As filed with the Securities and Exchange Commission on __________, 1999
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
THE RATTLESNAKE HOLDING COMPANY, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 5812 06-1369616
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Incorporation Classification Code Number) Identification Number)
or Organization)
2 South Main Street
South Norwalk, CT 06854
Telephone: (860) 276-8660
(Address and Telephone Number of Principal Executive Offices)
Kenneth Berry
President
The Rattlesnake Holding Company, Inc.
2 South Main Street
South Norwalk, CT 06854
Telephone: (860) 276-8660
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Stuart M. Sieger, Esq.
Seth I. Rubin, Esq.
Ruskin, Moscou, Evans & Faltischek, P.C.
170 Old Country Road
Mineola, NY 11501
Telephone: (516) 663-6546
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of the registration statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering:|_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box:
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CALCULATION OF REGISTRATION FEE
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Title of Each Class Proposed Maximum Proposed Maximum
of Securities to be Registered Number of Shares to Offering Price Aggregate Offering Amount of
be Registered Per Share (1) Price (1) Registration Fee
- --------------------------------- ----------------------- ------------------------ ---------------------- ---------------------
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Common Stock 200,000,000 Shares $ 0.12 $ 24,000,000 $ 6,672
- --------------------------------- ----------------------- ------------------------ ---------------------- ---------------------
Total Registration Fee: ---- ---- $ 24,000,000 $ 6,672
- --------------------------------- ----------------------- ------------------------ ---------------------- ---------------------
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended (the
"Securities Act").
------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
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CROSS REFERENCE SHEET
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Item and Heading Location in Prospectus
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1. Forepart of the Registration Statement Outside Front Page of Prospectus
Front Cover
2. Inside Front and Outside Back Cover Inside Front Back Cover Pages of Prospectus
and Outside Pages of Prospectus
3. Summary Information, Risk Factors Summary of Summary Information, Risk Factors Summary of
Prospectus; and Ratio of Earnings to Fixed Charges Prospectus; and Ratio of Earnings to Fixed Charges Risk
Risk Factors Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Determination of Offering Price
6. Selling Security Holders Selling Security Holders
7. Plan of Distribution Plan of Distribution
8. Description of Securities to be Registered Description of Securities to be Registered
9. Interest of Named Experts and Legal Matters Legal Matters; Experts
10. Information with Respect to the Registrant Information with Respect to the Registrant
11. Incorporation of certain information Incorporation of certain information
12. Disclosure of Commission Position on Position on Indemnification Act
Indemnification for Securities
13. Other Expenses of Issuance and Distribution Other Expenses of Issuance and Distribution
14. Indemnification of Officers and Directors Indemnification of Directors and Officers
15. Exhibits Exhibits
16. Undertakings Undertakings
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SUBJECT TO COMPLETION, DATED _____________, 1999
PROSPECTUS
THE RATTLESNAKE HOLDING COMPANY, INC.
200,000,000 SHARES OF COMMON STOCK OFFERED BY SELLING
SECURITY HOLDERS
This is an offering of up to 200,000,000 shares (the "Shares") of Common
Stock of The Rattlesnake Holding Company, Inc. (the "Company") by the Selling
Security Holders named herein. The selling security holders may be deemed to be
underwriters when they sell their shares. See "Plan of Distribution."
The Company will pay certain costs and expenses incurred in connection with
the registration of the shares of Common Stock ("Shares") offered hereby, but
the Selling Security Holders shall be responsible for all selling commissions,
transfer taxes and related charges in connection with the offer and sale of such
Shares. See "Plan of Distribution". The Company anticipates incurring expenses
totaling approximately $__________ payable in connection with the shares being
registered hereby.
The Common Stock of the Company, par value $.001 per share, is quoted on
the NASDAQ Bulletin Board under the symbol "RTTL". On August __, 1999 the
closing sale price of the Company's Common Stock on the NASDAQ Bulletin Board
was $_____ per share. The Selling Security Holders may sell all or a portion of
the Shares offered hereby in private transactions or in the over-the-counter
market at prices related to the prevailing prices of the Shares on the NASDAQ
Bulletin Board at the time of sale. Any securities covered by this Prospectus
which qualify for sale pursuant to Rule 144 under the Securities Act may be sold
by a Selling Security holder under Rule 144 rather than pursuant to this
Prospectus. See "Plan of Distribution."
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SECURITY HOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THE SHARES AND THE SELLING SECURITY HOLDERS
ARE NOT SOLICITING AN OFFER TO BUY THE SHARES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
THE DATE OF THIS PROSPECTUS IS _________.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and may not contain all of the information that you
should consider before deciding to invest in our shares. We urge you to read
this entire prospectus carefully including the "Risk Factors" section which
begins in page 8 and the consolidated financial statements and the notes to
those statements. An investment in these securities involves a high degree of
risk.
This prospectus includes forward-looking statements which involve known and
unknown risks and uncertainties or other factors that may cause actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Factors that might cause such differences include,
but are not limited to, those discussed under the heading "Risk Factors."
In this "Prospectus Summary" section, "we," "our" and "ours" refer to the
Company, and "you," "your" and "yours" refer to a purchaser of the Shares
offered by this prospectus.
The Company
General
The Rattlesnake Holding Company, Inc. a Delaware corporation (unless the
context otherwise indicates, with its subsidiaries, "we" or the "Company") was
formed and commenced operations in 1993, and effected an initial public offering
of its stock in 1995 to develop, build and operate a chain of casual dining
southwestern restaurants under the name Rattlesnake Southwestern Grill. At one
time, we operated a total of 8 restaurants in the New York metropolitan area.
Management was unable to operate the restaurants profitably, failed to control
general and administrative expenses and did not develop a workable growth
strategy. As a consequence, we experienced substantial losses and incurred a
significant amount of debt. In 1997, the Board of Directors elected certain of
its members as officers to take control of operations and replace the existing
management pursuant to its Cost Reduction Plan. We then disposed of development
projects and non-performing restaurants, negotiated severance agreements with
the former management, and sharply reduced general and administrative expenses.
In March 1998, we consummated a transaction with Nicolo Ottomanelli and
Joseph Ottomanelli, through which we acquired a company which franchised
Ottomanelli's Cafe(R) restaurants (casual dining New York City based
operations), an Ottomanelli's Cafe(R) and another food service operation in New
Jersey, and as well as management with expertise in the selection and sale of
meat and meat products. The Ottomanelli's Cafe(R) franchise company currently
has extremely limited operations. Upon further analysis, our management
concluded that the Ottomanelli Cafe(R) operations were inconsistent with our
operating plans and were authorized to be terminated. The Ottomanelli
restaurants ceased operations in August 1998.
In fiscal 1998, in furtherance of our Cost Reduction Plan, we terminated
operations at our Lynbrook, New York and Danbury, Connecticut facilities, and in
November 1998, terminated operations at our Flemington, New Jersey facility as
well, for which we recorded an impairment charge in 1998.
In April 1999, 106 Federal Road Restaurant Corp., a wholly-owned subsidiary
of the Company, purchased the Danbury, Connecticut facility previously closed.
The closed restaurant is being remodeled and reconfigured to serve as the first
location for our new restaurant concept.
We continue to operate a self sustaining Rattlesnake(R) Southwestern Grill
in South Norwalk, Connecticut.
In the last half of calendar year 1998, our management recognized that we
had a limited future as an operator of Rattlesnake Southwestern Grill
restaurants. As a result, management set out to: (i) increase our working
capital through the consummation of a private placement offering of our
securities, with Commonwealth Associates serving as placement agent (the
"Placement Agent"); (ii) assemble a new, highly experienced and established
management team; and (iii) alter our restaurant theme and menu and develop
restaurants with a new concept.
In October 1998, we commenced a private placement offering (the "Offering")
of our securities, pursuant to which we offered investors Series B Convertible
Preferred Shares. See "Description of Securities - Preferred Shares." Upon
completion of the Offering in July 1999, we had raised approximately $6,000,000
and converted approximately $1,350,000 of debt to equity. After satisfying
certain of our remaining debts, disbursements of and commissions to the
placement agent, and payment of other expenses of the Offering, we secured
approximately $4,000,000 for working capital use.
In order to develop and implement its new restaurant concept, we installed
a new management team and Board of Directors with significant experience in the
restaurant operations industry. See "Management - Agreements with New
Management." Accordingly, we have entered into personal service agreements (of
varying commitment levels) with certain key persons who, as principals, have
previously participated in the development of food service chains, including
Shelly Frank (Chi-Chi's), Kenneth Berry (Roy Rogers, regionally), A.G. "Sandy"
Rappaport (Outback Steakhouse) and Stephan A. Stein (David's Cookies). See
"Management". However, due to a number of factors, including our historical
operating losses, small restaurant base and geographic concentration, as well as
dependence on certain external factors we cannot control, there can be no
assurance that new management will be able to make us profitable or commercially
viable.
We have commenced concept development of a multi-regional chain of
mid-priced steakhouses, to feature price/value steak and distinctive shrimp (and
other) dishes, tentatively named Spencer's. Spencer's is a price/value oriented
restaurant concept which is designed to provide fresh, high quality food at
moderate prices in a relaxed atmosphere.
The principal office of the Company is 2 South Main Street, South Norwalk,
CT 06854 and our telephone number is (860) 276-8660.
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The Offering
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Common Stock Offered....... 200,000,000 shares
Common Stock Outstanding After the Offering................... shares
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Use of Proceeds... The Company will not receive any of the
proceeds of the shares of Common Stock
sold by the Selling Security Holders.
See "Plan of Distribution" and Use of
Proceeds".
Risk Factors.................................................. This Offering involves a high degree of
risk. See "Risk Factors".
Over-the-Counter Bulletin Board Symbol........................ "RTTL"
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<PAGE>
RISK FACTORS
An investment by you in the shares offered by this prospectus is
speculative and involves a high degree of risk. You should only purchase these
securities if you can afford to lose your entire investment. Before making an
investment, you should carefully consider the following risks and speculative
factors, as well as the other information contained in this prospectus. As
discussed in the Summary, this prospectus contains forward-looking statements
that involve risks and uncertainties. The actual results of the Company's
operations could be significantly different from the information contained in
those forward-looking statements. Those differences could result from the risk
factors discussed immediately below, as well as factors discussed in other
places in this prospectus.
1. Operating Losses; Future Operating Results. We have a history of losses
since our inception in 1993. As of the end of our June 28, 1998 fiscal year,
losses aggregated $15,425,055 including losses of $4,797,857 and $3,236,039 for
our fiscal years ended June 29, 1997 and June 28, 1998, respectively. We
continued to incur operating losses in fiscal 1999. Our future profitability
will depend upon, among other things, our ability to generate a level of
revenues sufficient to offset our cost structure in addition to reducing our
operating costs on a per location basis. We believe that generation of that
level of revenues is dependent upon the timely opening of restaurants and
achieving and maintaining market acceptance. There can be no assurance that we
will achieve significantly increased revenues or maintain profitable operations.
2. Significant Capital Requirements; Need for Additional Financing;
Indebtedness. Our capital requirements have been significant and our cash
requirements have been exceeding our cash flow from operations (at June 28,
1998, we had a working capital deficit of $2,952,863) due to, among other
things, costs associated with the prior development and operation of our
Rattlesnake(R) Southwestern Grill restaurants and our proposed modified and
expanded operations. As a result, we have been dependent upon sales of its
equity securities and loans to finance our working capital requirements. We are
dependent upon the proceeds of the Offering to finance our proposed expansion.
Based on our current proposed plans and assumptions relating to the
implementation of its expansion strategy, we anticipate that the net proceeds of
the Offering, together with anticipated cash flow from operations and equipment,
food vendor and landlord financing, will be sufficient to satisfy our
contemplated cash requirements through July 2000. In the event that our plans
change or our assumptions prove to be inaccurate (due to unanticipated expenses,
construction delays or other difficulties) or the proceeds of the Offering
otherwise prove to be insufficient to fund operations and implement our proposed
expansion strategy, we could be required to seek additional financing sooner
than anticipated. We have no current arrangements with banks or otherwise with
respect to, or potential sources of additional financing, and it is not
anticipated that any officers, directors or stockholders will provide loans to
us. Consequently there can be no assurance that any additional financing will be
available to us when needed, on commercially reasonable terms, or at all. Any
inability to obtain additional financing when needed would have a material
adverse effect on us, including requiring us to curtail our expansion efforts.
In addition, any additional equity financing may involve substantial dilution to
the interests of our then existing stockholders. At June 28, 1998, short term
debt and liabilities totaled approximately $3,300,000 and long term debt totaled
approximately $525,000. At June 28, 1998, approximately $1,212,000 of our
outstanding notes payable were past due and in default. Additionally,
accumulated dividends for Series A preferred stock of $207,636 were also past
due and unpaid. In July 1999, we completed a private placement of approximately
$6,000,000 of Series B Preferred Stock. In conjunction with the private
placement, approximately $860,000 of the notes payable and $523,000 of trade
payables converted their obligations into Series B preferred stock and $639,000
of the notes payable were paid. Coincident with the private placement, the
holders of 56,500 shares of Series A preferred stock exchanged their holdings
for 55,370 shares of Series B preferred stock and waived their rights to the
unpaid and accumulated dividends. There can be no assurance that cash flow from
operations will be sufficient to repay remaining indebtedness and trade
payables.
3. Litigation. We are a party defendant to a number of litigations. If such
litigations are concluded on relatively unfavorable terms, the litigations could
have a material adverse effect on us and our prospects. (See "Legal
Proceedings".)
4. Dependence Upon Key Personnel; Varying Commitment Levels. The success of
the Company will be dependent on its ability to attract and retain experienced
management and restaurant industry personnel. We anticipate the receipt of
strategic advice from Shelly Frank, A.G. (Sandy) Rappaport, and Stephan A.
Stein, and full time services from Kenneth Berry as President, Nicolo
Ottomanelli as Senior Vice President and Frank T. Ferro as Chief Financial
Officer. These individuals have entered into agreements with us including
varying levels of commitment, one of which, an advisory service agreement of Mr.
Frank, is terminable by Mr. Frank without recourse by the Company. The loss of
the advice or services of any one or more of these persons could have a material
adverse effect on the business and prospects of the Company. We face
considerable competition from other food service businesses for personnel, many
of which have significantly greater resources than we have. There can be no
assurance that we will be able to attract and retain personnel in the future,
and the inability to do so could have a material adverse effect on us.
5. Competition. The restaurant industry is intensely competitive with
respect to price, service, location and food quality and variety. There are many
well-established competitors with substantially greater financial and other
resources than we have, as well as a significant number of new market entrants.
Such competitors include national, regional and local full-service casual dining
chains, many of which specialize in or offer steak and seafood products, as well
as single location restaurants. Some of our competitors have been in existence
for substantially longer periods than we have, may be better established in the
markets where our restaurants are or will be located and engage in extensive
advertising and promotional campaigns, both generally and in response to efforts
by competitors to open new locations or introduce new concepts or menu
offerings. We can also be expected to face competition from a broad range of
other restaurants and food service establishments which specialize in a variety
of cuisines. While we believe that we are focusing on exciting and profitable
menu items, there can be no assurance that consumers will regard our menu and
concepts as sufficiently distinguishable from competitive menus and restaurant
concepts or that substantially equivalent menus and restaurant concepts will not
be introduced by our competitors.
6. High Restaurant Failure Rate. The opening of new restaurants is
characterized by a very high failure rate. We propose to initiate and construct
a new restaurant chain. During the initial operation of a newly opened
restaurant, such restaurant could operate at a loss. In the event of a prolonged
period of unfavorable operating results for a restaurant, we may be required to
close such restaurant, which could have a material adverse effect on the
financial condition and results of operations of the Company. In the short term,
we will remain dependent upon a limited number of restaurants for substantially
all of its revenues. The lack of success or closing of our existing restaurant,
or the unsuccessful operation of a new restaurant, could have material adverse
effect upon the financial condition and results of operations of the Company.
7. Risks Relating to Proposed Expansion. We are currently implementing a
strategy to change our concept and build a restaurant chain. We have limited
experience in effectuating rapid expansion and in managing a large number of
locations or locations that are geographically dispersed (and has enlisted the
assistance of persons experienced in these areas effective with the Offering).
Our proposed expansion will be dependent on, among other things, achieving
significant market acceptance for our Spencer's concept, developing customer
recognition and loyalty for the Spencer's name, identifying a sufficient number
of prime locations and entering into lease arrangements for such locations on
favorable terms, timely development and construction of locations, securing
required governmental permits and approvals, hiring, training and retaining
skilled management and other personnel, our ability to integrate new restaurants
into our operations and the general ability to successfully manage growth
(including monitoring restaurant operations, controlling costs and maintaining
effective equality controls). In the event that cash flow from operations is
insufficient or that we are unable to obtain adequate equipment, food vendor or
landlord financing, or other unexpected events occur, such as delays in
identifying suitable locations, negotiating leases, obtaining permits or design
and construction delays, we may not be able to open all of such locations in a
timely manner, or at all. Moreover, we are using a new name and developing a new
concept, both of which will have to be tested and will have to demonstrate
commercial acceptance and financial viability. There can be no assurance that we
will be successful in opening the number of restaurants currently planned in a
timely manner, or at all, or that, if opened, those restaurants will operate
profitably.
8. Long Start-up Cycles; Fluctuations in Operating Results; Start-up
Expense. Our restaurant start-up cycle, which generally commences with site
selection and ends upon the opening of the restaurant to customers, will vary by
location and could extend for a period of months. Difficulties or delays in site
selection or events over which we will have no control, such as delays in
construction due to governmental regulatory approvals, shortage of or the
inability to obtain labor and/or materials, inability of the general contractor
or subcontractors to perform under their contracts, strikes or availability and
cost of needed debt or lease financing, could materially adversely affect the
start-up costs and completion times of new locations. We expect that future
quarterly operating results will fluctuate as a result of the timing of, and
expenses related to, the openings of new restaurants (since we will incur
significant expenses during the months preceding the opening of a restaurant),
as well as due to various other factors, including the seasonal nature of its
business and weather conditions. Accordingly, our sales and earnings may
fluctuate significantly from quarter to quarter and operating results for any
quarter will not necessarily be indicative of the results that may be achieved
for a full year. In addition, the capital resources required to construct each
new location are significant. We estimate that the costs of opening our future
locations (location acquisition and concept conversion) will be approximately
$700,000 per location, net of any anticipated landlord contributions. We expect
that we will incur approximately $75,000 in additional pre-opening costs in
connection with the opening of future sites. There can be no assurance that the
costs to construct and open a new location will not be significantly higher than
currently anticipated.
9. Consumer Preferences; Factors Affecting the Restaurant Industry. The
restaurant industry is characterized by the continuing introduction of new
concepts and is subject to rapidly changing consumer preferences, tastes and
eating and purchasing habits. While the demand for steak restaurants has grown
significantly over the past several years, there can be no assurance that such
demand will continue to grow or that these trends will not be reversed. Our
success will depend on our ability to anticipate and respond to changing
consumer preferences, tastes and eating and purchasing habits, as well as other
factors affecting the food service industry, including new market entrants,
demographic trends and unfavorable national, regional and local economic
conditions, inflation, increasing seafood and other food and labor costs.
Failure to respond to such factors in a timely manner could have a material
adverse effect on the Company.
10. Geographic Concentration. Our existing restaurant, and the initial site
selection(s), are to be in the New York metropolitan tri-state area. Given our
geographic concentration, adverse publicity relating to our restaurants could
have a more pronounced adverse effect on our operating results than might be the
case if our restaurants were more geographically dispersed. A decline in
tourism, or in general economic conditions, which affects the New York
metropolitan area economy or tourism industry, particularly during the time of
peak sales, could have a material adverse effect on our operations and
prospects.
11. Seasonality. The restaurant business is seasonal, and could be
adversely affected by extreme weather during what would otherwise be a period of
higher sales.
