of the Company's
common stock must be at least 110% of such fair market value as
determined on the date of the grant.
The aggregate fair market value of the shares covered by the ISOS
granted under the Plan that become exercisable by a Plan
participant for the first time in any calendar year is subject to a
$100,000 limitation. The exercise price of each NSO is determined
by the Board of Directors or a committee thereof, in its
discretion, provided that the exercise price of an NSO is not less
than fair value on the date of the grant. The Board of Directors
(or committee thereof), shall determine the term of the Options;
provided, however, that in no event may an ISO be exercisable more
than 10 years after the date of its grant and in the case of an ISO
granted to an eligible employee owning more the 10% of the
Company's common stock, no more than five years after the date of
grant. Any option, which is granted, shall be vested and
exercisable at such time as determined by the Board of Directors or
a committee thereof.
The per share purchase price of shares subject to Plan Options
granted under the Plan may be adjusted in the event of certain
changes in the Company's capitalization, but any such adjustment
shall not change the total purchase price payable upon the exercise
in full of Plan Options granted under the Plan.
Prior to the establishment of the Plan as described above, the
Company had two stock option plans that authorized the issuance of
an aggregate of 17,500 common stock options. No options are
outstanding under these Plans and there was no option activity
under these plans during the years ended December 31, 1999 and
1998.
F-15
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
December 31, 1999 and 1998
NOTE 9. STOCKHOLDERS' EQUITY, Continued
<TABLE>
<CAPTION>
A summary of the status of all options outstanding as of December
31, 1999 and 1998 and changes during the year ended on that date
are presented below:
1999 1998
---- ----
Weighted Weighted
Option Market Average Option Market Average
Price Price Remaining Price Price Remaining
at Date at Date Term at Date at Date Term
Shares of Grant of Grant in Years Shares of Grant of Grant in Years
------ -------- -------- -------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
Beginning
of Year - - - - 70,369 $.01-$3.60 $3.25-$5.64 5.0
Options
Granted 1,000,000 $.25-$1.00 $.06-$.07 3.9 - - - -
Options
Exercised (950,000) $.25 $.06 3.2 (68,702) $.01 $3.25 4.6
Options
Forfeited - - - - (1,667) $3.60 $5.64 3.5
Balance at
End of
Year 50,000 $1.00 $.07 1.8 - - - -
Options
Exercisable
At End of
Year 50,000 $1.00 $.07 1.8 - - - -
</TABLE>
The Company has adopted the disclosure only provisions of SFAS No.
123. Accordingly, no compensation cost has been recognized for the
issuance of stock options to employees.
Had compensation cost for the Company's issuance of common stock
options during the year ended December 31, 1999 been determined
based upon the fair market value at the date of grant consistent
with provisions of SFAS No 123, the Company's net loss and net loss
per common share would have increased to the unaudited proforma
amounts listed below.
<TABLE>
<S> <C>
Net loss as reported $ (1,677,520)
Proforma net loss, unaudited $ (1,724,609)
Net loss per share $ ( .42)
Proforma net loss per share, unaudited $ ( .43)
</TABLE>
The Company utilizes the Black-Scholes option pricing model to
calculate the fair value of each individual issuance of options
with the following assumptions used for grants during the
year ended December 31, 1999; dividends yield of 0%; expected
average annual volatility of 150%; average annual risk free
interest of 7.5%; and expected terms averaging 3.9 years.
F-16
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
December 31, 1999 and 1998
NOTE 9. STOCKHOLDERS' EQUITY, Continued
The proforma net loss and net loss per share for 1998 would not
have been materially different from the historical net loss, since
substantially all of the options previously granted had been vested
and there were no options granted in 1998.
On February 1, 1999, the Company sold 35,000 shares of Series C
Preferred Stock to the Company's Chairman and received net proceeds
of $350. Contemporaneously, the Chairman transferred 29,000 of his
Series C Preferred Stock to certain officers of the Company. On
February 3, 1999, the Company sold 13,000 of its Series C Preferred
Stock in a private offering and received net proceeds of $130. The
Chief Executive Officer and a director purchased 3,000 and 10,000
shares, respectively. All of the Series C Preferred Stock was
subsequently converted into a total of 900,000 shares of common
stock. Results of operations for the year ended December 31, 1999,
includes a charge for compensation expense of $56,700 relating to
the issuance of the 48,000 shares of Series C Preferred Stock.
During the year ended December 31, 1999, the Company issued
1,736,417 shares of common stock in private placement transactions,
at per share prices ranging from $.01 to $4.00, and received cash
proceeds of $461,250. There were no private placement transactions
for cash during the year ended December 31, 1998. In connection
with the issuance of 950,000 of such shares of common stock to 29
investors for an aggregate purchase price of $9,500, 631,000 of
such shares were issued to related parties for an aggregate
purchase price of $6,310. Results of operations for the year ended
December 31, 1999, includes a charge for compensation expense of
$50,350 which represents the excess of the estimated fair market
value of the 950,000 shares of common stock over the selling price
of $9,500.
During the year ended December 31, 1999, the Company issued
1,925,000 shares of common stock pursuant to the terms, including
amendments thereto, of employment agreements with its senior
management. Results of operations for the year ended December 31,
1999, includes a charge for compensation expense of $127,750
relating to the issuance of the 1,925,000 shares of common stock.
The Company also issued an aggregate of 105,212 shares of common
stock, valued at $6,065 in payment of deferred consulting fees,
accrued payroll, legal fees and interest expense.
In connection with the issuance of 48,000 shares of Series C
Preferred Stock, which was converted into 900,000 shares of common
stock, the sale of 950,000 shares of common stock to 29 investors,
the grant of 1,925,000 shares of common stock to officers pursuant
to their employment agreements and the issuance of 80,500 shares in
payment of deferred consulting fees, accrued payroll and legal
fees, the Company valued the aggregate 3,855,500 shares of common
stock at an average price of $.062 per share. Each transaction was
valued based upon the last publicly traded price of the Company's
common stock nearest to the date of the transactions. The Company
believes that the per share prices used to value each transaction
reasonably reflects the estimated fair market value per share of
the Company's common stock on the date of the transactions.
F-17
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
December 31, 1999 and 1998
At December 31, 1999, the Company had reserved 4,420,000 shares of
common stock for issuance pursuant to the terms of its stock option
plan and other outstanding options and warrants.
NOTE 10. NOTES RECEIVABLE - 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 100% of the outstanding common stock of 9006-1474
Quebec, Inc., d/b/a Torland ("Torland") on or before December 31,
1997.
As a result of Lator's inability to obtain the necessary financing
and complete the acquisition of Torland, in May 1998, the Company
retroactively canceled its acquisition of Lator, and entered into a
Termination and Release Agreement (the "Agreement") with all
parties to the original agreement. Pursuant to the Agreement,
amounts advanced to Lator by the Company, aggregating $350,000 at
December 31, 1997, were to be repaid in full by Lator, although no
specific repayment terms were specified in the Agreement. The notes
were unsecured and pursuant to the Agreement all interest due on
the notes was waived by the Company.
After receipt of the $350,000 of advances from the Company, Lator
advanced the funds to LPS Acquisition Corp. ("LPS"), a wholly-owned
subsidiary of Coventry Industries Corp. ("Coventry"). At the time
of the transaction, C. Lawrence Rutstein was President and Chief
Executive Officer and a Director of the Company and a member of the
Board of Directors of Coventry, and Robert Hausman was President of
Coventry and a member of the Board of Directors of both the Company
and Coventry.
In 1998, the Company collected approximately $139,000 on the above
described notes. In June 1998, the Company assigned the remaining
notes to a third party for $100,000 and the assumption of certain
liabilities approximating $76,000. The Company wrote off the
remaining balance of approximately $38,000, which was recorded as a
provision for doubtful accounts in the accompanying statement of
operations for the year ended December 31, 1998.
NOTE 11. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1999, the Company incurred
$12,075 of legal fees from the wife of the Chairman of the Board.
During the year ended December 31, 1999, the Company incurred an
aggregate of $47,657 of consulting fees and commissions payable to
its Chief Executive Officer and President and its Chief Financial
Officer and Treasurer of which $26,525 was incurred prior to their
appointment as executive officers of the Company and $21,132 was
incurred after their appointment as executive officers of the
Company. The employment agreement for the Chief Financial Officer
and Treasurer provided for the payment of $15,000 of fees for his
assistance in raising capital for the Company.
F-18
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
December 31, 1999 and 1998
NOTE 11. RELATED PARTY TRANSACTIONS, Continued
During the year ended December 31, 1999, the Company received
working capital advances of $85,925 from the father of the Chairman
of the Board, who together with his wife and entities controlled by
such individuals are major shareholders of the Company. During
1999, the Company repaid $48,166 of such advances.