12. Menu Emphasis on Steak and Shrimp. The focus of our restaurant
expansion will be on a menu featuring mid-priced steaks and a variety of shrimp
selections (as well as other foods). Although we believe that this menu will
prove attractive, it is very limited in relation to the variety of foods served
in a "full menu" restaurant. Accordingly, if these menu items do not prove
attractive, we will be adversely affected and would have to restructure its
menu, with the attendant costs and loss of momentum resulting from a second
start up effort.
13. Fluctuations in Food and Other Costs; Supply of Food. Our profitability
is dependent on our ability to anticipate and react to increases in food, labor,
employee benefits, and similar costs over which we have limited control.
Specifically our dependence on frequent deliveries of meat, seafood and produce
subjects us to the risk of possible shortages or interruptions in supply caused
by adverse weather, labor, transportation or other conditions which could affect
the availability and cost of such items. We believe we will be able to
anticipate and react to fluctuations in food costs through selected menu price
adjustments, purchasing steak and shrimp directly from suppliers and promoting
certain alternative menu selections (in response to price and availability of
supply). However, there can be no assurance that we will be able to continue to
anticipate and respond to such supply and price fluctuations in the future or
that we will not be subject to significantly increased costs in the future.
Moreover, we do not maintain long term supply contracts with any of our
suppliers, and purchases products pursuant to purchase orders placed from time
to time in the ordinary course of business. Although we believe that our
relationships with our suppliers are satisfactory and that alternative sources
are available, the loss of certain suppliers, or substantial price increases,
could have a material adverse effect on us.
14. Potential Liability for Sale of Alcoholic Beverages. Our restaurants
will be subject to "dram-shop" statutes, which generally provide a person
injured by an intoxicated person the right to recover damages from an
establishment that wrongfully served alcoholic beverages to the intoxicated
person. New York law currently provides that a vendor of alcoholic beverages may
be held liable in a civil cause of action for injury or damage caused by or
resulting from the intoxication of a minor (under 21 years of age) if the vendor
willfully, knowingly and unlawfully sells or furnishes alcoholic beverages to
the minor and knows that the minor will soon thereafter be driving a motor
vehicle. A vendor can similarly be held liable if it knowingly provides
alcoholic beverages to a person who is in a noticeable state of intoxication,
knows that person will soon thereafter be driving a motor vehicle and injury or
damage is caused by that person. In addition, significant national attention is
focused on the problem of drunk driving, which could result in the adoption of
additional legislation and increased potential liability of the Company for
damage or injury caused by our customers. We carry insurance for this liability.
15. Limited Insurance Coverage. At the present time, we carry limited
liability insurance and casualty insurance and effective July 15, 1999
retroactive to February 17, 1999, an officer/director liability insurance policy
as well. We did not have such insurance during the period from January 1998 to
such date. We do not maintain health insurance. We intend to periodically
upgrade its insurance coverage, but there can be no assurance as to when
upgrades will be effected and as to any claims which may be made, or the impact
of the same.
16. Government Regulation. We are subject to extensive state and local
government regulation by various governmental agencies, including state and
local licensing, zoning, land use, construction and environmental regulations
and various regulation relating to the sale of food and beverages, sanitation,
disposal of refuse and waste products, public health, safety and fire standards.
Our restaurants are subject to periodic inspections by governmental agencies to
assure conformity with such regulations. Difficulties or failure in obtaining
required licensing or other regulatory approvals could delay or prevent the
opening of a new restaurant, and the suspension of, or inability to renew, a
license at an existing restaurant would adversely affect the operations of the
Company. Restaurant operating costs are also affected by other government
actions which are beyond our control, including increases in the minimum hourly
wage requirements, workers compensation insurance rates, health care insurance
costs and unemployment and other taxes. The Federal Americans With Disabilities
("ADA") prohibits discrimination on the basis of disability in public
accommodations and employment. Our restaurants are currently designed to be
accessible to the disabled, and we believe that we are in compliance with all
current applicable regulations relating to accommodations for the disabled.
However, there can be no assurance that we will not be deemed to violate the
ADA, and could be required to expend significant funds to provide service to or
make reasonable accommodations for disabled persons.
17. Uncertainty of Protection of Proprietary Information. Our business
prospects will depend in part on our ability to develop favorable consumer
recognition of the Spencer's name, which is only a proposed name and not a
trademark. Although we intend to apply for trademark registration for use of the
Spencer's name by the United States Patent and Trademark Office, there can be no
assurance that: (i) our registrations will be issued and will not violate the
proprietary rights of others or that our trademarks would be upheld; or (ii)
that we would not be prevented from using our trademarks, if challenged, any of
which could have an adverse effect on us. In addition, we will rely on trade
secrets and proprietary know-how, and will employ various methods, to protect
our concepts and recipes. However, such methods may not afford adequate
protection and there can be no assurance that others will not independently
develop similar know-how or obtain access to our know-how, concepts and recipes.
We do not maintain confidentiality and non-competition agreements with all of
our executives, key personnel or suppliers. There can be no assurance that we
will be able to adequately protect its trade secrets. In the event competitors
independently develop or otherwise obtain access to our know-how, concepts,
recipes or trade secrets, we could be adversely affected.
18. Control by Management. Our current officers and directors own
approximately 25% of the outstanding Common Stock of the Company. Accordingly,
such persons could be able to control the Company and generally direct our
affairs, including electing a majority of our directors and causing an increase
in our authorized capital or the dissolution, merger or sale of the Company or
substantially all of its assets.
19. No Dividends. We have never paid any dividends on our Common Stock and
does not anticipate paying cash dividends in the foreseeable future, except for
possible cash dividends on the Preferred Shares. We currently intend to retain
any and all earnings for use in connection with the expansion of our business
and for general corporate purposes. The declaration and payment of future cash
dividends, if any, will be at the sole discretion of our Board of Directors and
will depend upon our profitability, financial condition, cash requirements
future prospects, and other factors deemed relevant by the Board of Directors.
20. Shares Eligible for Future Sale. On June 30, 1999, we would have
approximately _______ shares of Common Stock outstanding (assuming conversion of
convertible securities but no exercise of any warrants or options), of which
approximately ______ shares of Common Stock are freely tradable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"). All of the remaining shares of Common Stock outstanding
are "restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act and all of such restricted shares will become eligible
for sale, pursuant to Rule 144, at the present time or later, but in no event
later than one year from the date hereof, subject to the agreements set forth
below. We plan to file a registration statement under the Securities Act of 1933
including substantially all of the restricted securities which may be issued
upon the conversion of convertible securities and the exercise of options and
warrants (approximately 300,000,000 shares of common stock). It is anticipated
that such registration statement will become effective during the fourth quarter
of calendar 1999. No prediction can be made as to the effect, if any, that sales
of shares of Common Stock or even the availability of such shares for sale will
have on the market prices prevailing from time to time. The possibility that
substantial amounts of Common Stock may be sold in the public market is likely
to adversely affect the prevailing market price for the Common Stock and could
impair our ability to raise capital through the sale of its equity securities at
future dates.
21. Possible Adverse Effect of Outstanding Warrants and Options. Upon the
consummation of the Offering in July 1999, there were approximately 165,000,000
shares of Common Stock reserved for issuance upon conversion of our outstanding
Series B Preferred Stock, and an additional approximately 125,000,000 shares
reserved for issuance upon the exercise of other options and warrants. Upon
issuance of these shares, dilution of the interests of the holders of our Common
Stock will occur and any sales in the public market of the shares may adversely
affect prevailing market prices for the Common Stock. Moreover, the terms upon
which we will be able to obtain additional equity may be adversely affected
since the holders of the Series B Preferred Stock, outstanding warrants and
options can be expected to convert or exercise them at a time when we would, in
all likelihood, be able to obtain capital on terms more favorable to us than
those provided by such securities.
22. Delaware Anti-Takeover Statute; Possible Adverse Effects of
Authorization of Preferred Shares. As a Delaware corporation, we will become
subject to prohibitions imposed by Section 203 of the Delaware General
Corporation Law ("DGCL"). In general, this statute prohibits us from entering
into certain business combinations without the approval of our Board of
Directors and/or stockholders and, as such, could prohibit or delay mergers or
other attempted takeovers or changes in control with respect to the Company.
Such provisions may discourage attempts to acquire us. In addition, our
Certificate of Incorporation authorizes the board of Directors to issue up to
5,000,000 shares of "blank check" preferred shares (the "Preferred Shares")
without stockholder approval, in one or more series and to fix the dividend
rights, terms, conversation rights, voting rights, redemption rights and terms,
liquidation preferences, and any other rights, preferences, privileges, and
restrictions applicable to each new series of Preferred Shares. The issuance of
shares of Preferred Shares in the future could, among other results, adversely
affect the voting power of the holders of Common Stock and, under certain
circumstances, could make it difficult for a third party to gain control of the
Company, prevent or substantially delay a change in control, discourage bids for
the Common Stock at a premium, or otherwise adversely affect the market price of
the Common Stock. See "Description of Capital Stock".
23. Failure to List Common Stock on Nasdaq Small Cap or National Market
System; Risks Relating to Low-Prices Stocks. We will seek to list the Common
Stock on Nasdaq Small Cap or National Market System as soon as deemed practical.
We would have approximately 300,000,000 shares of Common Stock outstanding,
assuming conversion of all convertible securities and the exercise of all
outstanding options and warrants (of which there can be no assurance). It would
be necessary for us to seek authorization from our stockholders for a Common
Stock combination (ie: a reduction in the outstanding number of shares of Common
Stock) to achieve a market price which will enable us to obtain a Nasdaq
listing. If approved, this could sharply reduce the number of shares of Common
Stock outstanding (and the number of shares owned by any stockholder). There are
also stringent net worth requirements that we do not currently meet, and may not
meet in the future. The failure to meet listing or maintenance criteria will
result in the failure to effect the listing of our Common Stock on Nasdaq, and
trading, if any, in our Common Stock would be limited to the non-Nasdaq Bulletin
Board market. As a result, there would be a significant lack of liquidity, and
an investor could find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, our Common Stock.
24. Possible Adverse Effect of Penny Stock Rules on Liquidity for Our
Common Stock. The Securities and Exchange Commission (the "Commission")
regulations define a "penny stock" to be an equity security not registered on a
national securities exchange, or for which quotation information is disseminated
not on the Nasdaq SmallCap Market, that has a market price (as therein defined)
of less than $5.00 per share or an exercise price of less than $5.00 per share,
subject to certain exemptions. For any transaction involving a penny stock,
unless exempt, the rules require delivery, prior to a transaction in a penny
stock, of a disclosure schedule prepared by the Commission relating to the penny
stock market. Disclosure is also required to be made about commissions payable
to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks. The foregoing required
penny stock restrictions will not apply to our Common Stock if the Common Stock
becomes listed on the Nasdaq SmallCap Market, and if certain price and volume
information is provided on a current and continuing basis or, or if we meet
certain minimum net tangible assets or average return criteria. In any event,
even if the Common Stock was exempt from such restrictions, we would remain
subject to Section 15(b)(6) of the Securities Act, as amended, which gives the
Commission the authority to prohibit any person that is engaged in unlawful
conduct while participating in a distribution of a penny stock from associating
with a broker-dealer or participating in a distribution of a penny stock, if the
Commission finds that such a restriction would be in the public interest. If the
Common Stock remains subject to the rules on penny stocks, the market liquidity
for our securities could be materially and adversely affected. Any disruption in
the liquid market of the Common Stock could limit our access to the equity
markets in the future, and could have a materially adverse effect on our
business, financial conditions and results of operations.
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Statement of Operations Data:
Six months Year Year Year Year
ended ended ended ended ended Nine months ended
June 30, June 30, June 30, June 29, June 28, March 29, March 31,
1994 1995 1996 1997 1998 1998 1999
(dollars in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated
Statement of
Operations Data:
Restaurant sales, net $1,614 $5,341 $8,243 $7,852 $3,761 $2,882 $1,365
Income (loss) from 53 119 (159) (136) (174) 12 (169)
restaurant operations
Selling, general and 390 1,583 2,810 2,715 1,280 687 2,050
administrative expense
Loss on closure of -- -- 192 1,732 1,465 -- 365
restaurant sites
and impairment charges
Operating Loss (337) (1,466) (3,174) (4,625) (2,975) (685) (2,808)
Interest expense and
amortization of debt
insurance costs 570 1,292 109 173 261 179 196
Loss before income (906) (2,758) (3,283) (4,798) (3,236) (865) (3,004)
taxes and extraordinary item
Extraordinary item:
Gain on forgiveness
of debt -- -- 90 -- -- -- 343
------ ------- ------- ------- ------- ----- -------
Net loss (906) (2,758) (3,193) (4,798) (3,236) (865) (2,661)
Net loss applicable to $(906) $(2,758) $(3,193) $(4,902) $(3,340) $(942) $(2,661)
common stockholders ====== ======== ======== ======== ======== ====== ========
Net loss per share -
Basic and diluted:
Loss before extraordinary $(0.84) $(2.46) $(1.26) $(1.85) $(0.80) $(0.36) $(0.19)
item
Extraordinary item: -- -- 0.03 -- -- -- 0.02
------ ------- ------- ------- ------- ----- -------
Net loss $(0.84) $(2.46) $(1.23) $(1.85) $(0.80) $(0.36) $(0.17)
====== ======= ======= ======= ======= ===== =======
Shares used in computing
net loss per share, basic
and diluted 1,074,513 1,122,678 2,605,808 2,645,335 4,173,985 2,650,227 15,609,352
========= ========= ========= ========= ========= ========= ==========
Consolidated Balance
Sheet Data:
Cash $ 25 $ 28 $1,922 $ 68 $ 311 $ 4 $3,660
Total assets 3,084 10,293 6,500 2,262 785 2,241 3,888
Long-term debt, including 2,127 3,299 1,833 1,380 1,808 1,300 482
current portion
Total stockholders' 428 5,084 3,321 (1,212) (3,062) (822) 2,171
equity (deficit)
</TABLE>
DIVIDEND POLICY
We have not declared or paid any dividends in the past and do not
anticipate doing so in the foreseeable future. We intend to retain any earnings
to finance our growth. Any future payments of dividends will be at the
discretion of the Board of Directors and will depend upon such factors as the
Board of Directors deems relevant. We cannot assure you that we will pay
dividends in the foreseeable future.
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999. The
table should be read in conjunction with our consolidation financial statements,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
As of
March 31, 1999
----------------------
(Unaudited)
----------------------
<S> <C>
Current maturities of long-term debt $ 252,544
Long-term debt 229,173
----------------------
Total long-term debt 481,717
----------------------
Stockholder's equity:
Preferred stock, $0.10 par value, 5,000,000 shares authorized, 200,000
designated Series A, none issued and outstanding
Preferred stock $0.10 par value, 500,000 designated Series B, 307,104 ---
shares issued and outstanding 30,710
Common stock, $.001 par value, 400,000,000 shares authorized at March 31, 29,506
1999, 29,505,066 issued and outstanding
Additional paid-in capital 20,285,532
Accumulated deficit (18,174,777)
----------------------
TOTAL STOCKHOLDERS' EQUITY 2,170,971
----------------------
TOTAL CAPITALIZATION $ 2,652,688
======================
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis contains forward-looking statements
which involve risks and uncertainties. When we use the words "anticipate,"
"believe," "estimate," and "expect" and similar expressions as they relate to
the Company or its management, they are intended to identify such
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Our actual results, performance or achievements
could differ materially from the results expressed in or implied by these
forward-looking statements.
Upon the finalization in 1999 of the $6,000,000 Series B Preferred Stock
private placement offering, the Company completed its Cost Reduction Plan
commenced in fiscal 1997.
At March 31, 1999, the Company operated a profitable Rattlesnake
Southwestern Grill restaurant in South Norwalk, Connecticut, having closed
and/or sold all other restaurants previously owned.
At March 31, 1999, the long term and short term debt of the Company was
approximately $502,000 a significant reduction resulting from cash payments
and/or conversion to Company equity after the completion of private placement
noted above.
At March 31, 1999, the Company's new management team, comprised of industry
specific experienced personnel, continued to develop the Company's re-start
strategy of growth through Company and franchised operation of a multi-regional
chain of mid-priced steakhouse restaurants, tentatively named Spencer's.
Nine Months and Three Months Ended March 31, 1999 as Compared
with Nine Months and Three Months Ended March 29, 1998
Gross restaurant sales decreased 62.4% to $322,808 for the quarter ended
March 31, 1999 from $857,926 for the quarter ended March 29,1998. For the nine
months ended March 31, 1999, gross restaurant sales decreased 52.5% to
$1,421,073 from $2,989,049. Likewise, net restaurant sales decreased 61.7% to
$312,260 for the quarter ended March 31, 1999 from $816,298 for the quarter
ended March 29,1998. For the nine months ended March 31, 1999, net restaurant
sales decreased 52.6% to $1,365,409 from $2,881,742. The decrease in restaurant
sales resulted principally from a decrease in the number of restaurants
operating during the period.
Promotional sales decreased as a percentage of gross sales from 4.9% for
the three months ended March 29,1998 to 3.3% for the quarter ended March 31,
1999. However, for the nine months ended March 31, 1999, promotional sales
increased to 3.9% from 3.6%. Promotional sales decreased from $41,628 for the
quarter ended March 29, 1998 to $10,548 for the quarter ended March 31, 1999 and
decreased from $107,307 to $55,664 for the respective nine-month periods. These
decreases are attributable to the reduction of the number of units operating
during the period.
For the three months ended March 31, 1999, the Company's cost of food and
beverage sales decreased as a percentage of net sales to 31.6% as compared 32.7%
for the three months ended to March 29,1998. The cost of food and beverage sales
decreased to $98,763 for the three months ended March 31, 1999 from $266,849 for
the three months ended March 29,1998. As a percentage of net sales for the nine
months ended March 31, 1999, cost of sales was 38.1% as compared to 32.4% for
the nine months ended March 29,1998. The cost of food and beverage sales
decreased to $520,759 for the nine months ended March 31, 1999 from $932,746 for
the nine months ended March 29,1998. The percentage increase in the nine month
period is attributable to inefficiencies of the Flemington unit closed in
November 1998. The percentage decrease in the quarter ended March 31, 1999 is
attributable to the efficiencies of the South Norwalk unit, the only restaurant
operating during the quarter.
Restaurant salaries and fringe benefits, which consist of direct salaries
of restaurant managers, hourly employee wages and related fringe benefits,
decreased to $112,429 for the three months ended March 31, 1999 as compared to
$283,145 for the three months ended March 29,1998. As a percentage of net
restaurant sales, these costs increased to 36.0% in 1999 as compared to 34.7% in
1998. For the nine months ended March 31, 1999 restaurant salaries and fringe
benefits increased as a percentage of sales to 41.1% from 33.0% for the nine
months ended March 29,1998. Actual restaurant salaries and fringe benefits
decreased from $949,877 for the nine months ended March 29,1998 to $560,770 for
the nine months ended March 31, 1999. This decrease is attributed to a reduction
in restaurant managers and other personnel relating to the closed units. The
increase as a percentage of net sales is attributable to allocating management
salaries over a smaller restaurant base.
Occupancy and other related expenses, which include linen, repairs,
maintenance, utilities, rent, insurance and other occupancy related expenses,
decreased to $40,271 for the three months ended March 31, 1999 from $186,066 for
the three months ended March 29,1998. As a percentage of net restaurant sales,
these costs decreased to 12.9% in the three months ended March 31, 1999 from
22.8% in the three months ended March 29,1998. For the nine months ended March
31, 1999, these costs increased to 30.5% from 24.7% for the nine months ended
March 29,1998. The actual occupancy and related costs decreased to $416,747 for
the nine months ended March 31, 1999 as compared to $712,449 for the nine months
ended March 29,1998. The decrease is attributable to occupancy costs relating to
the closed units.