On December 29, 1999, the Company entered into a three year
consulting agreement with the father of the Chairman of the Board
and an entity controlled by such individual (the "Consultant"), to
provide general business services to the Company in exchange for an
annual consulting fee of $75,000, payable in equal monthly
installments of $6,250, plus a car allowance of $750 per month. As
additional consideration for the agreement, the Company granted the
Consultant 50,000 shares of the Company's common stock, valued at
$2,500 which amount is included in other assets in the accompanying
financial statements at December 31, 1999. In addition, the
Consultant received a two year option to purchase 50,000 shares of
the Company's common stock at an exercise price of $1.00 per share.
The agreement further provides that the Company will provide the
Consultant with a private office and office support services and
will reimburse the Consultant for all expenses incurred in
connection with his activities on behalf of the Company. (See Notes
No. 9, 12 and 13 for additional information regarding related party
transactions).
NOTE 12. COMMITMENTS AND CONTINGENCIES
Litigation
In December, 1998 the Company filed a Complaint in the Circuit
Court of the Fifteenth Judicial Circuit in and for Palm Beach
County, Florida entitled Shulman & Associates, Inc., Manny
Shulman, Franklyn Weichselbaum, Mitchell Rubinson and Regenesis
Holdings, Inc. v. Elizabeth Shwiff, Fincross, Ltd., Elpoint
Corporation, Elpoint Co., L.L.C., Russian Securities Co., Gennady
Yakovlev, Oleg Pavlioutchouk and Maxim Shishlyannikov, for
defamation and liable in connection with certain information
released about the Company.
In a collateral action, the Company was named in a lawsuit
involving several of the same parties in the United States District
Court for the Northern District of California in the matter
entitled Elpoint Co., L.L.C., et al v. Mitchell Rubinson, et al.
Although the Company was named as a indispensable party, the
allegations were in the nature of a shareholder derivative claim
and no relief was sought against the Company by the plaintiffs.
On May 19, 1999, a majority of the parties named in the
aforementioned lawsuits, including another California state court
action entitled Elpoint, L.L.C., et al v Mitchell Rubinson, et al.
filed in the Superior Court, attended mediation which resulted in a
settlement which required, among other things, the dismissal of all
three lawsuits and the payment of an aggregate of $450,000 to the
plaintiffs. The Company was not a named party in the California
state court action. Additionally, the Company was not obligated to
contribute financially to the settlement.
F-19
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
December 31, 1999 and 1998
NOTE 12. COMMITMENTS AND CONTINGENCIES, Continued
Although, the Company did not attend the mediation, the Company was
an intended beneficiary of the settlement. Mitchell Rubinson and
Larry Rutstein, former officers of the Company, purportedly
reserved certain indemnification rights against the Company as part
of the settlement and notified the Company of such a reservation
subsequent to their execution of the settlement agreement. The
Company cannot opine upon the validity of such claims as no action
has been filed against the Company in that regard. However, the
Company believes the probability that Mssrs Rubinson and Rutstein
could sustain a claim against the Company based upon the settlement
agreement is remote, accordingly, no provision for any potential
claims associated with these matters has been recorded in the
accompanying financial statements. The Company would vigorously
defend any such claims in the event they are filed.
On December 16, 1999, the Judge presiding over the Superior Court
of California state court action entered an order granting the
plaintiff's motion to enforce the settlement under the California
Code of Civil Procedure. Since the settlement agreement purports to
resolve all of the aforementioned matters, the Company intends to
dismiss the Florida lawsuit and obtain releases from the
defendants.
Operating Leases
On May 10, 1999, the Company entered into a lease for its main
office in Weston, Florida. The lease, which expired on August 10,
1999, required monthly payments of $4,000. Total rental expense for
the year ended December 31, 1999 was $12,000.
On May 12, 1999, the Company entered into an office service
agreement for a New York office. The agreement, which expires on
May 31, 2000, requires monthly payments of $4,626 and may be
terminated by either party upon thirty days written notice. Upon
expiration of the initial term of the agreement, there is an
automatic extension for the same period of time as the initial term
with an increase in the base rent of 8%. The terms of the agreement
will remain the same as the initial term if extended. Total rental
expense for the year ended December 31, 1999 was $35,240. In
addition, the Company paid $11,347 for office support services
related to the terms of the lease.
The Company currently leases approximately 4,000 square feet of
office space from an unaffiliated party pursuant to the terms of a
35 month lease expiring in May 2002. The monthly lease payment,
including taxes, is $4,367. Total rental expense for the year ended
December 31, 1999 was $21,869.