Depreciation and amortization expenses, decreased to $13,893 or 4.4% of net
restaurant sales for the three months ended March 31, 1999 from $91,667 or 11.2%
for the three months ended March 29,1998. For the nine months ended March 31,
1999 these expenses decreased as a percentage of sales to 2.6% from 9.5% for the
nine months ended March 29,1998. The actual depreciation and related expenses
were $36,175 for the nine months-ended March 31, 1999 as compared to $275,001
for the nine months ended March 29, 1998. This decrease is attributed to fewer
units in operation in fiscal 1999.
General and administrative expenses increased to $1,587,185 for the three
months ended March 31, 1999 from $83,205 for the three months ended March
29,1998. General and administrative expenses increased to $2,050,405 for the
nine months ended March 31, 1999 from $686,803 for the nine months ended March
29,1998. The increase is partially attributable to the value of a warrant issued
to a consultant pursuant to the terms of a consulting agreement, $1,075,000,
which was immediately exercisable and not subject to a forfeiture provision. The
remaining increase is attributable to additional professional fees.
The loss on closure of restaurant sites and impairment charges is
attributable to: (1) Pursuant to the March 1998 agreement to acquire the
Ottomanelli Group, additional consideration, due to anti-dilution provisions
contained in the agreements, common stock was payable to the Ottomanelli Group
shareholders, as a result of the private placement. In February 1999, 5,000,000
shares of common stock were issued pursuant to such anti-dilution provisions,
which included a maximum addition which was met. As the Company recorded an
impairment charge in fiscal 1999 relating to the termination of the operations
of the Ottomanelli restaurants, the fair value of the common stock issued,
$250,000, was recognized as a further impairment loss in the quarter ended March
31, 1999. (2) A note receivable of $230,000, which was received as partial
consideration for the sale of the Company's Fairfield facility, was exchanged
with a value assigned of $115,000 in partial satisfaction of a $425,000 note
payable and an additional $115,000 loss on restaurant closure was recognized in
the quarter ended March 31, 1999.
In August 1998, a jury awarded a verdict in the amount of $625,000 against
various defendants, including the Company and its former Chairman. On November
20, 1998, the Court set aside the jury's verdict as to all counts against the
Company except for plaintiff's claim for negligence per se and accordingly
reduced the jury's award to $225,000. The Company has recorded a charge in the
1999 Statement of Operations of $225,000 for the litigation award. The jury's
award is currently on appeal by the Company, and plaintiff has appealed the
Court's decision to set aside a portion of the jury's verdict and reduce the
award. There are also potential claims of indemnification by other defendants
against the Company in the event the plaintiff's appeal is successful.
Interest expense decreased to $65,154 for the three months ended March 31,
1999 from $81,988 for the three months ended March 29,1998. Interest expense
decreased to $196,340 for the nine months ended March 31, 1999 from $179,335 for
the nine months ended March 29,1998.
For the three and nine months ended March 31, 1999, the Company has
recorded an extraordinary gain on the forgiveness of debt in the amount of
$254,360 and $343,310, principally resulting from a series of debt satisfaction
agreements coincident with the Company's private placement of Series B preferred
stock.
Fiscal Year Ended June 30, 1998 as Compared
with Fiscal Year Ended June 29, 1997
The Company's original strategy of aggressive growth, utilizing a low cost
restaurant concept adaptable to different leasehold configurations in a short
construction timetable, met with significant difficulty, particularly in the
areas of inconsistent operational performance of newer units. As a result, the
Board of Directors voted in January 1997 to adopt a revised business plan (the
"Cost Reduction Plan") that focuses on profitability of existing restaurants and
the closing of marginal restaurants.
In late fiscal 1998, the Company modified its expansion and operating
strategy to facilitate a more rapid course to profitability and accelerate the
reduction of losses pursuant to the Cost Reduction Plan. This new strategy
incorporates a sharpened focus on existing profitable restaurants, the
elimination or conversion of unprofitable restaurants and the implementation of
aggressive cost cutting measures designed to reduce operating expenses and
improve restaurant operating performance. The Company has, accordingly,
terminated operations at seven locations.
At June 28, 1998, The Rattlesnake Holding Company, Inc. was the parent
corporation of two subsidiary companies operating at individual restaurant
locations, utilizing the unique Rattlesnake Southwestern Grill concept:
RESTAURANT LOCATIONS OPERATIONS COMMENCEMENT DATE
Flemington, New Jersey November 1995 (closed November 1998)
South Norwalk, Connecticut June 1992
Net restaurant sales decreased 52.1% to $3,761,300 for the fiscal year
ended June 28, 1998 from $7,851,950 for the twelve months ended June 29, 1997.
The decrease in net restaurant sales resulted from the closing of the Fairfield,
Connecticut, White Plains and Yorktown Heights, New York restaurants in fiscal
1997. For the fiscal year ended June 28, 1998, the Company generated a net loss
of $3,236,039 as compared to a net loss of $4,797,857 for the fiscal year ended
June 29, 1997, a decrease of $1,561,818. The decreased loss was principally
attributed to the modified expansion and operating strategy adopted by the Board
of Directors in January of 1997.
Restaurant operating losses were $173,614 for the fiscal year ended June
28, 1998 as compared with $136,256 for the fiscal year ended June 29, 1997. This
decrease in operating losses was principally attributable to the implementation
of the Company's Cost Reduction Plan and closure of unprofitable restaurants.
Restaurant salaries and benefits were reduced as a result of a reduction in the
number of personnel being reduced. Furthermore, depreciation and amortization
reduced as the number of operating restaurant facilities was reduced.
Restaurant Sales
Gross restaurant sales decreased 53% to $3,888,643 for the fiscal year
ended June 28, 1998 from $8,265,474 for the fiscal year ended June 29, 1997. The
decrease in restaurant sales resulted from the decrease in number of operating
restaurants during the fiscal year 1997 period, the closure of the Danbury,
Connecticut restaurant, and lack of working capital to adequately maintain and
provide the restaurant operations. Store sales for comparable periods for fiscal
year ended June 28, 1998 decreased $897,008.
Promotional Sales
Promotional sales decreased from $413,524 for fiscal year ended June 29,
1997 to $127,343 for fiscal year ended June 28, 1998. This decrease is
attributed to a reduction in direct mail advertisement incentives and closer
controls of in-house manager promotions. Promotional sales have decreased as a
percentage of gross sales in fiscal year 1998 to 3.3% from 5.0% in fiscal year
1997. This decrease as a percentage of sales is the result of Corporate policy
to reduce promotional sales.
Food and Beverage Costs
Food and beverage costs increased slightly as a percentage of net
restaurant sales at 32.6% in fiscal year 1998 and 31.1% in 1997. The cost of
food and beverage sales decreased to $1,225,982 for the fiscal year ended June
28, 1998, as compared with $2,443,860 for the fiscal year ended June 29, 1997.
The slight increase is due to menu changes and loss of purchasing efficiencies
based on fewer restaurants in operation. This decrease as a percentage of sales
is the result of the beneficial effects of clustered marketing efforts and
shared costs among all of the Company's restaurants.
Restaurant Salaries and Fringe Benefits
Restaurant salaries and fringe benefits, which consist of direct salaries
of restaurant managers, hourly employee wages and related fringe benefits,
decreased to $1,322,119 for the fiscal year ended June 28, 1998 as compared to
$2,792,622 for the fiscal year ended June 29, 1997. This decrease is
attributable to the operation of fewer restaurants during fiscal 1998. As a
percentage of net sales, these costs decreased to 35.2% in fiscal 1998 from
35.6% in fiscal 1997, principally due to the implementation of the Company's
cost reduction plan under which it reduced restaurant management and staff
during the fourth quarter of fiscal year 1997.
Occupancy and Related Expenses
Occupancy and related expenses, which include linen, repairs, maintenance,
utilities, rent, insurance and other occupancy related expenses, decreased to
$1,072,796 for the fiscal year ended June 28, 1998 from $2,025,198 for the
fiscal year end June 29, 1997. As a percentage of net restaurant sales, these
costs increased to 28.5% in fiscal 1998 from 25.8% in fiscal 1997. The increase
as a percentage of sales can be attributed primarily to the costs associated
with the maintenance of the Fairfield restaurant which closed in fiscal year
1997 and which was not sold until March 24, 1998.
Depreciation and Amortization Expense
Depreciation and amortization expenses decreased as a percentage of net
restaurant sales to 8.3% for the fiscal year ended June 28, 1998 from 9.3% for
the fiscal year end June 29, 1997. These expenses decreased to $314,017 in
fiscal year ended June 28, 1998 from $726,526 for the fiscal year end June 29,
1997. This decrease is primarily attributable to the reduction in the number of
restaurants which were in operation during fiscal year 1998.
General and Administrative Expenses
Selling, general and administrative expenses decreased to $1,279,831 in
fiscal year ended June 28, 1998 from $2,715,293 for the fiscal year end June 29,
1997. As a percentage of net sales, selling, general and administrative expenses
increased from 34.6% in 1997 to 34.0% in 1998. These reductions in expense are a
direct result of the Company's implementation of its cost reduction plan.
Interest Expenses
Interest expense increased to $261,276 for the fiscal year ended June 28,
1998 from $172,886 for the fiscal year end June 29, 1997. This increase resulted
from additional borrowing by the Company and the increased interest rate
relating to the extension of the Series C Notes payable.
Loss of Closure of Restaurant Sites and Impairment Charges
In fiscal 1998, the Company performed a further analysis of historical and
projected operating results, which reflected a pattern of historical operating
losses and negative cash flow, as well as future projected negative cash flow
and operating results for fiscal 1999 for its Flemington restaurant.
Accordingly, the Company recorded an impairment charge for this restaurant to
write-down the impaired asset of $558,282 in fiscal 1998 and contemplated the
future closure based upon future operating results. The restaurant was
subsequently closed in November 1998.
On June 22, 1998, the Company closed its Danbury, Connecticut facility and
subsequently lost its tenancy pursuant to a foreclosure action. Accordingly, the
Company recognized a loss of $270,426 in fiscal 1998 relating to the closure.
In fiscal 1998, Company management concluded that the operations of the
former Ottomanelli Group were inconsistent with the Company's operating plans
and were terminated in fiscal 1998, including the operations of its two New
Jersey restaurants. Accordingly, the Company concluded that the goodwill
relating to the acquisition was impaired and recorded an impairment charge of
approximately $436,000 in fiscal 1998.
In fiscal 1998, the Company recorded an additional loss of $88,559 relating
to the ultimate sale of the Fairfield, Connecticut location closed in June 1997
and an additional loss of $55,725 relating to the Lynbrook facility closed in
September 1997.
Subsequent Events
Between March 1998 and September 1998, the Company privately sold
approximately $850,000 of its common stock at $.15 per share and issued
convertible promissory notes for approximately $50,000. All notes were satisfied
by payment of cash and/or conversion to Company equity at the Initial Closing of
the Offering February 17, 1999.
On June 22, 1998, the Company closed its facility in Danbury, Connecticut
for renovations; lost its tenancy pursuant to a foreclosure action against its
landlord by the mortgage lender; purchased the property for $1,350,000 cash from
the prior landlord's mortgage lender via its wholly-owned subsidiary, 106
Federal Road, Inc. April 15, 1999; 106 Federal Road, Inc. leased it to another
Company wholly-owned subsidiary, Federal Road Restaurants, Inc. on April 15,
1999; and the Company plans to a) mortgage its purchase and b) open a restaurant
(its Spencer's prototype) on or about October 15, 1999.
On July 2, 1998, the Company entered into a contract for the purchase of a
restaurant facility in New York City for $400,000 in a combination of cash and
notes. The Company ultimately chose not to purchase this property.
On July 3, 1998, the Company entered into a contract for the purchase of a
restaurant facility in Greenwich, Connecticut for $400,000 in a combination of
cash and notes. The Company ultimately chose not to purchase this property.
Between August 1, 1998 and September 15, 1998, the Company entered into
various services and employment agreements with key personnel effective upon and
in anticipation of the initial Closing of the Offering. See "Business and
Management."
Between October 1998 and December 1998, the Company entered into private
financing arrangements with three individuals to provide $150,000 of bridge
financing at 16% interest per annum, plus warrants, with due dates of the
earlier of the closing of the proposed private placement or ninety (90) days,
respectively. All notes were satisfied by payment of cash and/or conversion to
Company equity at the Initial Closing of the Offering February 17, 1999.
On October 27, 1998, the Company commenced an offering (the "Offering") of
its Series B Convertible Preferred Shares, $.10 par value. Between February 17,
1999 and July 2, 1999, the Company sold approximately $6,000,000 of Series B
Preferred Shares pursuant to the Offering and converted approximately $1,350,000
of its debt to Company equity. During the Offering, the Company satisfied, by
payment of cash and/or equity in the form of preferred and/or common stock, the
following: (a) all outstanding Series C promissory notes; (b) certain
outstanding Series B promissory notes; (c) all outstanding promissory notes
related to the Fairfield facility; and (d) all outstanding promissory notes from
(i) September 1997, (ii) March through June 1998, and (iii) October and November
1998, effectively satisfying all short term and long term debt which was in
default.
In November 1998, the Company closed its facility in Flemington, New Jersey
as it was not meeting the Company's performance standards as part of its Cost
Reduction Plan. The Company recorded a net loss of $558,282 in fiscal 1998 for
this impaired asset.
In December 1998, certain management personnel deferred a portion of their
salary pending completion of the Offering. This debt was satisfied by payment of
cash and conversion to Company equity at the initial closing of the Offering.
Fiscal Year Ended June 29, 1997 as Compared
with Fiscal year Ended June 30, 1996
Net restaurant sales decreased 4.7% to $7,851,950 for the fiscal year ended
June 29, 1997 from $8,242,809 for the twelve months ended June 30, 1996. The
decrease in net restaurant sales resulted from the net effect of the closing of
the Fairfield, Connecticut, White Plains and Yorktown Heights, New York
restaurants in fiscal 1997 offset by an increase in the Danbury, Flemington and
Lynbrook restaurants operating for a full year as compared to the prior period.
For the fiscal year ended June 29, 1997, the Company generated a net loss of
$4,797,857 as compared to a net loss of $3,193,155 for the fiscal year ended
June 30, 1996, an increase of $1,604,702. The increased loss was principally
attributed to losses of $1,731,842 incurred from the closing of restaurant
sites.
Restaurant operating losses were $136,256 for the fiscal year ended June
29, 1997 as compared with $159,235 for the fiscal year ended June 30, 1996. This
decrease in operating losses was principally attributable to the implementation
of the Company's cost reduction plan mid-year. The benefits recognized by these
cost reductions were offset by the cost incurred relating to the maintenance of
closed restaurants prior to their sale.
Restaurant Sales
Gross restaurant sales decreased 5.6% to $8,265,474 for the fiscal year
ended June 29, 1997 from $8,755,565 for the fiscal year ended June 30, 1996. The
decrease in restaurant sales resulted from the decrease in the number of
operating restaurants during the fiscal 1997 period. The number of operating
restaurants decreased from seven to four in the period ended June 29, 1997. The
Company closed three of it's restaurants in fiscal year 1997 as follows:
Fairfield, Connecticut in January 1997; White Plains, New York in March 1997;
and Yorktown Heights, New York in June 1997. As a result of these restaurant
closings and the timing of restaurant openings, South Norwalk represents the
only restaurant for which same store sales can be analyzed. Same store sales for
the South Norwalk location increased $104,084 for the twelve-month period ended
June 29, 1997.
Promotional Sales
Promotional sales decreased from $512,756 for fiscal year ended June 30,
1996 to $413,524 for fiscal year ended June 29, 1997. This decrease is
attributed to a reduction in couponing and direct mail advertisement incentives,
which were distributed to counter extreme winter weather conditions during
fiscal year 1996. Promotional sales have decreased as a percentage of gross
sales in fiscal year 1997 to 5.0% from 5.9% in fiscal year 1996. This decrease
as a percentage of sales is the result of the beneficial effects of clustered
marketing efforts and shared costs among all of the Rattlesnake restaurants.
Food and Beverage Costs
Food and beverage costs remained constant as a percentage of net restaurant
sales at 31.1% in fiscal year 1997 and 1996. The cost of food and beverage sales
decreased to $2,443,860 for the fiscal year ended June 29, 1997, as compared
with $2,565,905 for the fiscal year ended June 30, 1996. The Company was able to
maintain it's food and beverage cost level through the implementation of a new
menu, revised recipes, improved inventory utilization, increased purchasing
efficiencies and improved training methods. This was done despite increases in
the cost of chicken, beef, and produce. There can be no assurance that the
Company will be able to maintain these cost levels.
Restaurant Salaries and Fringe Benefits
Restaurant salaries and fringe benefits, which consist of direct salaries
of restaurant managers, hourly employee wages and related fringe benefits,
decreased to $2,792,622 for the fiscal year ended June 29, 1997 as compared to
$3,109,435 for the fiscal year ended June 30, 1996. This decrease is
attributable to the opening of additional restaurants during fiscal 1996 and no
restaurant openings in fiscal 1997. As a percentage of net sales, these costs
decreased to 35.6% in fiscal 1997 from 37.7% in fiscal 1996, principally due to
increased restaurant management and operating personnel in newly opened
restaurants in fiscal 1996. The decrease is also attributed to the
implementation of the Company's cost reduction plan under which it reduced
restaurant management and staff during the fourth quarter of fiscal year 1997.
Occupancy and Related Expenses
Occupancy and related expenses, which include linen, repairs, maintenance,
utilities, rent, insurance and other occupancy related expenses, decreased to
$2,025,198 for the fiscal year ended June 29, 1997 from $2,118,444 for the
fiscal year end June 30, 1996. As a percentage of net restaurant sales, these
costs increased to 25.8% in fiscal 1997 from 25.7% in fiscal 1996. The increase
as a percentage of sales can be attributed primarily to the costs associated
with the maintenance of the three restaurants closed in fiscal year 1997 prior
to their sale.
Depreciation and Amortization Expense
Depreciation and amortization expenses, including the amortization of
pre-opening store expenses, increased as a percentage of gross restaurant sales
to 9.3% for the fiscal year ended June 29, 1997 from 7.4% for the fiscal year
end June 30, 1996. These expenses increased to $726,526 in fiscal year ended
June 29, 1997 from $608,260 for the fiscal year end June 30, 1996. This increase
is primarily attributable to the depreciation and amortization recorded on
restaurants, which were closed during fiscal year 1997.
General and Administrative Expenses
Selling, general and administrative expenses decreased to $2,715,293 in
fiscal year ended June 29, 1997 from $2,810,433 for the fiscal year end June 30,
1996. As a percentage of net sales, selling, general and administrative expenses
increased from 34.1% in 1996 to 34.6% in 1997. These reductions in expense are a
direct result of the Company's implementation of its cost reduction plan. The
increase as a percentage of sales reflect the impact of the decreased sales
resulting from the closing of related restaurant sites
Amortization of Debt Issuance Costs
Debt issuance costs are principally associated with the subordinated note
component of the Company's $1,800,000 unit offering and were capitalized and
amortized ratably over the initial one-year term of the debt. As a result of the
restructuring of this debt, the related unamortized debt issuance costs of
$72,114 were offset against the extraordinary gain recognized in this
transaction in fiscal year 1996.
Loss on Closure of Restaurant Sites
The Rattlesnake Southwestern Grill Restaurant located in Fairfield,
Connecticut was closed on January 4, 1997. The fixed assets, leasehold
improvements and intangibles at the facility have been written off and are
recorded at its estimated fair value. A net loss of $394,941 relating to the
closing of the Fairfield location was recorded during the 1997 fiscal year.
The Rattlesnake Southwestern Grill Restaurant located in White Plains, New
York was closed on March 1, 1997 and sold on July 16, 1997. The facility was
sold to individuals including the Company's former Chairman of the Board. A net
loss of $224,135 relating to the closing of the White Plains location was
recorded in fiscal 1997.
The Rattlesnake Southwestern Grill Restaurant located in Yorktown Heights,
New York was closed on June 9, 1997 and sold on June 27, 1997. A net loss of
$362,091 relating to the closing of the Yorktown Heights location was recorded
in fiscal 1997.