In addition to the above amounts of rent expense the Company
incurred $14,000 in connection with the sublease of office space.
The Company leases an automobile for its Chairman of the Board of
Directors pursuant to the terms of a three year lease expiring in
June 2002. The monthly lease payment is $557.
F-20
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
December 31, 1999 and 1998
NOTE 12. COMMITMENTS AND CONTINGENCIES, Continued
At December 31,1999, the Company's minimum payment requirements
under all non-cancelable operating leases were as follows:
Year Ending December 31,
2000 $ 117,706
2001 87,418
2002 27,308
---------
Total $ 232,432
=========
Employment Agreements
As of December 31, 1999, the Company had employment agreements with
its four executive officers all of which, including amendments
thereto, were entered into during the year ended December 31, 1999.
The agreements, as amended, provide for annual salaries of
approximately $560,000 through varying dates expiring from April
2001 through February 2004. In addition, pursuant to such
agreements, the Company granted the executive officers 1,800,000
shares of common stock of the Company and options to purchase
950,000 shares of common stock of the Company, exercisable at $.25
per share. The agreements also provide for various fringe benefits
and for compensation associated with raising equity or debt
financing for the Company.
On April 1, 1999, the Company entered into a three year employment
agreement with a key employee in connection with its acquisition of
the assets of NetDisc, Inc. The agreement provided for an annual
salary of $125,000 plus fringe benefits and compensation associated
with raising equity or debt financing for the Company. Pursuant to
such agreement the Company granted the employee 100,000 shares of
common stock of the Company and agreed to allow the employee to
participate in the Company's stock option program. The employee
resigned his position with the Company in October 1999, and the
Company has made no payments to the employee under the terms of the
contract since the date of his resignation.
On October 21, 1999, the Company entered into a one year employment
agreement with its Executive Vice President of entertainment /
music development which provides for an annual salary of $78,000
plus fringe benefits. The employee was granted 25,000 shares of
common stock and an option to purchase 50,000 shares of common
stock at a per share price of $1.00 per share. On January 5, 2000,
the agreement was amended to provide for an additional grant of
50,000 shares of common stock.
Other
In November 1999, the Company entered into an agreement with JW
Genesis Capital Markets, Inc. ("JW Genesis"), whereby JW Genesis
will act as a financial advisor to the Company and as its exclusive
placement agent in connection with any proposed offering or private
placement by the Company of any equity or debt securities.
F-21
<PAGE>
REGENESIS HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS, (Continued)
December 31, 1999 and 1998
NOTE 12. COMMITMENTS AND CONTINGENCIES, Continued
Pursuant to the terms of the agreement, JW Genesis will be paid a
nonrefundable fee of $6,250 upon execution of the agreement and a
monthly fee of $6,250 for each month following the date of
execution of the agreement for a minimum period of three months. In
addition, the Company issued to JW Genesis a five year warrant to
purchase 250,000 shares of the Company's common stock at an
exercise price of $2.50 per share. JW Genesis will be paid an
investment banking fee and will be fully reimbursed for all
out-of-pocket expenses in connection with the completion of any
securities offerings contemplated by the agreement. The warrant was
recorded at its estimated fair market value of $11,558.
As of December 31, 1999, other current liabilities in the
accompanying balance sheet include $12,500 due to JW Genesis
pursuant to the agreement.
See Note No. 11 for the specific terms and conditions applicable to
a three year consulting agreement with a related party requiring
minimum annual payments of approximately $84,000 through December
2002.
NOTE 13. SUBSEQUENT EVENTS
Subsequent to December 31, 1999, the Company sold 50,000 shares of
common stock at a per share price of $2.00 and 50,000 shares of
common stock at a per share price of $3.00 and received an
aggregate of $250,000 of cash.
From January 1, 2000 through April 27, 2000, the Company received
approximately $284,000 of non interest bearing advances from
certain of its officers and directors. Such advances have no
specific repayment terms.
In January 2000, the Company purchased the URL address Music
411.com from the father of the Chairman of the Board of Directors
in exchange for 250,000 restricted shares of the Company's common
stock which was valued at $ 12,500.
In January 2000, the Company entered into three consulting
agreements which provide for an aggregate of $20,000 per month in
consulting fees and the issuance of an aggregate of 1,050,000
shares of common stock valued at $.05 per share. Based upon quoted
prices between dealers the $.05 per share was considered to be
equivalent to the estimated fair market value per share of the
Company's common stock on the date of the transaction. The
agreements are for a period of three years. The $52,500 value
associated with the common stock will be recorded as deferred
consulting fees and will be amortized over a period of three years
commencing February 1, 2000.