The restaurant location on 86th Street in New York City was never opened
and the Company sold the fixed assets on May 29, 1997 and transferred its
interest in the lease at that location. A net loss of $306,456, relating to the
selling of the 86th Street location was recorded in fiscal 1997.
The Rattlesnake Southwestern Grill Restaurant located in Lynbrook, New York
was closed on September 17, 1997. A net loss of $374,852 relating to the closing
of the Lynbrook location was recorded in fiscal 1997.
Interest Expenses
Interest expense increased to $172,886 for the fiscal year ended June 29,
1997 from $108,536 for the fiscal year end June 30, 1996. This increase resulted
from additional borrowing by the Company and the increased interest rate
relating to the extension of the Series C Notes Payable.
Seasonality and External Influences
on Quarterly Results
The Company's sales and earnings reflect a seasonality of the business.
Quarterly results have been and, in the future are likely to be, substantially
affected by the timing of new restaurant openings. Because of the impact of new
restaurant openings, results for any quarter are not necessarily indicative of
the results that may be achieved for a full fiscal year and cannot be used to
indicate financial performance for the entire year.
Recent Accounting Announcements
In April 1998, Statement of Position 98-5 ("SOP 98-5"), "Reporting the Cost
of Start-up Activities," was issued. SOP 98-5 requires that costs incurred
during start-up activities, including pre-opening costs, be expensed as
incurred. The Company will adopt SOP 98-5 in the first quarter of fiscal 2000
and management does not believe that the adoption of SOP 98-5 will have a
material impact on the Company's financial position or results of operations.
In June 1997, the FASB issues Statement 131, "Disclosures about Segments of
an Enterprise and Related Information", effective for fiscal years beginning
after December 15, 1997. This Statement establishes standards for reporting
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. This Statement requires reporting segment profit or loss, certain
specific revenue and expense items and segment assets. It also requires
reconciliations of total segment revenues, total segment profits or loss, total
segment assets and other amounts disclosed for segments to corresponding amounts
reported in the consolidated financial statements. Restatement of comparative
information for earlier periods presented is required in the initial year of
application. Interim information is not required until the second year of
application, at which time comparative information is required. The Company does
not believe that adoption of the Statement will have a significant impact on the
financial statements disclosures. The Company will adopt this accounting
standard effective in fiscal 1999, as required.
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("Statement
133"), was issued which is effective for fiscal years beginning after June 15,
2000. Statement 133 standardizes the accounting for derivative instruments and
requires that all derivative instruments be carried at fair value. The Company
has not determined the impact that Statement 133 will have on its financial
statements and believes that such determination will not be meaningful until
closer to the date of initial adoption.
Liquidity and Capital Resources
The Company has a long history of losses which has depleted its capital
resources and has resulted in the incurrence of a significant amount of
indebtedness. Without additional funds, the Company will have to abandon its
long term plans for the Spencer's concept development and the opening of
additional restaurants, and drastically reduce its corporate overhead. The
Company estimates that the financing obtained at the Offering will enable the
Company to effect some expansion and to operate through July 2000. There can be
no assurance that the Company will have adequate resources after such time
unless it conducts profitable operations and/or obtains additional financing, of
which there can be no assurance.
The Company's cash position increased by $3,349,026 during the nine month
period ended March 31, 1999, principally as the result of the proceeds of the
February 1999 private placement of Series B Preferred Stock, as well as the
proceeds of a bridge financing and the sale of common stock. These proceeds were
partially utilized to pay down short and long term debt that was in default at
June 28, 1998, satisfy trade obligations and fund continuing operating losses.
In connection with the private placement, the Company sold 211,289 shares
of Series B preferred stock at $25 per share, generating gross proceeds of
$5,282,225. As part of the private placement, noteholders, including Series C
subordinated notes payable matured on August 6, 1997, of which noteholders with
principal balances aggregating $62,499 extended the repayment date to December
15, 1997, $100,000 convertible subordinated notes payable matured September 4,
1997, $425,000 note payable matured on January 2, 1997, $11,709 note payable
matured in February 1998, $220,000 note payable matured on December 31, 1997,
$100,000 notes payable matured on May 31, 1998, $50,000 note payable matured on
May 31, 1998, and a $2,089 subordinated note payable matured on August 6, 1996,
such obligations aggregating $1,212,547 and all of which were in default
including accrued and unpaid interest of approximately $428,500, entered into a
series of debt satisfaction agreements, whereby in exchange for cash payments,
the issuance of 2,200,000 shares of common stock, with a fair value of $0.05 per
share, the issuance of 29,645 shares of Series B preferred stock at $25 per
share and to the mortgage holder of a Fairfield facility, a discounted note
receivable arising from the sale of the Fairfield property with a fair value of
$115,000, all of the abovementioned indebtedness was extinguished.
In connection with the private placement, $270,000 of Series B noteholders
converted their obligations into 10,800 shares of Series B preferred stock at
$25 per share. Additionally, approximately $350,000 of accounts payable,
including compensation deferred by certain members of management, converted
their receivable into approximately 7,000,000 shares of common stock at the then
value of $0.05 per share.
Also, coincident with the private placement, the holders of 56,500 shares
of Series A preferred stock exchanged their holdings for 55,370 shares of Series
B preferred stock and waived their right to the unpaid and accumulated
dividends.
Management of the Company has substantially completed its Cost Reduction
Plan, which included a further reduction in workforce and continuation of the
closure of unprofitable restaurants, in fiscal 1998. Such plan included the
closing and/or sale of the Yorktown Heights, White Plains, New York, Fairfield,
Connecticut and Lynbrook, New York locations, as well as the unopened New York
City property. The Company closed the Flemington restaurant in fiscal 1999.
Effective upon the completion of the private placement, the Company has
assembled a new management team and developed a new restaurant theme which will
be introduced at the recently reacquired Danbury, Connecticut location.
Between March 1998 and September 1998, the Company privately sold
approximately $850,000 of its common stock at $.15 per share. Through September
30, 1998, the Company had sold 5,580,000 shares of common stock and received
proceeds of approximately $697,000, net of expenses.
Between October and December 1998, the Company entered into private
financing arrangements to provide an aggregate of $150,000 of bridge financing
at 16%, with due dates at the earlier of the closing of the private placement or
ninety days, respectively. The noteholders also received warrants for an
aggregate of 412,500 shares, at an exercise price of $0.05 per share expiring on
December 30, 2003. The warrants were valued at $12,375 and recognized as a debt
issuance cost.
In October 1998, a noteholder of a $100,000 remaining outstanding balance
from a $500,000 convertible note due September 4, 1997, with unpaid accrued
interest of approximately $90,000, common stock with a then value of $100,000,
in exchange for the foregiveness of all outstanding obligations.
At June 28, 1998, the Company had available a net operating loss carry
forward (NOL) for Federal and State income tax purposes of approximately
$13,962,000, which are available to offset future taxable income, if any, before
2013. In accordance with Section 382 of the Internal Revenue Code of 1986, as
amended, a change in more than 50% in the beneficial ownership of the Company
within a three-year period (an "Ownership Change"), will place an annual limit
on the Company's ability to utilize its existing NOL carry forwards to offset
taxable income in current and future periods. The Company believes that
ownership changes have occurred and will cause the annual limitations to apply.
The Company has not determined what the maximum annual amount of taxable income
is that can be reduced by the NOL carry forwards.
Management believes that the finalization of its Cost Reduction Plan and
its $6,000,000 private placement financing will enable the Company to achieve
profitable operations and restore liquidity. However, no assurance can be made
regarding achievement of the goals outlined in the strategic plan as outlined
above, or if such plans are achieved, that the Company's operations will be
profitable.
Inflation
The impact of general inflation on the Company's business has been
insignificant to date and the Company believes that it will continue to be
insignificant for the foreseeable future.
Market Risk
The Company is not subject to interest rate risk, as substantially all
borrowings are fixed rate obligations. However, the Company has exposure to
commodity risk, including the dependence on the rapid availability of food,
principally steak and shrimp, and fluctuations in price of these commodities.
Although the Company believes that its relationships with suppliers are
satisfactory and that alternative sources are available, the loss of certain
suppliers, or substantial price increases could have a material adverse effect
on the Company.
Year 2000 Modifications
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process certain transactions, send
invoices, or engage in similar normal business activities.
The Company does not believe the Year 2000 Issue will significantly affect
its operations since it is in a "re-start" mode with respect to its business and
uses little or no computer equipment outside of its accounting programs.
Based on recent assessments, the Company determined that it will not
require significant modifications of its hardware or software so that those
systems will properly utilize dates beyond December 31, 1999. The Company
presently believes that with little or no modifications to its existing
software, the Year 2000 Issue can be mitigated.
The Company's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing, and implementation. As of June
30, 1999, the Company has fully completed its assessment of all internal systems
that could be significantly affected by the Year 2000. The completed assessment
indicated that most of the Company's significant information technology systems
will not be significantly affected, particularly the general ledger, and
inventory systems. The Company does not believe that the Year 2000 presents a
material exposure as it relates to the Company's products or services. In
addition, the Company has begun to gather information about the Year 2000
compliance status of its external agents and continues to monitor their
compliance. To date, the Company is not aware of any external agent with a Year
2000 issue that would materially impact the Company's results of operations,
liquidity, or capital resources. The Company has requested from its bank an
assessment of the extent of the bank's Year 2000 compliance. However, the
Company has no means of ensuring that external agents will be Year 2000 ready.
The inability of external agents to complete their Year 2000 resolution process
in a timely fashion could materially and adversely impact the Company. The
effect of non-compliance by external agents is not determinable.
The Company will utilize external software and service providers to
reprogram, test and implement software for the Year 2000 modification as needed,
the cost of which is not expected to be significant. The Company will evaluate
the status of completion of Year 2000 modifications in September 30, 1999 and
will undertake all remaining necessary steps to seek to ensure its systems are
Year 2000 compliant.
In the event the Company's computer systems are materially adversely
affected by the Year 2000 issue, the Company's business and operations could be
materially adversely affected by disruptions in the operations of other entities
with which the Company interacts. However, the Company believes that the most
likely worst case scenario is that there will be some localized disruptions of
systems that will affect individual facilities or services for a short time
rather than systematic or long-term problems affecting its business operations
as a whole. In such event the Company has contingency plans for certain critical
applications and is working on plans for others. These contingency plans
involve, among other actions, increasing inventories, and adjusting staffing
strategies.
USE OF PROCEEDS
We will not receive any of the proceeds of the shares of Common Stock sold
by the Selling Security Holders. See "Plan of Distribution".
DETERMINATION OF OFFERING PRICE
The shares of Common Stock sold by the Selling Security Holders will be
sold in customary brokerage transactions at then-prevailing market prices.
[Balance of Page Intentionally Left Blank]
<PAGE>
SELLING SECURITY HOLDERS
The following table sets forth the number of shares of Common Stock
beneficially owned by each of the Selling Security Holders as of the date of
this Prospectus, the number of shares (the "Shares") covered by this Prospectus
and the amount and percentage ownership of the Selling Security Holders after
the offering assuming all the shares covered by this Prospectus are sold by the
Selling Security Holders. Except as otherwise indicated by footnote below, none
of the Selling Security Holders has had any position, office or other material
relationship with us within the past three years other than as a result of the
ownership of the Shares or other of our securities.
<TABLE>
<CAPTION>
- ---------------------- -------------------------------------- ------------------- --------------------------------------
NUMBER OF SHARES
COMMON STOCK BENEFICIALLY OWNED REGISTERED COMMON STOCK BENEFICIALLY OWNED
PRIOR TO THE OFFERING HEREUNDER AFTER THE OFFERING
NAME OF SELLING
SECURITY HOLDER
- ---------------------- -------------------------------------- ------------------- --------------------------------------
NUMBER PERCENT NUMBER PERCENT
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
Abrams, Richard
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Abrams, Rodney
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Adametz, James
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Al Bahar, Alya
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Alliance Equities,
Inc.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Anasazi Partners
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Anderson, Don
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Anderson, Ferdinand
F., Jr.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Astor, Michael R.L.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Aukstuolis, Jim
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Baddour, Elias &
Rosanne
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Baker, Chris
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Ballin, Scott
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Bayat, Behrouz
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Benninger, Thomas W.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Berglund, Donald
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Berk, Lawrence
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Berman, Marc G.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Berry, Ken
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Bitner, Mark
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Blitz, Craig &
Annette
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Blomstedt, Jeffrey &
Susan Lascala
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
BNB Associates
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Boatright, Modyk
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Bodmer, Hans
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Bollag, Michael
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Bolognue, Joseph T.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Braun, Elliott
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Briggs, Tom P.
Profit Sharing Plan
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Brown, Ralph
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Cardwell, J.A., Jr.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Carlegren, Anders
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Cass, C. Wyllys &
Ellen M.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Chedda, Vasant
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Clariden Bank
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Clark, Oliver &
Sharon
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Clemens, John Barry
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Cohen, David
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Cole, Julia R.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Cole, Robert S.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Conzett Europa -
Invest Ltd.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Corney, David &
Victoria
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Coyle, David
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Cummings, Orman F.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
D'Avanzo, Thomas &
Marie
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Daniel, Jerry
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Davenport, James &
Rebecca
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
DeAtkine, David, Jr.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Dell, Samuel M. &
Geraldine M.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Despland, George
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Diagi, Scott
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Dickey, David L. &
Susan M.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Dold, Richard
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
DW Trustees (BV1)
Limited: The
Rectory Farm
Settlement: Main
Fund
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
DW Trustees (BV1)
Limited: The
Rectory Farm
Settlement:
Children's Fund
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Engfer, Abrams, Jodi
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Epstein, Dr.
Fredrick B.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Falk, Michael S.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Finkle, S. Marcus
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Fleming (Jersey) Ltd.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
FM Grandchildren
Trust
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Fox, Karen A.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Frank, Shelly
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Friedlander, Charles
L.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Friedlander,
Lawrence & Nancy
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Friedman, Richard
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Gaba, Ilya & Alice
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Galena, Dr. Harold
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Gangel Roth IRA,
Martin
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Garcao, Jose
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Gardos, Stephen
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Generation Capital
Associates
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Gersh, Steven T.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Giordano, Chris
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Glazier, Edwin M.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Goldberg, Mark &
Joanna
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Goldenheim, Paul D.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Goldman, Fred
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Greenfield, William
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Gruenwald, John
Thomas
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Gubitosa, Paul &
Linda
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Gustafson, A. William
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Haag, Bernadette
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Hart, Frank
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Henry, William O.E.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Hicks, S. Maurice,
Jr.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Hodas, Martin
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Holladay, Judy, IRA
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Horseflesh, LLC
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Hubbard, Richard L.,
IRA
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Jahn, Robert J.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Jeffers Family
Limited Partnership
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Johnson, L. Wayne
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Joos-Vanderwalle,
John
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Jordan, Bette P.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Jordan, Edward
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
K & K Development
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Kabuki Partners ADP
G.P.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Kahla, Nicolas
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Kaiser, Jay
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Kalifer, Steve
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Keating, Patrick N.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Kennett, David R.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Kessler, Rita G.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Khaled, Lulwa Al
(Bahar JT.)
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Khulpateea,
Neekianund
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Kirsner, Bernard,
Trust
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Koniver, Garth A.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Landau, Haskell
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Lerner, Brian C.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Letertre-Vogel,
Sophie
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Levy, Stephan R.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Libby, Daniel M.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Little, John
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Loeb, Chris
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Low, Eng-Chye
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Luck, John V.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Mallis, Stephen
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Marcus, Jed
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Marguet, Pierre Alain
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Martin, John &
Victoria
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Mazzocchi, Dr. Leo
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
McClain, Robert
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
McCleeary, Robert A.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
McGrath, Richard &
Eleanor
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Meinershagen, Alan J.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Meshel, Miriam &
Robert
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Metzger, James
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Michael Association,
The
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Monie, Vijaykumar S.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Moravec, John E.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Morfesis, F. Andrew
& Gail
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Moriber, Lloyd A.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Mulkey II Limited
Partnership
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Nelson, David R. &
Donna L.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Nelson, Edward E.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Nelson, Virginia R.,
Trust
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Norman, Greg
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Nussbaum, Samuel R.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Palmer, Richard &
Lynne
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Pamela Equities Corp.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Pannu, Jaswant &
Debra
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Panzer, Sid
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Partoyan, Garo A.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Patil, Jayakumar &
Purinama
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Petrus, Paul F.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Piccolo, August
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Piccolo, John
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Pocisk, Anna M.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Porter, Craig M.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Priddy, Robert L.,
IRA
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Pucci Family
Foundation
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Purvis, Davis S.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Rankin, Roger
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Raulston, O.D.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Reichelt, Kurt V. &
Laura M.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Richardson, Donald
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Richter, Faye J.
Rev. Trust
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Rion, James H., Jr.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Rodler, Lawrence J.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Roeske, Charles
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Roggen, Jesse
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Ronco, Edmund J.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Rosenblum, Stanley
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Rosenfield, Larry &
Jan
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Rothenberg, James
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Rubin, Alan J.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Runckel, Douglas &
Evelyn
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Salkind, Scott
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Sanderson, Stephanie
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Sandhu, Baljeet
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Sandnu, Autar
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Schechter, David A.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Schenker, Monroe H.
& Barbara P.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Schoen, William R. &
Barbara J.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Schorlemmer, Rodney
& Vikki
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Schriver, James &
Jayne
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Schwarzwaelder,
Douglas
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Schwickert, Kim (Mr.)
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Shah, Harish, Dr.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Shea Co., Inc., J.F.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Sheppard, Matt
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Shrager, Jay & Carole
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Sieger, Stuart M.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Silverman, Andrew
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Sink, James D.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Sivak, George C., M.D.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Skoly, Dr. Stephen
T., Jr.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Snowden, Guy
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Spigarelli, Anthony
M. & Nancy M.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Spivack, Joel
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Stein, Stephan
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Steiner, Philip H.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Steiner, Richard H.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Stellway, David
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Stout Living Trust
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Swimmers Gold, LLC
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Sybesma, William
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Tachibana, Rick Glenn
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Tancredi, Jr.,
Samuel A.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Thompson, George
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Toombs, Walter F.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Tuttle, Kerry
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Verbin, Syd & Helen
Trust
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Voss Limited
Partnership
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Voss, W. Cary and
Barbara G.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Weidenbener, Erich J.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Wibel, Mark
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Wilkinson, John N.
(deceased)
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Wilkinson, Susan Rev
Trust
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Winton, Don (to be issued to Denise K.
Shull)
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Wisseman, Dr.
Charles Louis, III
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
Woodhol Properties
Inc.
- ---------------------- ------------------- ------------------ ------------------- ------------------ -------------------
</TABLE>
<PAGE>
PLAN OF DISTRIBUTION
The sale of Shares by the Selling Security Holders may be effected from
time to time in private transactions or in the over-the-counter market at prices
related to the prevailing prices of the Shares on the NASDAQ Bulletin Board at
the time of the sale or at negotiated prices. The Selling Security Holders may
effect such transactions by selling to or through one or more broker-dealers,
and such broker-dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Security Holders. The
Selling Security Holders and any broker-dealers that participate in the
distribution may under certain circumstances be deemed to be "underwriters"
within the meaning of the Securities Act, and any commissions received by such
broker-dealers and any profits realized on the resale of Shares by them may be
deemed to be underwriting discounts and commissions under the Securities Act. We
and the Selling Security Holders may agree to indemnify such broker-dealers
against certain liabilities, including liabilities under the Securities Act. In
addition, we have agreed to indemnify certain of the Selling Security Holders
with respect to the Shares of Common Stock offered hereby against certain
liabilities, including certain liabilities under the Securities Act.
To the extent required under the Securities Act, a supplemental Prospectus
will be filed, disclosing (a) the name of any such broker-dealers, (b) the
number of shares involved, (c) the price at which such shares are to be sold,
(d) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable, (e) that such broker-dealers did not conduct
any investigation to verify the information set out or incorporated by reference
in this Prospectus, as supplemented, and (f) other facts material to the
transaction.
Each Selling Shareholder may be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which provisions may limit the timing of purchases of
any of the securities by the Selling Security Holders.
We can give no assurance that any of the Selling Security Holders will sell
any of the Shares.
We have agreed to pay certain costs and expenses incurred in connection
with the registration of the Shares offered hereby, except that the Selling
Security Holders shall be responsible for all selling commissions, transfer
taxes and related charges in connection with the offer and sale of such Shares.
We propose to keep the registration statement relating to the offering and
sale by the Selling Security Holders of the Shares continuously effective until
such date as such Shares may be resold without registration under the provisions
of the Securities Act, under Rule 144 thereof or otherwise, but we may, at such
time as it determines, file an amendment to remove any unsold Shares.
DESCRIPTION OF SECURITIES
Authorized Capital Stock
As of June 30, 1999, the Company's authorized capital stock consisted of
400,000,000 shares of Common Stock, par value of $.001 per share; and 5,000,000
shares of preferred shares, of which 500,000 are designated Series B Preferred
Shares. As of June 30, 1999, there were approximately 29,500,000 shares of
Common Stock issued and outstanding (not including shares of Common Stock
issuable upon conversion of convertible securities, or exercise of options and
warrants) and 308,000 shares of Series B Preferred Stock issued and outstanding.
Common Stock
Holder of shares of Common Stock are entitled to one vote per share,
without cumulative voting, on all matters to be voted on by shareholders.
Therefore, the holders of more than 50% of the shares of Common Stock voting for
the election of directors can elect all of the directors, subject to the right
of the holders of the Preferred Shares (upon a default in the payment of
dividends) to elect one director (which right is to be exercised for the holders
of Preferred Shares by the Placement Agent) so long as Preferred Shares remain
outstanding. The Company's Certificate of Incorporation provides for a staggered
Board of Directors, which is intended to allow for the election of one third of
the Board every year for three year terms. This provision is designed to
maintain the continuity of the Board of Directors. Since there has not been a
meeting of stockholders for approximately three years, at the next meeting, the
Board of Directors structure, which has lapsed, will be reestablished, and one
third of the directors will be elected for a term of one year, one third of the
directors will be elected for a term of two years and the remaining one third of
the director will be elected for a term of three years. Subject to preferences
that may be applicable to any outstanding preferred shares, holders of Common
Stock are entitled to receive ratably, such dividends as may be declared by the
Board of Directors out of funds legally available therefor. In the event of a
liquidation or dissolution of the Company, holders of Common Stock are entitled
to share ratably in all assets remaining after payment of liabilities and the
liquidation preference of the outstanding Preferred Shares. The Common Stock has
no preemptive or other subscription rights, and there are no conversion rights
or redemption or sinking-fund provisions with respect to such shares. All the
shares of Common Stock presently outstanding are fully paid and non-assessable.
Preferred Shares
Conversion of Preferred Shares. The Preferred Shares will be convertible,
at the option of the holder at any time after November 1999 at a conversion
price initially equal to $0.05 per share of Common Stock. The conversion rate
will be reduced by 10% per month for each month the Company fails to comply with
its obligations to file, and in good faith process, a registration statement
(see below). In the case of a consolidation or merger of the Company with or
into any other corporation, or in case of any sale or transfer of substantially
all the assets of the Company, a holder of Preferred Shares will be entitled to
receive on conversion the consideration which the holder would have received had
he converted immediately prior to the occurrence of the event. The conversion
price is subject to the adjustments on the terms set forth in the Certificate of
Designation. The outstanding Preferred Shares may, at the option of the Company,
be converted, with no action on the part of the holder, if, at any time after
February 2000, the Common Stock into which the same is converted is registered
under the Securities Act and the closing bid price of the Common Stock for
twenty (20) consecutive trading days is at least four time the conversion price
($0.20 based on the initial conversion price of $0.05).
Filing of Registration Statement. The Company is required to cause a
registration statement under the Securities Act of 1933, as amended (the "Act")
to be filed under the Act covering the shares of Common Stock issuable upon
conversion of the Preferred Shares sold in the Offering, by August 17, 1999, and
is required thereafter use its best efforts to cause such Registration Statement
to be declared effective. In the event the Registration Statement is not filed,
or if the Company fails to use its best efforts to have such Registration
Statement declared effective within ninety (90) days thereafter, the conversion
price will be automatically reduced by 10% for each month of such failure, and
the dividend rate on the Preferred Shares will be increased to 14% per annum
from issuance. All expenses incurred in any registration of the holder's shares
of Common Stock will be paid by the Company; provided, however, that the Company
will not be liable for any discounts or commissions to any underwriter, any
stock transfer taxes incurred in respect of shares sold by the offering holders,
or for any legal fees and expenses to effect the sale of the respective holder's
shares. The holders and the Company will indemnify each other for certain
liabilities under the Act.
Dividends. Holders of Preferred Shares are entitled to receive, quarterly,
dividends at the rate of 8% per annum before any dividends may be paid with
respect to the Common Stock, which shall be paid in cash or Preferred Shares at
the election of the Company. If there is a failure to pay dividends, then the
Placement Agent, on behalf of such holders, has the right to designate one
director to the Company's Board. In addition, if the Company fails to comply
with its obligations to file and process a Registration Statement (see above),
the dividend rate will increase to 14% per annum from issuance.
Liquidation Preference. Holders of Preferred Shares are entitled to receive
$25.00 per share (plus all unpaid dividends), and no more before any
distribution or payment is made to holders of Common Stock or other junior stock
in the event of the dissolution, liquidation, or winding up the Company. If, in
any such event, the assets of the Company are insufficient to permit full
payment, the holders of Preferred Shares will be entitled to a ratable
distribution of the available assets. A consolidation, merger, or sale of all or
substantially all of the assets of the Company will not be considered a
liquidation, dissolution, or winding up for these purposes.
Voting Rights. The Preferred Shares are non voting (however, the shares of
Common Stock into which the Shares are convertible will be entitled to one vote
for each share). The Preferred Shares will have certain additional voting rights
provided by law and/or the Certificate of Designation. The Company may not,
without the consent of the majority of the holders of the then outstanding
Preferred Shares, voting as a class (i) alter, amend, or modify the authorizing
resolution or Certificate of Designation creating the Preferred Shares; (ii)
adversely affect rights or preferences of the Preferred Shares; or (iii) issue
any stock that ranks in liquidation equal or senior to the Preferred Shares.
OUR BUSINESS
General
The Rattlesnake Holding Company, Inc. a Delaware corporation (unless the
context otherwise indicates, with its subsidiaries, the "Company") was formed
and commenced operations in 1993, and effected an initial public offering of its
stock in 1995 to develop, build and operate a chain of casual dining
southwestern restaurants under the name Rattlesnake Southwestern Grill. At one
time, we operated a total of 8 restaurants in the New York metropolitan area.
Management was unable to operate the restaurants profitably, failed to control
general and administrative expenses and did not develop a workable growth
strategy. As a consequence, we experienced substantial losses and incurred a
significant amount of debt. In 1997, the Board of Directors elected certain of
its members as officers to take control of operations and replace the existing
management pursuant to its Cost Reduction Plan. We then disposed of development
projects and non-performing restaurants, negotiated severance agreements with
the former management, and sharply reduced general and administrative expenses.
In March 1998, we consummated a transaction with Nicolo Ottomanelli and
Joseph Ottomanelli, through which we acquired a company which franchised
Ottomanelli's Cafe(R) restaurants (casual dining New York City based
operations), an Ottomanelli's Cafe(R) and another food service operation in New
Jersey, and as well as management with expertise in the selection and sale of
meat and meat products. The Ottomanelli's Cafe(R) franchise company currently
has extremely limited operations. Upon further analysis, our management
concluded that the Ottomanelli Cafe(R) operations were inconsistent with our
operating plans and were authorized to be terminated. The restaurants ceased
operations in August 1998.
In fiscal 1998, in furtherance of our Cost Reduction Plan, we terminated
operations at our Lynbrook, New York and Danbury, Connecticut facilities, and in
November 1998, terminated operations at our Flemington, New Jersey facility as
well, for which we recorded an impairment charge in 1998.
In April 1999, 106 Federal Road Restaurant Corp., a wholly-owned subsidiary
of the Company, purchased the Danbury, Connecticut facility previously closed.
The closed restaurant is being remodeled and reconfigured to serve as the first
location for our new restaurant concept.
We continue to operate a self sustaining Rattlesnake(R) Southwestern Grill
in South Norwalk, Connecticut.
New Restaurant Concept
In the last half of calendar year 1998, our management recognized that we
had a limited future as an operator of Rattlesnake Southwestern Grill
restaurants. As a result, management set out to: (i) increase our working
capital through the consummation of a private placement offering of our
securities, with Commonwealth Associates serving as placement agent (the
"Placement Agent"); (ii) assemble a new, highly experienced and established
management team; and (iii) alter our restaurant theme and menu and develop
restaurants with a new concept.
Private Placement Offering
In October 1998, we commenced a private placement offering (the "Offering")
of our securities, pursuant to which we offered investors Series B Convertible
Preferred Shares. See "Description of Securities - Preferred Shares." Upon
completion of the Offering in July 1999, we had raised approximately $6,000,000
and converted approximately $1,350,000 of debt to equity. After satisfying
certain of our remaining debts, disbursements of and commissions to the
placement agent, and payment of other expenses of the Offering, we secured
approximately $4,000,000 for working capital use.
New Management Team
In order to develop and implement its new restaurant concept, we installed
a new management team and Board of Directors with significant experience in the
restaurant operations industry. See "Management - Agreements with New
Management." Accordingly, we have entered into personal service agreements (of
varying commitment levels) with certain key persons who, as principals, have
previously participated in the development of food service chains, including
Shelly Frank (Chi-Chi's), Kenneth Berry (Roy Rogers, regionally), A.G. "Sandy"
Rappaport (Outback Steakhouse) and Stephan A. Stein (David's Cookies). See
"Management". However, due to a number of factors, including our historical
operating losses, small restaurant base and geographic concentration, as well as
dependence on certain external factors we cannot control, there can be no
assurance that new management will be able to make us profitable or commercially
viable.
New Concept and Menu
We have commenced concept development of a multi-regional chain of
mid-priced steakhouses, to feature price/value steak and distinctive shrimp (and
other) dishes, tentatively named Spencer's.
Spencer's is a price/value oriented restaurant concept which is designed to
provide fresh, high quality food at moderate prices in a relaxed atmosphere. The
key elements of the Spencer's concept include the following:
A casual, back to basics, large portions, mid-priced steakhouse; designed
to offer exceptional service, specializing in two areas: steaks and shrimp
offerings.
The menu will feature house cut and aged steaks and steak
burgers (intended to be comparable quality to high priced
steakhouse offerings), as well as bulk offerings of shrimp
that are served in distinctive "house" sauces on pasta or rice
with dunking bread.
The combination of food quality, comparatively moderate
pricing, entertaining shrimp offerings, in an atmosphere where
customer focus will be on price/value, without extensive or
overbearing visual or gimmick effects, is intended to
distinguish Spencer's from competitors.
To compliment the steak and shrimp offerings, menu items are
expected to include: appetizers, caesar and unique salads;
various but basic chicken, fish, rib, and pasta entrees;
mainstay sandwiches; a separate Kid's list of choices that are
inclusive of fries and beverage; house made fries, steamed or
creamed "sides"; and desserts. Standard alcoholic beverages as
well as selection of blended specialty drinks will be offered.
The average check, exclusive of tax/tip, is estimated to be
$8.50 at lunch and $17.50 at dinner. Lunch and dinner will be
served seven days (with a target of 17 table turns) per week
and will be location sensitive.
A typical Spencer's should range in size from 6,000 to 8,000
square feet with 150 to 250 seats with a 175 seat average. It
is intended that the Spencer's will be built according to a
retrofit construction strategy. As a result, each Spencer's is
expected to have a somewhat different layout. The interior
image and trade dress, however, is intended to be consistent.
The first Spencer's will be located in Danbury, Connecticut.
Total investment to open a Spencer's is estimated to be
approximately $700,000 inclusive of retrofit expenses and
exclusive of capitalized lease costs, with an estimated 3:1
annual sales to investment ratio.
The Spencer's menu and unit economics are intended to
facilitate replication in multi-regional area development hubs
through Company owned and ultimately franchised operations.
Operating Strategy
The Company's objective is to differentiate its restaurants by exceeding
customer expectations as to the quality of food, the friendliness of service and
value of steak and shrimp dinners. To achieve this objective, the Company
proposes to use the following strategies:
Quality Assurance. The Company intends to provide freshly prepared, high
quality items. The Company believes that its menu offerings will allow for
simplified food preparation, efficient delivery and consistent quality. The
Company will implement generalized procedures for quality assurance concerning
products served in its restaurants.
Commitment to Value. The Company's pricing strategy is designed to create
an attractive price-to-value relationship, thereby increasing the Company's
ability to attract value-oriented customers as well as traditional casual dining
customers. The Company believes that the featured items, steak and shrimp, are
considered quality foods, and if delivered at moderate prices, there should be a
perceived value for the menu. The objective is to attract "repeat" business
rather than "special occasion" business.
Focus on Customer Service. The Company believes that it must provide
prompt, friendly and efficient service to generate customer satisfaction. The
Company plans to staff each restaurant with an experienced management team and
keep table-to-server ratios low. Through the use of customer surveys, management
expects to receive valuable feedback on its restaurants and through prompt
response demonstrate a continuing dedication to customer satisfaction.
Employee Training and Motivation. The Company believes a well-trained,
highly motivated restaurant management team is critical to achieving the
Company's operating objectives. The Company's training and compensation systems
will be designed to create accountability at the restaurant level for the
performance of each restaurant. The Company will train, motivate and educate its
restaurant level managers and hourly co-workers. Each new manager will
participate in a comprehensive training program which includes hands-on
experience in one of the Company's restaurants. To instill a sense of ownership
in restaurant management, compensation is proposed to be based, in part, on
restaurant profits and low employee turnover. Management believes this focus on
unit level operations creates a "single store mentality" and provides an
incentive for managers to focus on increasing same store sales and restaurant
profitability.
Growth Strategy
The Company's growth strategy is to open new Company-owned restaurants by
converting existing restaurants to its Spencer's concept. In developing the
Spencer's format, there will be an emphasis on objective standards, so that the
format and operating procedure could be readily duplicated. The Company plans to
cluster new restaurants in existing metropolitan markets, which, management
believes, would enhance supervisory, marketing and distribution efficiencies.
Restaurant Layout
It is anticipated that Spencer's restaurants will be 6,000-8,000 square
feet in size. Seating will vary from 150-250. The restaurants will be designed
to include family dining with some privacy, and booths will be used when
appropriate. Kitchen areas should be as open as possible to the dining areas.
Decor should be uniform and designed to be distinctive. The Company will seek
visible main road locations which are suitable for Spencer's unit economics but
are below the size believed to be acceptable to general menu national restaurant
chain operations.
Support Operations
Advertising and Marketing. The Company plans to ultimately develop an
ongoing defined advertising and marketing plan for the potential development of
radio and newspaper advertising but will initially use point of sale and local
store marketing. The Company's advertising is planned to focus on building brand
loyalty and emphasizing the distinctiveness of the Spencer's atmosphere and menu
offerings. In addition to advertising, the Company will encourage unit level
personnel to become active in their communities through local charities and
other organizations and sponsorships.
Restaurant Reporting. Systems and technology are essential for the
management oversight needed to monitor the Company's restaurant operations.
Operational and financial controls are planned to be maintained through the use
of point of sale systems in each restaurant and an automated data processing
system at the home office. Management will utilize this data to monitor the
effectiveness of controls and to prepare periodic financial and management
reports. The system will also be utilized for financial and budgetary analysis,
including analysis of sales by restaurant, product mix and labor utilization.
All of the Company's systems are, because of the use of current software,
anticipated to be Year 2000 compliant. See "Year 2000 Modifications."
Human Resources. The Company will ultimately maintain a human resources
department that supports restaurant operations through the design and
implementation of policies, programs, procedures and benefits for the Company's
employees. The eventual human resources department will include an employee
relations manager.
Franchise Activities
The Company presently franchises Ottomanelli's Cafes(R). That operation
involves approximately five restaurants with nominal royalty revenues. No
franchises have been sold during the past approximately five years. The Company
has determined not to expand such operations. The Company may determine to
franchise the Spencer's concept through area development agreements once several
prototype restaurants are established and operating in a profitable manner, but
there can be no assurance as to if or when any franchising program would be
commenced for Spencer's restaurants.
Trademarks
The Company is presently the licensee of Rattlesnake(R) and Ottomanelli's
Cafe(R). Rattlesnake(R) is licensed from a non-affiliated person under an
agreement expiring in or about the year 2000, with a right of renewal, and
requiring minimum royalty payments of $5,000 per year. The Company has not
determined whether to continue operations under the Rattlesnake(R) name.
Ottomaneli's Cafe(R) is licensed from a corporation, the capital stock of which
is owned by Nicolo and Joseph Ottomanelli, with a term co-extensive with the
licensor's rights and for no separate consideration, entered into as part of the
merger transaction between such persons and the Company (see "Certain
Transactions").
The Company will file an application with the United State Patent and
Trademark Office ("PTO") to trademark Spencer's should such be ultimately
determined to be the Company's final choice of concept names. There can be no
assurance as to the opposition to these filings by the PTO and/or third parties,
or if or when the trademarks would be granted to the Company. Names and marks
similar to the trademarks of the Company may be used by third parties in certain
limited geographical areas. Such third party use may prevent the Company from
licensing the use of its service marks for restaurants in such areas. The
Company intends to protect its trademarks by appropriate legal action whenever
necessary.
Government Regulation
The Company is subject to various federal, state and local laws affecting
its business. In addition, each of the Company's restaurants will most likely be
subject to licensing and regulation by a number of governmental authorities,
which may include alcoholic beverage control, health, safety, sanitation,
building and fire agencies in the state or municipality in which the restaurant
is located. Most municipalities in which the Company's restaurants will be
located require local business licenses. Difficulties in obtaining or failures
to obtain the required licenses or approvals could delay or prevent the
development of a new restaurant in a particular area. The Company is also
subject to Federal and state environmental regulations, but such regulations
have not had a material adverse effect on the Company's operations to date.
Approximately ten to twenty (10-20%) percent of the Company's restaurant
sales is anticipated to be attributable to the sale of alcoholic beverages. Each
restaurant, where permitted by local law, will require appropriate licenses from
regulatory authorities allowing it to sell liquor, beer and wine and in some
states or localities to provide service for extended hours and on Sunday. Each
restaurant requires food service licenses from local health authorities. The
failure of a restaurant to obtain or retain liquor or food service licenses
could adversely affect, or in an extreme case, terminate its operations.
However, each restaurant is expected to operate in accordance with standardized
procedures designed to assist in compliance with all applicable codes and
regulations. The Company is subject in the states in which it operates
restaurants and proposes to operate restaurants, to "dram-shop" statutes or
judicial interpretations, which generally provide a person injured by an
intoxicated person the right to cover damages from an establishment which
wrongfully served alcoholic beverages to such person.
The Americans With Disabilities Act (the "Disabilities Act") prohibits
discrimination on the basis of disability in public accommodations and
employment. The Company designs its restaurants to be accessible to the disabled
and believes that it is in substantial compliance with all current applicable
regulations relating to restaurant accommodations for the disabled. The Company
intends to comply with future regulations relating to accommodating the needs of
the disabled, and the Company does not currently anticipate that such compliance
will require the Company to expend substantial funds.
The development and construction of additional restaurants will be subject
to compliance with applicable zoning, land use and environmental regulations.
The Company's operations are also subject to Federal and state minimum wage laws
and other laws governing such matters as working conditions, citizenship
requirements, overtime and tip credits. In the event a proposal is adopted which
materially increases the applicable minimum wage, such an increase would result
in an increase in the Company's payroll and benefits expense.