On January 20, 2000, the Company entered into an agreement to sell
200,000 shares of common stock at a price of $1.00 per share in a
private placement transaction. The purchaser of the shares
deposited the $200,000 purchase price with counsel for the Company
until completion of the pending acquisition described in Note 3.
On January 5, 2000, the Company granted options to three officers
to purchase up to an aggregate of 800,000 shares of common stock at
an exercise price of $.25 per share.
F-22
<PAGE>
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
Exhibits Description of Documents
-------- ------------------------
<S> <C>
6.2 URL Purchase Agreement by and between Regenesis Holdings, Inc. and Mel Adler , dated as of January 25, 2000. (9)
10.1 Agreement on Transfer the Shares as Collateral dated May 23, 1997 by and between QPQ Corporation and
International Fast Food Corporation. (4)
10.2 Stock Purchase Agreement dated as of September 3, 1997 by and between QPQ Corporation and Linde Group. (5)
10.3 Lease Agreement dated 5/12/99 by and between Omni offices, Inc. and Regenesis Holdings Inc. (3)
10.4 Lease Agreement dated 5/10/99 by and between Finance Team of America and Regenesis Holdings Inc. (3)
10.5 Employment Agreement dated 4/1/99 between Regenesis Holdings Inc. and Mitchell B. Sandler. (3)
10.6 Employment Agreement date as of 2/15/99 between Regenesis Holdings Inc. and Russell Adler. (3)
10.7 Employment Agreement dated 4/18/99 between Regenesis Holdings Inc. and Lawrence Gallo. (3)
10.8 Employment Agreement dated 4/18/99 between Regenesis Holdings Inc. and Joel F. Brownstein. (3)
10.9 Employment Agreement dated 4/18/99 between Regenesis Holdings Inc. and Mark Jelaso. (3)
10.10 Amendment to Employment Agreement dated 4/1/99 between Regenesis Holdings Inc. and Mitchell B. Sandler. (7)
10.11 Amendment to Employment Agreement date as of 2/15/99 between Regenesis Holdings Inc. and Russell Adler. (7)
10.12 Amendment to Employment Agreement dated 4/18/99 between Regenesis Holdings Inc. and Lawrence Gallo. (7)
10.13 Amendment to Employment Agreement dated 4/18/99 between Regenesis Holdings Inc. and Joel F. Brownstein. (7)
10.14 Consulting Agreement by and between Regenesis Holdings, Inc. and Ed Ruh (9)
10.15 Consulting Agreement by and between Regenesis Holdings, Inc. and Brandon Phillips (9)
10.16 Consulting Agreement by and between Regenesis Holdings, Inc. and Les Garland (9)
10.17 Consulting Agreement by and between Regenesis Holdings, Inc. and Mel Adler (9)
10.18 Amendment to Employment Agreement dated 1/05/00 between Regenesis Holdings Inc. and Gustavo Rodriquez. (9)
16.1 Accountant's letter date January 20, 1999 of Rachlin Cohen & Holtz, LLP (6)
16.2 Accountant's letter date January 20, 1999 of Moore Stephens Lovelace, P.A. (6)
16.3 Accountant's letter date February 28, 2000 of Rachlin Cohen & Holtz, LLP (8)
16.4 Accountant's letter date February 24, 2000 of Moore Stephens Lovelace, P.A. (8)
27 Financial Data Schedule. (9)
----------------------
(1) Incorporated by reference to exhibits from the Company's Form 10-KSB Report, as amended, as filed with
the Securities and Exchange Commission 6/10/98
(2) Incorporated by reference as an exhibit to the Company's Form 8-k as filed with the Commission 2/18/99
(3) Incorporated by reference to exhibits from the Company's Form 10-KSB Report, as amended, as filed with
the Securities and Exchange Commission 8/02/99 and 7/14/99.
(4) Incorporated by reference as an exhibit to the Company's Form 8-k as filed with the Commission 6/20/97.
(5) Incorporated by reference as an exhibit to the Company's Form 8-k as filed with the Commission 9/18/97
(6) Incorporated by reference as an exhibit to the Company's Form 8-k as filed with the Commission 1/20/99
(7) Incorporated by reference as an exhibit to the Company's Form S-8 Registration Statement as filed with
the Commission 12/20/99.
(8) Incorporated by reference as an exhibit to the Company's Form 8-k as filed with the Commission 3/02/00.
(9) Filed herewith.
</TABLE>