Employees
At June 28, 1998, the Company employed approximately 65 persons, 6 of whom
were home office management and staff personnel, and the remainder of whom were
restaurant personnel. As of June 30, 1999, the Company employed approximately 39
persons, 4 of whom were home office management and staff personnel, and the
remainder of whom were restaurant personnel (reflecting the reduction from three
restaurants to one active restaurant). A substantial number of the Company's
restaurant personnel are employed on a part-time basis. None of the Company's
employees are covered by a collective bargaining agreement. The Company
considers its employee relations to be good.
Competition
The restaurant industry is intensely competitive with respect to price,
service, location and food quality, and there are many well-established
competitors with substantially greater financial and other resources than the
Company. Such competitors include a large number of national and regional
restaurant chains. Although the Company believes that its concept will
distinguish it from competitors, steakhouse chains with which the Company will
compete include Outback, Longhorn, Lone Star and Bugaboo Creek restaurants. Some
of the Company's competitors have been in existence for a substantially longer
period than the Company and may be better established in the markets where the
Company's restaurants are or may be located. The restaurant business is often
affected by changes in consumer tastes, national, regional or local economic
conditions, demographic trends, traffic patterns, and the type, number and
location of competing restaurants. In addition, factors such as inflation,
increased food, labor and employee benefits costs and the lack of experienced
management and hourly employees may adversely affect the restaurant industry in
general and the Company's restaurants in particular. Any restaurant unit may
face intense competition from a competitor opening a restaurant with a similar
format in the near vicinity, at least in the short term, since newly opened
restaurants frequently generate a high volume of customers.
Properties
At June 30, 1999, our principal office was and is located at 2 South Main
Street, South Norwalk, CT 06854 at the location of its remaining
Rattlesnake(R)Southwestern Grill restaurant.
As of June 30, 1999, the South Norwalk, Connecticut restaurant continues in
operation; 106 Federal Road Restaurant Corp., a wholly owned subsidiary of the
Company, purchased the Danbury, Connecticut Rattlesnake Southwestern Grill
restaurant (which was closed June 22, 1998) and the underlying real estate for
conversion to the Spencer's prototype.
Legal Proceedings
As of June 30, 1999, the Company was engaged in certain active litigation
as follows:
Union Savings Bank of Danbury v. Thomas F. Moffit, et al. (Rattlesnake
Danbury, Inc.) This was a foreclosure action against Rattlesnake's landlord and
the Company was named as an additional defendant by virtue of its interest as a
tenant. On March 15, 1999, an execution of ejectment was entered by the Court.
(The Company subsequently purchased this property through its wholly-owned
subsidiary, 106 Federal Road Restaurant Corp.)
Peck v. Rattlesnake Ventures, Inc. et. al.
Plaintiff, the owner of an apartment situated above the South Norwalk
Rattlesnake Grill operated by Rattlesnake Ventures, Inc. ("RVI"), a wholly-owned
subsidiary of the Company, brought an action for negligence per se, intentional
infliction of emotional distress, negligent infliction of emotional distress,
and violations of the Connecticut Unfair Trade Practices Act based on
allegations of excessive noise, and rude and or threatening conduct of employees
of RVI including the Corporate Chairman and CEO at the time, William Opper
("Opper").
A jury verdict in the amount of $225,000 was entered against RVI and Opper
jointly on the negligence per se counts of the plaintiff's complaint. In
addition, verdicts in the amount of $200,000 were entered against both Opper and
RVI separately on the intentional and negligent infliction of emotional distress
counts of the complaint. The trial court subsequently set aside the emotional
distress awards against both Opper and RVI leaving only the negligence per se
award against Opper and RVI jointly in the amount of $225,000 referred to above.
This award is currently on appeal by RVI and Opper. The plaintiff has also
appealed the trial court's post trial reduction of the jury award. It should be
noted that an Offer of Judgment was filed in Peck in 1994. As a result there is
the potential that interest at the statutory rate of 12% will be applied to any
ultimate final award in Peck.
Plaintiff's claims are arguably covered by one or more of RVI's insurance
policies. Farmington Casualty Company (Travelers Property Casualty is successor
in interest to Aetna Property and Casualty who was successor in interest to
Farmington Casualty Company) and Insurance Company of Greater New York retained
counsel to defend Rattlesnake under a reservation of rights. The third insurance
carrier, Public Service Mutual denied coverage. Greater New York and Farmington
have continued to prosecute the appeal under a reservation of rights. RVI has
advised all three insurance companies that it intends to pursue its rights in an
action for damages and declaratory relief against them in the event that the
appeal is unsuccessful and the insurance carriers refuse to provide coverage for
plaintiff's claims.
William Opper Indemnification Demand/Peck
On or about July 7, 1999, a demand letter was tendered to the Company by
Mr. Opper's attorney seeking indemnification from potential liabilities arising
out of Peck (above). This demand is based on an indemnification provision in an
agreement between Mr. Opper and the Company. The Company has been advised that
viable defenses to this demand may exist.
Travelers Property Casualty as Successor in Interest to Aetna Property and
Casualty v. Rattlesnake Bar and Grill Holding Company, Inc. et. al.
Travelers Property Casualty as Successor in Interest to Aetna Property and
Casualty v. Rattlesnake Bar and Grill Holding Company, Inc. et. al., Plaintiff
seeks declaratory judgement that Travelers is not obligated to indemnify the
defendants in the underlying Peck action. Plaintiff alleges the absence of a
qualifying incident of bodily injury or property damage due to the lack of an
"occurrence" defined in the policy as accidental, the lack of a bodily injury as
defined in the policy and the lack of property damage as defined in the policy.
The plaintiff furthermore argues for exclusion of coverage due to the alleged
intent to harm the plaintiff and alleged existence of property damage expected
or intended from the standpoint of the insured. Preliminary analysis suggests
viable arguments may exists for extension of coverage in this matter.
Jack Cioffi Trust v. Rattlesnake Lynbrook and Rattlesnake Holding. This is
an action for an alleged breach of a commercial lease in which damages exceeding
$190,000 are being sought. The Company has disputed this claim. The plaintiff
has inadequately responded to Rattlesnake's demand for discovery and inspection
and interrogatories. A compliance conference was adjourned to September 15,
1999.
Market for Common Equity and Related Stockholder Matters
The high and low bid quotations for the preceding three fiscal years for
the Common Stock of the Company on the NASDAQ SmallCap Market (until September
1997) and the NASDAQ Bulletin Board (thereafter), is as follows (fractions
converted to approximate decimal values):
BID
Fiscal Year 1997 Low High
---------------- --- ----
Quarter ended September 30, 1996 2.88 3.63
Quarter ended December 31, 1996 1.25 3.62
Quarter ended March 31, 1997 .87 1.25
Quarter ended June 30, 1997 .62 .87
Fiscal Year 1998
Quarter ended September 30, 1997 .17 .65
Quarter ended December 31, 1997 .17 .31
Quarter ended March 31, 1998 .17 .65
Quarter ended June 28, 1998 .44 .65
Fiscal Year 1999
Quarter ended September 30, 1998 .22 1.03
Quarter ended December 31, 1998 .13 .45
Quarter ended March 31, 1999 .13 .31
Quarter ended June 30, 1999 .09 .31
As of the close of business on June 30, 1999, there were 164 holders of
record of the Common Stock. We have paid no dividends on our common stock for
the last three years and does not expect to pay dividends in the future.
Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(A) of the Exchange Act
The following table sets forth certain information concerning each of the
executive officers, directors and advisors as of June 30, 1999 (See "Agreements
with New Management" below for information on contractual commitments related to
certain of these persons). The Company's officers are elected to serve in such
capacities until the earlier to occur of the election and qualification of their
respective successors or until their respective deaths, resignations or removals
by the Company's board of directors from such position. The Company does not pay
any compensation to any person for serving, as such, as a director. Current
officers and directors include:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
<S> <C> <C>
Kenneth Berry 45 President, CEO and Director
Stephan A. Stein 47 Consultant, Secretary and
Director
Nicolo Ottomanelli 57 Senior Vice President and Director
Frank T. Ferro 46 Vice-President, CFO and Treasurer
- -------------------------
Shelly Frank 54 Consultant and Director*
A.G. (Sandy) Rappaport 50 Consultant and Director*
* Messrs. Frank and Rappaport will join the Company's Board of
Directors, with Mr. Frank to serve as Chairman, at such time as the
Company finalizes its officers and directors insurance obtained July
15, 1999, anticipated to be on or about September 1, 1999. See
"Agreements with New Management".
</TABLE>
Kenneth Berry From 1997 until the Initial Closing, Mr. Berry was a Director
of Operations for Briad Group, a $75 million per year multi-unit restaurant
operations company in the Metro-New York area operating primarily Wendy's and
TGIF Friday's restaurants. From 1989 to 1996, Mr. Berry was a principal in the
Kerry Organization, which acquired and operated Roy Rogers Restaurants in
Connecticut, during which period he served on the Board of the Roy Rogers
National Franchisee Advisory Council. Prior to that, and from 1985 to 1989, Mr.
Berry was a Regional Vice-President of Operations for KFC National Management
Company, a PepsiCo subsidiary. Mr. Berry attended Pace University.
Stephan A. Stein Mr. Stein has been a Director of the Company since 1996
and served as its Acting Chairman from inception of the 1997 Cost Reduction Plan
until the Initial Closing of the Offering. Mr. Stein was a Managing Director of
the Corporate Finance Department of the Placement Agent until May 31, 1999.
Prior to joining the Placement Agent, and from 1977 to 1996, Mr. Stein had broad
based transaction and business management experience, initially as a practicing
attorney in New York City and thereafter as a principal of various food-service
related companies involved in manufacturing, distribution, retailing and
franchising, both domestically and internationally. Mr. Stein has a B.A. degree
in economics from Ohio State University and a Juris Doctor degree from The
Vermont Law School.
Nicolo Ottomanelli For more than forty years, Mr. Ottomanelli has been
engaged in the food business in New York as a member of Ottomanelli Bros., a
century old retail meat purveyor, and has operated a number of casual dining
restaurants under the Ottomanelli's Cafe(R) name. He has also operated steak
restaurants and is the founder of the Ottomanelli's Cafe franchising operation,
which is now owned by the Company.
Frank T. Ferro From 1997 until the Initial Closing, Mr. Ferro was employed
by Deloitte and Touche, LLP as a special projects financial and tax accountant.
From 1995 to 1997, Mr. Ferro was a financial and tax consultant for Royal Par
Industries from 1991 to 1994, Mr. Ferro was CFO for CAT Entertainment, a New
York City based restaurant turnaround company. Previously, from 1978 to 1985,
Mr. Ferro was the Audit Supervisor for General Foods Corporation where he was
responsible for full scope and operational audits for its multi-unit restaurant
chains then owned. Mr. Ferro is a CPA and has B.S. and MBA Degrees from St.
John's University.
Shelly Frank During the past 10 years, Mr. Frank has been a private
investor and, among other things, a consultant to the restaurant industry. From
1977 to 1986, Mr. Frank was Chairman and CEO of Chi-Chi's, Inc. a casual dining
restaurant chain that established the Mexican food sit-down segment and as a
public company expanded nationally from one location to more than 200
restaurants and yearly revenues in excess of $500 million per year during his
tenure. Prior to 1977, Mr. Frank held various executive positions in the
restaurant industry with Kentucky Fried Chicken, Burger King International and
General Mills. Mr. Frank is a past recipient of the Wall Street Transcript's CEO
of The Year Award as well as the MUFSO (Multi-Unit Food Service Operator) Golden
Chain Award given by the Nations Restaurant News. Mr. Frank has a B.S. degree in
accounting from the University of New Haven and attended the MBA program at the
University of Miami, Florida.
A.G. (Sandy) Rappaport Mr. Rappaport is currently a co-owner and
development partner of R&A Food Services, L.P., the master franchise of Boston
Market for the State of Florida and a development partner of Einstein's Bros.
Bagels, for which he has opened more than 150 locations combined. Mr. Rappaport
was president of the first franchise and a development partner of the Outback
Steakhouse concept. Mr. Rappaport also engages in investment activities. Mr.
Rappaport has a Masters degree from and is an Advisory Board Member of the
University of South Florida.
Committees of the Board of Directors
The Company's Board of Directors currently has no committees, though it
anticipates the formation of an Audit Committee and Compensation Committee prior
to the next annual meeting of stockholders.
Section 16(a) Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than ten (10%) percent of a
registered class of the Company's equity securities (collectively, the
"Reporting Persons") to file reports of ownership and changes in ownership with
the Securities and Exchange Commission and to furnish the Company with copies of
these reports. Based solely on the Company's review of the copies of such forms
received by it during its fiscal year ended June 28, 1998, the Company believes
that all filing requirements applicable to the Reporting Persons were not
complied with by its executive officers and directors during such period. As of
June 30, 1999, the Company is in compliance with all Section 16 requirements and
believes its current management and directors to be in compliance.
Executive Compensation
The following table sets forth as of June 28, 1998 the cash compensation
paid by us, as well as any other compensation paid to or earned by the President
of the Company and those executive officers compensated at or greater than
$100,000 for services rendered to the Company in all capacities during the three
most recent fiscal years:
Summary Compensation Table
<TABLE>
<CAPTION>
Name of Individual Stock Long-Term
and Principal Position Year Salary Bonus Compensation Compensation
- ---------------------------- ---------- ---------------- ------------- ----------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Nicolo Ottomanelli, 1998 $69,230 --- --- ---
President *1997 $ --- --- --- ---
*1996 $ --- --- --- ---
- -------------
* Nicolo Ottomanelli was not employed by the Company in fiscal years 1997 and 1996.
</TABLE>
The following table sets forth information with respect to the compensation
of the Company's officers for the fiscal year ended June 28, 1998:
Name Compensation
Nicolo Ottomanelli (1) $69,230
Joseph Ottomanelli (2) $16,490
Stephan A. Stein (3) $53,519
Louis Malikow (4) $27,000
(1) Nicolo Ottomanelli was compensated under an employment agreement
entered into on in March, 1998 and terminating in 2002 pursuant to which he was
to receive a salary of $150,000 per annum. The Company and Nicolo Ottomanelli
amended his employment agreement in October 1998 to reduce the fixed
compensation to $85,000, to make him a participant in the Company's incentive
bonus program and to provide a payment of $25,000 in early 1999.
(2) Joseph Ottomanelli was compensated under an employment agreement
entered into in March, 1998 and pursuant to which he was to receive a salary of
$150,000 per annum. Mr. Ottomanelli's salary was prorated for the amount of time
he spent on the business of the Company. For the period ended June 28, 1998,
approximately 25% of his time is allocated to the business of the Company. The
Company and Joseph Ottomanelli terminated his employment agreement in October
1998 and he received a payment of $7,500 in mid-1999, and will receive a payment
of $7,500 in mid-2000.
(3) A corporation wholly owned by Mr. Stein, SAS Ventures, Inc. entered
into a 1996 consulting agreement with the Company under which it is to provide
his services to the Corporation. The agreement was amended in March 1997 and May
1998. The term of the agreement expires in 2001. The consulting fee under the
agreement is $6,250 per month. In addition, Mr. Stein was granted the common
stock and warrants described in "Security Ownership of Certain Beneficial Owners
and Management".
(4) Mr. Malikow, a Director since 1995, acted as Co-CEO with Mr. Stein
during the 1997 Cost-Reduction Plan period authorized by the Board of Directors
and received cash and warrants in consideration of services provided.
Agreements with New Management
Subsequent to June 28, 1998, the Company entered into a three year advisory
service agreement, as revised, with Mr. Shelly Frank. Mr. Frank's agreement does
not obligate him to also serve as a director or Chairman of the Board of
Directors until the Company obtains at least $10 million of officer/director
liability insurance and certain other conditions are satisfied. Mr. Frank's
agreement is terminable by Mr. Frank without recourse by the Company. Mr. Frank
will receive no regular compensation but will be entitled to participate in the
Company's performance bonus plan. Mr. Frank may receive consulting compensation
prior to commencing as Chairman of the Board of Directors. In addition, Mr.
Frank was granted the warrant described in "Security Ownership of Certain
Beneficial Owners and Management".
Subsequent to June 28, 1998, the Company entered into a three year
employment agreement, as revised, with Kenneth Berry which commenced on March
31, 1999, providing for fixed compensation of $95,000 a year, a signing bonus of
$30,000, participation in the Company's performance bonus plan, and receipt of
$250,000 of term life insurance coverage. In addition, Mr. Berry was granted the
warrant described in "Security Ownership of Certain Beneficial Owners and
Management".
Subsequent to June 28, 1998, the Company entered into a three year
employment agreement, as revised, with Frank T. Ferro providing for fixed
compensation of $52,000 in year one, with a time allowance in year one to
complete certain projects, and commercially standard compensation for full time
services to be determined for years two and three. Mr. Ferro has also been
granted options to purchase Common Stock as follows: 100,000 vesting at close of
year one; 100,000 vesting at close of year two; 100,000 vesting at close of year
three at the exercise price of $.05, with additional options to purchase 200,000
shares, exercisable at the close of each years two and three.
Subsequent to June 28, 1998, the Company entered into a three year advisory
service agreement with A. G. (Sandy) Rappaport providing for certain
consultative services on an as need basis and providing for compensation of
$12,000 per year plus the warrant described in "Security Ownership of Certain
Beneficial Owners and Management".
The performance bonus plan for senior management creates a bonus pool based
on the yearly targeted number of restaurant openings, the aggregate revenues and
pre-tax (and pre-bonus) income of the Company. The plan initially has a five
year term. The pool, if created, would be allocated by the Chairman of the
Board, currently anticipated to be Shelly Frank, including to himself. It is
anticipated that the bonus pthl could vary from a maximum of approximately
$100,000 in the first year to $1,000,000 (or more) in the fifth year, based on
meeting or exceeding targeted goals. There can be no assurance as to the size of
the bonus pool, if any, during any year of operations.
Limited Liability of Directors and Executive Officers
The Certificate of Incorporation of the Company provides that the Company
shall indemnify to the fullest extent permitted by Delaware law any person whom
it may indemnify thereunder, which includes directors, officers, employees and
agents of the Company. Such indemnification (other than as ordered by a court)
shall be made by the Company only upon a determination that indemnification is
proper in the circumstances because the individual met the applicable standard
of conduct. Advances for such indemnification may be made pending such
determination. In addition, the Certificate of Incorporation provides for the
elimination, to the extent permitted by Delaware law, of personal liability of
directors to the Company and its stockholders for monetary damages for breach of
fiduciary duty as directors.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of the expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company, will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a ct,rt of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy, as expressed in the Securities Act, and will be governed by the
final adjudication of such issue.
Stock Option Plans
1994 Employees Stock Option Plan
In December 1994, the Company adopted the 1994 Employees Stock Option Plan
(the Employees Plan), which provides for the issuance of incentive stock options
(ISO's) and non-qualified options (Non-ISO's) to officers and key employees. Up
to 1,000,000 shares of the Company's common stock have been reserved for
issuance under the Plan. The Plan is currently administered by the Board of
Directors of the Company. The term of the options is generally for a period of 5
years. The exercise price for non-qualified options outstanding under the
Employees Plan can be no less than 100% of the fair market value, as defined, of
the Company's common stock at the date of the grant. For ISO's the exercise
price can be generally no less than the fair market value of the Company's
common stock at the date of the grant, with the exception of any employee who
prior to the granting of the option, is a 10% or greater stockholder as defined,
for which the exercise price can be no less than 110% of the fair market value
of the Company's common stock at the date of grant. There are presently
approximately 1,000,000 shares available for option under the Employees Plan.
The Company anticipates seeking stockholder approval to substantially increase
the number of shares for which options may be granted.
1994 Director Plan
In December 1994, the Company adopted the non-Executive Director Stock
Option Plan (the "Director Plan"), which provides for the issuance of non-ISO's
to non-executive directors, as defined, and members of any advisory board
established by the Company who are not full-time employees of the Company. The
Company has reserved 500,000 shares for issuance under the provisions of the
Director Plan. The Director Plan provides that each non-executive director will
automatically be granted an option to purchase 25,000 shares upon joining the
Board of Directors and 15,000 shares on each December 1st thereafter, provided
such person has served as a director for the 12 months immediately prior to such
December 1st. The exercise price for options granted under the Director Plan
shall be 100% of the fair market value of the Common Stock on the date of grant.
There are presently 295,000 shares available for option under the Directors
Plan.
1999 Stock Option Plan
On April 18, 1999, the Board of Directors approved the adoption of the 1999
Stock Option Plan (the "1999 Plan"), which provides for the issuance of ISOs,
Non-ISOs, and stock appreciation rights to officers and key employees of the
Company. Up to 10,000,000 shares have been reserved for issuance under the 1999
Plan, which is administered by the Board of Directors of the Company. The term
of the options is generally for a period of five (5) years. The exercise price
for Non-ISOs outstanding under the 1999 Plan can be no less than 100% of the
fair market value as, defined, of the Company's Common Stock on the date of
grant. For ISOs, the exercise price can generally be no less than the fair
market value of the Company's Common Stock at the date of grant, without the
exception of any employee who prior to the option grant, is a 10% or greater
stockholder, as defined, for which the exercise price can be no less than 110%
of the fair market value of the Company's Common Stock at the date of grant.
There are presently no options granted under the 1999 Plan.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the
beneficial ownership of shares of Common Stock as of June 30, 1999, based on
information obtained from the persons named below, by (i) each person known to
the Company to beneficially own more than 5% of the outstanding shares of Common
Stock, (ii) each executive officer and director of the Company, and (iii) all
officers and directors of the Company as a group:
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Beneficial
Beneficial Owner** Ownership*** Percentage****
- ----------------------------------------------------- ---------------------------------- ------------------
<S> <C> <C>
Kenneth Berry 10,000,000 (1) 25.3%
Nicolo Ottomanelli 5,415,749 (2) 18.3%
Joseph Ottomanelli 4,271,029 (3) 14.3%
Stephan A. Stein 6,151,224 (4) 18.4%
Frank T. Ferro (5) *
Shelly Frank***** 45,000,000 (6) 64.3%
16 Arrowhead Way
Weston, CT 06883
Andrew Silverman 2,000,000 6.8%
A.G. (Sandy) Rappaport***** 1,500,000 (7) 4.8%
c/o Wellington Realty Advisors
11015 North Dale Mabry Highway
Tampa, FL 33618
Commonwealth Associates 15,650,000 (8) 37.7%
830 Third Avenue
New York, New York 10022
Guy Snowden 2,254,126 (9) 7.6%
4080 Ibis Point Circle
Boca Raton, FL 33431
All Directors and Officers as group 25,838,002 59.4%
(5 Persons)
</TABLE>
- -----------------------------------------
* Less than 1% of outstanding shares of Common Stock.
** Unless otherwise indicated, the beneficial owner's address is the principal
office of the Company.
*** The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission. Accordingly, they may
include securities owned by or for, among others, the spouse and/or minor
children of the individual and any other relative who has the same home as such
individual, as well as other securities as to which the individual has or shares
voting or investment power or has the right to acquire under outstanding stock
options within 60 days after the date of this table. Beneficial ownership may be
disclaimed as to certain of the securities. **** In computing the "Percentage of
Class" figures as to each person, there is added to the numerator and
denominator, for such person, the number of shares of Common Stock such person
could acquire within 60 days by the conversion of a convertible security owned
by such person or the exercise of an option or warrant held by such person. This
presentation maximizes the percentage of each person, since it assumes that no
other holder of rights to convert or purchase preferred stock or warrants or
notes is then exercising the same, and often results in a combined listing
percentage of ownership that exceeds 100%. ***** Not a director at June 30,
1999.
(1) Includes warrants to purchase 10,000,000 shares of Common Stock at an
exercise price of $.05. Does not include warrants to purchase 20,000,000 shares
of Common Stock at $.05 per share, which are not exercisable within sixty (60)
days.
(2) Does not include any shares beneficially owed by Mr. J. Ottomanelli,
Mr. N. Ottomanelli's brother, of which Mr. N. Ottomanelli disclaims beneficial
ownership.
(3) Does not include any shares beneficially owned by Mr. N. Ottomanelli,
Mr. J. Ottomanelli's brother, of which Mr. J. Ottomanelli disclaims beneficial
ownership.
(4) Includes warrants to purchase 3,920,548 shares of Common Stock at an
exercise price of $.05 per share.
(5) Does not include warrants to purchase up to 700,000 shares of Common
Stock at an exercise price of $.05, exercisable annually in one-third increments
beginning after year one of his employment by the Company.
(6) Includes warrant to acquire 45,000,000 shares of common stock at $.05
per share.
(7) Includes warrants granted in conjunction with Mr. Rappaport's
consulting agreement. See "Agreements of New Management."
(8) Includes warrants to purchase 12,000,000 shares of Common Stock at an
exercise price of $.05.
(9) Does not include 54,126 shares of Common Stock owned by Mr. Snowden's
spouse, of which Mr. Snowden disclaims any beneficial ownership. Does not
include 3,000 shares of Preferred B Shares owned by Mr. Snowden.
Certain Relationships and Related Transactions
Nicolo Ottomanelli
In August 1997, Nicolo Ottomanelli and his brother, Joseph Ottomanelli,
entered into a Reorganization Agreement with the Company, whereby they agreed to
exchange the stock of certain corporations owned by them for certain shares of
Common Stock of the Company and certain warrants. This transaction was closed in
March 1998. After amendment to the transaction, the Ottomanellis transferred the
stock of (i) a corporation which franchises Ottomanelli's Cafes(R) and (ii) a
corporation which operated two restaurants in Paramus, New Jersey (since
closed), for a total of approximately 6,975,000 shares of Common Stock
(including an estimated 4,152,750 shares of Common Stock to be issued on account
of the 55,370 Preferred Shares, convertible into 6,921,250 shares of Common
Stock, to be exchanged for the outstanding shares of Series A Preferred Shares).
In accordance with the agreement, Nicolo Ottomanelli and a designee of Joseph
Ottomanelli (who has since resigned) were designated directors, and the
Ottomanellis received employment agreements, one of which has been terminated
and the other of which has been modified (see "Management--Executive
Compensation").
The Ottomanellis own the outstanding stock of a corporation which licenses
the name Ottomanelli's Cafe(R) to the Company. There is no license fee.
The Ottomanellis own the premises at which the Company's offices were
located until December 1, 1998, and at which the Company occupied approximately
600 square feet of space as a month-to-month tenant at a rent of $2,200 per
month. The Company believes these terms were at least as favorable to the
Company as could have been obtained from a non-affiliated person. Following the
Initial Closing, the Company terminated this tenancy without penalty and to
moved its offices to one of its restaurants.
Stephan A. Stein
Mr. Stein was an employee of the placement agent in the Offering until May
31, 1999. Commencing in March 1998, the placement agent raised approximately
$850,000 for the Company, principally by the sale of common stock, and to a
lesser extent, by the sale of notes with warrants. The Placement Agent received
a commission of approximately $75,000 and warrants to purchase 750,000 shares of
common stock at $0.15 per share for a term of five years. Commencing October
1998, the placement agent raised approximately $6,000,000 for the Company,
principally by the sale of Series B Preferred Stock, and to a lesser extent, by
the sale of notes with warrants. The placement agent received a commission of
approximately $650,000 and warrants to purchase approximately 30,000,000 shares
of common stock at $.05 per share for a term of five (5) years.
LEGAL MATTERS
The validity of the shares of common stock hereby and certain legal matters
in connection with this offering will be passed upon for the Company by Ruskin,
Moscou, Evans & Faltischek, P.C.
EXPERTS
The consolidated financial statements of the Company as of June 28, 1998
and June 29, 1997 and for each of the years in three-year period ended June 30,
1996 have been included herein and in the Registration Statement in reliance
upon the report of KPMG LLP, independent public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement (of
which this prospectus is a part and which term shall encompass any amendments
thereto) on Form S-1 pursuant to the Securities Act with respect to the common
stock being offered. This prospectus does not contain all of the information set
forth in the registration statement. Certain portions of the registration
statement, and the exhibits and schedules thereto are omitted, as permitted by
the Commission. Statements made in this prospectus about the contents of any
document referred to are not necessarily complete; with respect to any such
document filed as an exhibit to the registration statement, reference is made to
the exhibit itself for a more complete description of the matter involved. Each
such statement shall be deemed qualified in its entirety by reference to the
registration statement exhibits.
This Registration Statement and all other information filed by us with the
Commission may be inspected without charge at the principal reference facilities
maintained by the Commission at:
450 Fifth Street, N.W.
Washington, D.C. 20549,
Citicorp Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661,
7 World Trade Center
13th Floor
New York, New York 10048.
Copies of all or any part thereof may be obtained upon payment of fees
prescribed by the Commission from the Public Reference Section of the Commission
at its principal office in Washington, D.C. set forth above. Such material may
also be accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov.
The common stock is expected to be listed on the Over-the-Counter Bulletin
Board and, upon listing, copies of such reports, proxy statements and other
information concerning the Company can also be inspected and copied at the
library of the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006.
[Balance of page intentionally left blank]
<PAGE>
The Rattlesnake Holding Company, Inc. and Subsidiaries
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
(a) Report of Independent Auditors............................................................................F-2
(b) Consolidated Balance Sheets as of June 29, 1997 and June 28, 1998.........................................F-3
(c) Consolidated Statements of Operations for the years ended June 30, 1996, June 29, 1997
and June 28, 1998........................................................................................ F-4
(d) Consolidated Statements of Shareholders' Equity for the years ended June 30, 1996, June 29, 1997, and
June 28, 1998.............................................................................................F-5
(e) Consolidated Statements of Cash Flows for the years ended June 30, 1996, June 29, 1997 and
June 28, 1998.............................................................................................F-7
(f) Notes to Consolidated Financial Statements................................................................F-8
(g) Interim (Unaudited) Consolidated Balance Sheets as of March 31, 1999......................................F-32
(h) Interim (Unaudited) Consolidated Statements of Operations for the Nine Months Ended March 31, 1999
and March 29, 1998........................................................................................F-33
(i) Interim (Unaudited) Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 1999
and March 29, 1998........................................................................................F-34
(j) Notes to Interim (Unaudited) Consolidated Financial Statements ...........................................F-35
</TABLE>
<PAGE>
- ----------------------------------
THE RATTLESNAKE HOLDING COMPANY, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
June 28, 1998, June 29, 1997 and June 30, 1996
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Board of Directors and Stockholders
The Rattlesnake Holding Company, Inc.:
We have audited the accompanying consolidated balance sheets of The
Rattlesnake Holding Company, Inc. and subsidiaries as of June 28, 1998 and June
29, 1997 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the year in the three-year period ended June
28, 1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Rattlesnake Holding
Company, Inc. and subsidiaries as of June 28, 1998 and June 29, 1997 and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 28, 1998, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in note
2 to the consolidated financial statements, the Company has suffered recurring
losses from operations that raise substantial doubt about its ability to
continue as a going concern. Management of the Company is finalizing its cost
reduction plan, which includes a further reduction in workforce and continuation
of the closure of unprofitable restaurants and implementing a new strategic
plan. At June 28, 1998, approximately $1,212,000 of the Company's outstanding
notes payable were past due and in default. Additionally, accumulated dividends
for Series A preferred stock of $207,636 were also past due. In July 1999, the
Company completed a private placement of approximately $6,000,000 of Series B
preferred stock. Coincident with the private placement, the holders of 56,500
shares of Series A preferred stock exchanged their holdings for 55,370 shares of
Series B preferred stock and waived their rights to the unpaid and accumulated
dividends. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
KPMG LLP
Melville, New York
August 6, 1999
<PAGE>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 29, 1997 and June 28, 1998
<TABLE>
<CAPTION>
Assets 1997 1998
---- ----
<S> <C> <C>
Current assets:
Cash $ 68,022 311,328
Accounts receivable 13,287 16,831
Notes receivable, current installments --- 4,080
Inventory 42,119 29,397
Prepaid expenses and other current assets 23,272 7,200
Assets held for sale 679,544 ---
---------- -------
Total current assets $ 826,244 368,836
Notes receivable, less current installments --- 225,920
Property and equipment, net 1,007,092 81,375
Intangible assets, net 299,102 30,598
Other assets 129,457 78,443
---------- -------
$2,261,895 785,172
========== =======
Liabilities and Stockholders' Deficit
Current liabilities:
Current maturities of notes payable, including amounts
due to related parties of $551,579 and $553,385 at
June 29, 1997 and June 28, 1998, respectively $ 835,335 1,282,539
Accounts payable 280,528 1,019,139
Liabilities related to assets held for sale 1,133,257 ---
Accrued expenses 357,407 629,414
Dividends payable 103,818 207,636
Other current liabilities 218,220 182,971
----------- ---------
Total current liabilities $ 2,928,565 3,321,699
----------- ---------
Notes payable, net of current maturities 545,006 525,006
----------- ---------
Total liabilities $ 3,473,571 3,846,705
----------- ---------
Stockholders' deficit:
Preferred stock, Series A, $.10 par value, 5,000,000 shares
authorized, 56,500 issued and outstanding $ 5,650 5,650
Common stock, $.001 par value - 20,000,000
shares authorized, 2,650,227 and 10,889,285 issued and
outstanding, at June 29, 1997 and June 28, 1998, respectively 2,651 10,890
Additional paid-in capital 11,072,857 12,554,618
Accrued dividends (103,818) (207,636)
Accumulated deficit (12,189,016) (15,425,055)
------------ ------------
(1,211,676) (3,061,533)
------------ ------------
$ 2,261,895 785,172
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended June 30, 1996, June 29, 1997, June 28, 1998
<TABLE>
<CAPTION>
Year ended Year ended Year ended
June 30, 1996 June 29, 1997 June 28, 1998
<S> <C> <C> <C>
Restaurant sales $ 8,755,565 8,265,474 3,888,643
Less: promotional sales 512,756 413,524 127,343
----------- --------- ---------
Net restaurant sales 8,242,809 7,851,950 3,761,300
Costs and expenses:
Cost of food and beverage sales 2,565,905 2,443,860 1,225,982
Restaurant salaries and fringe benefits 3,109,435 2,792,622 1,322,119
Occupancy and related expenses 2,188,444 2,025,198 1,072,796
Depreciation and amortization expense 608,260 726,526 314,017
--------- --------- ---------
Total restaurant costs and expenses 8,402,044 7,988,206 3,934,914
Selling, general and administrative 2,810,433 2,715,293 1,279,831
Loss on closure of restaurant sites 192,311 1,731,842 1,464,756
and impairment charges
Interest expense 108,536 172,886 261,276
Miscellaneous expenses 12,350 41,580 56,562
--------- --------- ---------
Total expenses 11,525,674 12,649,807 6,997,339
----------- ---------- ---------
Net loss before extraordinary item (3,282,865) (4,797,857) (3,236,039)
Extraordinary item:
Gain on early extinguishment of debt 89,710 --- ---
----------- ---------- ----------
Net loss (3,193,155) (4,797,857) (3,236,039)
----------- ----------- -----------
Dividends on preferred shares --- (103,818) (103,818)
----------- ----------- -----------
Net loss available common stockholders $(3,193,155) (4,901,675) (3,339,857)
============ =========== ===========
Net loss per share:
Loss before extraordinary item $ (1.26) (1.85) (0.80)
Extraordinary item .03 --- ---
------------ ----------- -----------
Net loss - Basic and diluted $ (1.23) (1.85) (0.80)
============ =========== ===========
Weighted average number of common and
common equivalent shares outstanding -
Basic and diluted 2,605,808 2,645,335 4,173,985
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended June 30, 1996, June 29, 1997 and June 28, 1998
<TABLE>
<CAPTION>
Additional
Common Common Preferred Preferred Paid-in
Shares Stock Shares Stock Capital
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995 2,558,563 2,559 -- -- 9,279,649
Additional costs from Initial Public Offering -- -- -- -- (43,239)
Issuance of common stock for
services performed 2,671 3 -- -- 14,355
Proceeds from issuance of preferred stock -- -- 54,500 5,450 1,123,632
Conversion of debt to equity 82,500 82 -- -- 329,918
Net loss -- -- -- -- --
Balance, June 30, 1996 2,643,734 2,644 54,500 5,450 10,704,315
Proceeds from issuance of preferred stock -- -- 2,000 200 49,800
Conversion of debt to equity 6,493 7 -- -- 24,992
Accrued dividends -- -- -- -- --
Issuance of warrants for services performed -- -- -- -- 293,750
Net loss -- -- -- -- --
Balance, June 29, 1997 2,650,227 2,651 56,500 5,650 11,072,857
Issuance of common stock in connection 2,822,058 2,822 -- -- 437,419
with acquisition of Ottomanelli Group
Net proceeds from issuance of common 4,480,000 4,480 -- -- 539,068
stock in connection with private
placement
Conversion of debt to equity 937,000 937 -- -- 499,063
Issuance of warrants for services performed -- -- -- -- 25,100
Deferred compensation -- -- -- -- (18,889)
Accrued dividends -- -- -- -- --
Net loss -- -- -- -- --
Balance, June 28, 1998 10,889,285 $10,890 56,500 5,650 12,554,618
========== ======= ====== ===== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
Total
Accrued Accumulated Stockholders'
Dividends Deficit Equity
<S> <C> <C> <C>
Balance, June 30, 1995 -- (4,198,004) 5,084,204
Additional costs from Initial Public
Offering -- -- (43,239)
Issuance of common stock for
services performed -- -- 14,358
Proceeds from issuance of preferred stock -- -- 1,129,082
Conversion of debt to equity -- -- 330,000
Net loss -- (3,193,155) (3,193,155)
Balance, June 30, 1996 -- (7,391,159) 3,321,250
Proceeds from issuance of preferred stock -- -- 50,000
Conversion of debt to equity -- -- 24,999
Accrued dividends (103,818) -- (103,818)
Issuance of warrants for services performed -- -- 293,750
Net loss -- (4,797,857) (4,797,857)
Balance, June 29, 1997 (103,818) (12,189,016) (1,211,676)
Issuance of common stock in connection
with acquisition of Ottomanelli Group -- -- 440,241
Net proceeds received from issuance of
common stock in connection with private
placement -- -- 543,548
Conversion of debt to equity -- -- 500,000
Issuance of warrants for services performed -- -- 25,100
Deferred compensation -- -- (18,889)
Accrued dividends (103,818) -- (103,818)
Net loss -- (3,236,039) (3,236,039)
Balance, June 28, 1998 (207,636) (15,425,055) (3,061,533)
========= ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 28, 1998, June 29, 1997 and June 30, 1996
<TABLE>
<CAPTION>
Year ended Year ended Year ended
June 30, 1996 June 29, 1997 June 28, 1998
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(3,193,155) $(4,797,857) $(3,236,039)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 651,957 797,092 314,017
Loss from fixed asset disposals -- 26,989 --
Gain on early extinguishment of debt (89,710) -- --
Loss on closure of restaurant sites 190,965 1,850,043 1,437,136
Valuation warrants issued for services -- 293,750 6,211
Issuance of stock in connection with
debt restructuring 30,000 -- --
Debt issued for services provided -- -- 50,000
Stock issued for services provided 14,358 -- --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (36,521) (50,308) 9,832
Decrease (increase) in inventory (25,013) 27,356 15,072
Decrease (increase) in prepaid and other assets (206,384) 119,016 (54,550)
Decrease (increase) assets held for sale (169,138) -- 25,000
Increase (decrease) in accounts payable
and accrued expenses (334,691) (177,779) 902,214
Increase (decrease) in other liabilities (34,609) 157,016 --
Decrease in liabilities related to
assets held for sale -- -- (330,041)
------------- ----------- -----------
Net cash used in operating activities (3,202,301) (1,654,066) (752,048)
Cash flows from investing activities:
Capital expenditures (1,769,272) (269,237) --
Payments for acquisitions of leaseholds
and lease costs (155,924) (208,627) --
Purchase of liquor license (150,000) -- --
------------- ---------- ----------
Net cash used in investing activities (2,075,196) (477,864) --
Cash flows from financing activities:
Proceeds from IPO 7,260,800 -- --
Proceeds from issuance of convertible notes -- 500,000 --
Proceeds from private placement -- -- 543,548
Proceeds from issuance of preferred stock -- 1,287,625 --
Costs of issuance of preferred stock (108,543) -- --
Proceeds from borrowings 100,000 -- 900,000
Principal repayments of borrowings (1,275,423) (272,087) (448,194)
IPO costs (43,239) -- --
------------- --------- ---------
Net cash provided by financing activities 5,933,595 1,515,538 995,354
Net increase (decrease) in cash 656,098 (616,392) 243,306
Cash, beginning of period 28,316 684,414 68,022
------------- --------- ---------
Cash, end of period $ 684,414 $ 68,022 $ 311,328
============= ========= =========
Cash paid during the period for:
Interest $ 221,825 $ 100,871 $ 5,263
Income taxes $ 17,015 $ 31,963 $ 9,800
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended June 28, 1998, June 29, 1997 and June 30, 1996
(1) Description of Business
As of June 28, 1998, The Rattlesnake Holding Company, Inc. and subsidiaries
(collectively, the Company), operated two restaurants in South Norwalk,
Connecticut and Flemington, New Jersey. Company restaurants feature casual
dining utilizing a southwestern theme.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. The consolidated financial statements have
been presented on a historical cost basis for the consolidated statements of
operations. All significant inter-company balances and transactions have been
eliminated in consolidation.
The accompanying consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.
However, due to the matters discussed below, its continuation as a going concern
can not be reasonably assured.
The Company has incurred aggregate losses since inception of $15,425,055,
inclusive of a net loss in fiscal 1998 of $3,236,039. Based upon interim
financial information prepared by management, the Company has continued to incur
losses in fiscal 1999. Additionally, $303,749 of Series C subordinated notes
payable matured on August 6, 1997, of which noteholders with principal balances
aggregating $62,499 extended the repayment date to December 15, 1997, $100,000
convertible subordinated notes payable matured September 4, 1997, $425,000 note
payable matured on January 2, 1997, $11,709 note payable matured in February
1998, $220,000 note payable matured on December 31, 1997, $100,000 notes payable
matured on May 31, 1998, $50,000 note payable matured on May 31, 1998, and a
$2,089 subordinated note payable matured on August 6, 1996, such obligations
aggregating $1,212,547 and all of which are in default as of June 28, 1998.
Additionally, $207,636 of accumulated dividends on Series A Preferred Stock were
also past due and unpaid.
Management of the Company is completing its Cost Reduction Plan, which
includes a further reduction in workforce and continuation of the closure of
unprofitable restaurants in fiscal 1998. Such plan included the closing and sale
of the Yorktown Heights, White Plains, New York, Fairfield, Connecticut and
Lynbrook, New York locations, as well as the sale of its New York City property.
As indicated in note 4, the Company performed an analysis of its remaining
restaurants and identified the Flemington restaurant as non-performing. The
restaurant was subsequently closed in fiscal 1999. Subsequent to the completion
of the private placement which effectively satisfied all short and long-term
debt that was in default (note 18), the Company has assembled a new management
team and developed a new restaurant theme which will be introduced at the
recently reacquired Danbury, Connecticut location.
Management believes that the finalization of its cost reduction plan and
its approximately $6,000,000 private placement financing will enable the Company
to achieve profitable operations and restore liquidity. However, no assurance
can be made regarding the achievement of the goals outlined in the strategic
plan as outlined above, or if such plans are achieved, that the Company's
operations will be profitable.
(b) Reporting Periods
On April 2, 1996, the Board of Directors approved a change, effective July
1, 1996, in the Company's accounting reporting period to a 52 week cycle ending
on the last Sunday in June. On May 12, 1998, the Board of Directors approved a
further change of its fiscal year to June 30, effective for fiscal 1999.
F-8
<PAGE>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(c) Accounts Receivable
Accounts receivable consist principally of bank credit card accounts
receivable.
(d) Inventories
Inventories consist primarily of restaurant food items and supplies and are
stated at the lower of cost or market value. Cost is determined using the
first-in, first-out method.
(e) Pre-Opening Costs
Certain costs relating to hiring and training of employees prior to the
opening of new restaurants are capitalized and amortized over a twelve month
period commencing upon restaurant opening. At June 29, 1997 and June 28, 1998,
there were no unamortized pre-opening costs.
(f) Net Assets Held for Sale
Pursuant to a restaurant lease agreement, the Company exercised its option
to purchase the facility for $425,000. This transaction was financed by a
related party shareholder through a 15% short-term note payable (note 9). In
addition, the related party shareholder received 50,000 warrants at an exercise
price equal to the market price at the date of the grant. The restaurant
facility at this location was closed on January 4, 1997. The building was being
held for sale and was classified in the 1997 financial statements as net assets
held for sale, net of an additional $100,000 writedown (note 4). During fiscal
1998, the Company sold this property for $350,000.
At June 29, 1997, the Company recorded $679,544 of net assets held for
sale. This balance represents $335,986 of assets which were sold on July 16,
1997, $25,000 of assets from a restaurant facility which was closed September
17, 1997 and $318,558 relating to a building as discussed above.
(g) Property and Equipment
Property and equipment is stated at cost. Depreciation is calculated
primarily on the straight-line basis over the estimated useful lives of the
assets. Leasehold improvements are amortized over the shorter of the estimated
useful life or the lease term of the related asset. The estimated useful lives
are as follows:
Artifacts 3 years
Original small wares 3 years
Furniture and fixtures 5 years
Restaurant and office equipment 7 years
Leasehold improvements 3-15 years
Building 40 years
(h) Intangible Assets
Intangible assets consist principally of costs to acquire leased
facilities. These costs are amortized over the life of the related lease,
generally 3 to 15 years. Accumulated amortization at June 29, 1997 and June 28,
1998 was $107,950 and $69,942, respectively. Amortization expense was $227,847,
$201,377 and $44,501 for the years ended June 30, 1996, June 29, 1997 and June
28, 1998, respectively. In connection with the Flemington location, the Company
wrote off approximately $258,490 in leasehold and related costs, net of
accumulated amortization of $48,012 in fiscal 1998. In connection with the
closing of the Hamden location, the Company wrote off approximately $65,000 in
leasehold and related costs, net of accumulated amortization of $21,672 in
fiscal 1996. In connection with the closing of the Fairfield, White Plains,
Yorktown Heights, Lynbrook and 86th Street locations, the Company wrote off
approximately $1,239,000 in leasehold costs, organization costs, and lease
F-9
<PAGE>
costs, net of accumulated amortization of $494,541 in fiscal 1997. In connection
with the Danbury location, the Company wrote off approximately $41,285 in
leasehold and related costs, net of accumulated amortization of $29,023 in
fiscal 1998.
As a result of the fiscal 1998 acquisition of the Ottomanelli Group (note
4), goodwill of $436,383 was recorded. Upon further analysis, the operations of
the former Ottomanelli Group were deemed inconsistent with the Company's
operating plans, were authorized to be terminated in fiscal 1998 and the
restaurants were closed in August 1998. Accordingly, the Company concluded that
the goodwill was impaired and recorded an impairment charge in the 1998
consolidated statement of operations.
(i) Other Assets
The Company utilizes an outside service to provide financing and
promotional activities. The costs relating to these activities are capitalized
and are being amortized over the repayment period.
(j) Financial Instruments
Management of the Company believes that the book value of its monetary
assets and liabilities, exclusive of long-term debt, approximates fair value as
a result of the short-term nature of such assets and liabilities. Management
further believes that the fair market value of long-term debt does not differ
materially from carrying value.
(k) Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of
Effective July 1, 1996, the Company adopted "Statement of Financial
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No.121
requires, among other things, that long-lived assets held and used by an entity
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The adoption of
SFAS No.121 on July 1, 1996 did not have a material impact on the Company's
consolidated financial position or results of operations (note 4).
(l) Accounting for Stock-Based Compensation
Effective July 1, 1996, the Company adopted SFAS No.123 "Accounting for
Stock-Based Compensation", which encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation under the existing accounting rules contained in Accounting
Principles Board Opinion No.25, "Accounting for Stock Issued to Employees", and
related interpretations, but has provided disclosures of stock-based
compensation expense determined under the fair value provisions of SFAS No.123.
(m) Advertising Expense
Advertising costs are expensed as incurred. Advertising expenses were
$258,969, $128,736 and $15,500, in 1996, 1997 and 1998, respectively.
(n) Earnings per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" ("Statement 128"). Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Dilutive earnings per share is calculated in a
manner similar to the previously reported fully diluted earnings per share.
Earnings per share amounts for all periods have been presented and, where
appropriate, restated to conform to the Statement 128 requirements (note 17).
(o) Comprehensive Income
Effective for fiscal 1998, the Company has adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income", which requires the reporting of
comprehensive income in addition to net income from operations.
F-10
<PAGE>
Comprehensive income is a more inclusive financial reporting methodology
that includes disclosure of certain financial information that historically has
not been recognized in the calculation of net income. The Company has no
activities which represent items of other comprehensive income and, accordingly,
the adoption of SFAS No. 130 did not have a material effect in the Company's
consolidated financial statements.
(p) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amount of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
(3) Acquisition
On August 21, 1997, the Company signed a Reorganization and Stock Exchange
Agreement with the Ottomanelli Group, which was later amended pursuant to a
Modification Agreement dated February 26, 1998 and the transaction closed in
March 1998.
After amendment to the transaction, the Ottomanelli Group transferred the
stock of (i) a franchising corporation which has limited operations and (ii) a
corporation which operated two restaurants in Paramus, New Jersey (since closed
- - note 4), for a total of 2,822,058 shares of common stock with a fair value
determined by an independent appraisal of approximately $440,000. The Agreement
also contains certain anti-dilution provisions (note 18). The acquisition was
accounted for as a purchase transaction, and, accordingly, the purchase price
was allocated to identifiable assets and liabilities based upon their fair
values at the date of acquisition. The excess of the aggregate purchase price
over the fair value of the net assets acquired was recorded as goodwill and
amortizable over the period to be benefited, fifteen years.
As indicated in note 4, Company management concluded that upon further
analysis, the operations of the former Ottomanelli Group were deemed
inconsistent with the Company's operating plans and were authorized to be
terminated. Accordingly, the Company concluded that the goodwill was impaired
and recorded an impairment charge in the 1998 consolidated statement of
operations.
The Company's 1998 financial statements contain approximately three months
of operations of the Ottomanelli Group. Pro-forma data has not been provided as
they were deemed immaterial to the operations of the Company by management.
(4) Closure of Restaurant Sites
In fiscal year 1996, the Board of Directors authorized the closing of the
Rattlesnake Southwestern Grill Restaurant located in Hamden, Connecticut. The
facility was closed on January 7, 1996. A majority of the fixed assets at the
facility were removed to be utilized at other existing or new facilities. All
remaining fixed assets and leasehold improvements have been abandoned and all
intangible assets have been written off. A loss of $192,311, relating to the
closing of the Hamden location, was recorded in fiscal 1996.
In fiscal 1997, the Board of Directors authorized the closing of the
Rattlesnake Southwestern Grill Restaurant located in Fairfield, Connecticut. The
facility was closed on January 4, 1997. The fixed assets, leasehold improvements
and intangibles at the facility were written off. The building is reflected at
its estimated realizable value and was accounted for in the financial statements
in "net assets held for sale. A net loss of $394,941 relating to the closing of
the Fairfield location was recorded in fiscal 1997. In March 1998, this location
was sold with the Company receiving a $230,000 note from the purchaser (note 5).
Pursuant to the finalization of the terms of sale, an additional loss of $88,559
was recorded in fiscal 1998.
In fiscal 1997, the Board of Directors authorized the closing of the
Rattlesnake Southwestern Grill Restaurant located in White Plains, New York. The
facility was closed on March 1, 1997 and sold on July 16, 1997. The Company
recorded a loss of $224,135 related to the closing of this location in 1997. The
Company sold all of the assets of White Plains except for cash, receivables and
certain items specified in the Asset Purchase Agreement in exchange for a
release from its note payable to the landlord of $276,499, the purchaser's
assumption of food credits and other miscellaneous liabilities and the receipt
of a $23,500 note receivable from the purchaser. The facility was sold to a
group which includes the Company's Chairman of the Board and the Company is a
guarantor of the remaining lease obligation (note 13).
In fiscal 1997, the Board of Directors authorized the closing of the
Rattlesnake Southwestern Grill Restaurant located in Yorktown Heights, New York.
The facility was closed on June 9, 1997 and sold on June 27, 1997. The purchaser
F-11
<PAGE>
assumed the remaining outstanding balance of the notes payable to the landlord
and the related lease obligation. A net loss of $362,091, relating to the
closing of the Yorktown Heights location, was recorded in fiscal 1997. The
Restaurant location on 86th Street in New York was never opened and on May 29,
1997 the Company sold the fixed assets and transferred its interest in the lease
at that location for cash of $289,387. The Company continues to guarantee the
lease obligation (note 13). A net loss of $306,456, relating the sale of the
86th Street location, was recorded in fiscal 1997.
In fiscal 1997, the Board of Directors authorized the disposition of the
Rattlesnake Southwestern Grill Restaurant located in Lynbrook, New York. On
September 17, 1997, the Company closed the restaurant and wrote-off the related
assets to its estimated realizable value. A net loss of $374,852 relating to the
closing of this location was recorded in fiscal 1997. An additional loss of
$55,725 was recorded in fiscal 1998 relating to the Lynbrook facility,
principally relating to additional exit costs.
At June 29, 1997, consistent with the Board's approval for the closure of
the above-mentioned locations, the assets held for sale and related liabilities
have been reclassified as "assets held for sale" and "liabilities related to
assets held for sale". The accompanying June 29, 1997 consolidated balance sheet
includes the following components:
1997
----
Fairfield restaurant facility $ 318,558
White Plains restaurant facility 335,986
Lynbrook equipment 25,000
-----------
Assets held for sale $ 679,544
===========
Notes payable 702,914
Accounts payable 185,555
Accrued expenses 47,759
Other current liabilities 197,029
-----------
Liabilities related to assets held for sale $1,133,257
==========
As indicated in notes 2 and 3, Company management concluded that the
operations of the former Ottomanelli Group were inconsistent with the Company's
operating plans and were authorized to be terminated in fiscal 1998, including
the operations of its two New Jersey restaurants. Accordingly, the Company
concluded that the goodwill relating to the acquisition was impaired and
recorded an impairment charge of approximately $436,000 in fiscal 1998.
On June 22, 1998, the Company closed its Danbury, Connecticut facility and
subsequently lost its tenancy pursuant to a foreclosure action. Accordingly, the
Company recognized a loss of $270,426 in fiscal 1998 relating to the closure.
On April 15, 1999, the Company subsequently reacquired the facility for
$1,350,000 in cash (note 18).
In fiscal 1998, the Company performed a further analysis of historical and
projected operating results, which reflected a pattern of historical operating
losses and negative cash flow, as well as future projected negative cash flow
and operating results for fiscal 1999 for its Flemington restaurant.
F-12
<PAGE>
Accordingly, the Company recorded an impairment charge for this restaurant to
write-down the impaired asset of $558,282 in fiscal 1998. The restaurant was
subsequently closed in November 1998.
(5) Note Receivable
At June 28, 1998, a $230,000 note receivable is outstanding relating to the
sale of the Company's Fairfield, Connecticut facility. The note bears interest
at 7%, is secured by a leasehold mortgage on the restaurant, with stipulated
monthly payments of principal and interest and a balloon payment due in March
2003.
As indicated in note 18, the note receivable was assigned to a related
party in partial satisfaction of the Company's indebtedness to that party.
(6) Property and Equipment
Property and equipment consists of the following:
June 29,1997 June 28, 1998
------------ -------------
Leasehold improvements $ 783,415 100,047
Restaurant and office equipment 457,378 110,578
Furniture and fixtures 301,578 31,425
----------- -------
1,542,371 242,050
Less accumulated depreciation
and amortization (535,279) (160,675)
----------- ---------
$1,007,092 81,375
=========== =========
Related depreciation and amortization expenses were $334,965, $478,611 and
$269,516 for the years ended June 30, 1996, June 29, 1997 and June 28, 1998,
respectively.
(7) Other Assets
Other assets consist of the following:
June 29, 1997 June 28, 1998
------------- -------------
Promotional meal programs $ 71,071 76,738
Deposits 47,779 1,704
Loans receivable 10,607 ---
-------- ------
$ 129,457 78,442
======== ======
(8) Capital Structure
The Company's capital structure is as follows:
<TABLE>
<CAPTION>
Shares
Par value Authorized June 29, 1997 June 28, 1998
--------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Common stock $.001 per share 20,000,000 2,650,227 10,899,285
Preferred stock, Series A $.10 per share 5,000,000 56,500 56,500
</TABLE>
F-13
<PAGE>
The Company's preferred stock bears a dividend rate of 7-1/2% per annum
payable semi-annually in arrears on May 15 and November 15 of each year
commencing November 15, 1996. The shares are convertible at any time, one year
after issuance into common stock at a conversion price equal the lesser of (i)
120% of the average of the last reported sale price of the common stock for the
10 trading days immediately preceding the first closing of the offering, or
$4.50, whichever is lower; or (ii) 85% of the average of the last reported sale
price of the common stock for the 10 trading days immediately preceding the
first anniversary of the first closing, subject to certain anti-dilution
adjustments. The Board of Directors has the authority to establish the specific
provisions of the preferred stock, i.e., liquidation rights, dividend
parameters, at the date of issuance.
The preferred stock is redeemable only at the option of the Company,
commencing one year from the date of issuance, based upon the sales price of the
Company's common stock. The preferred stock has a liquidation preference of
$24.50 per share, together with accrued and unpaid dividends. The Board of
Directors has the authority to establish the specific provisions of the
preferred stock, i.e., liquidation rights, dividend parameters, at the date of
issuance.
To date, the Board of Directors have not declared any dividends, although
cumulative dividends relating to the preferred stock of $207,636 have been
accrued in the June 28, 1998 consolidated balance sheet. In July 1999, the
Company completed a private placement of approximately $6,000,000 of Series B
preferred stock. Coincident with the private placement, the holders of 56,500
shares of Series A preferred stock exchanged their holdings for 55,370 shares of
Series B preferred stock and waived their rights to the unpaid and accumulated
dividends.
In February 1999, the holders of a majority of the issued and outstanding
shares of the Company's common stock, by written consent in lieu of a meeting
pursuant to Section 228 of Delaware's General Corporation Law, adopted an
amendment to the Company's Certificate of Incorporation, increasing the
Company's capitalization. As a result of this amendment to the Certificate of
Incorporation, the Company is authorized to issue a total of 405,000,000 shares,
of which 400,000,000 are shares of common stock and 5,000,000 shares of Series B
preferred stock.
(9) Notes Payable
Notes payable consists of the following:
<TABLE>
<CAPTION>
June 29, 1997 June 28, 1998
<S> <C> <C>
Series A subordinated notes payable due August 6,
1996, with interest at 9% $2,089 2,089*
Series B convertible subordinated notes payable due
July 7, 2000 with interest at 9%, convertible at $3.85 per
share (including $58,338 held by a related party)
500,000 500,000
Note payable to shareholder relating to the acquisition
of Pen-Z Corp., payable in monthly payments of $2,700
at June 30, 1996 with interest at 1% over prime (9.25%
at June 30, 1996). The Company was released from this
debt in fiscal year 1997 as a result of the sale of this
location (note 4)
225 ---
Series C subordinated notes payable due August 6,
1997, with interest at 15% (including $58,338 held by
a related party) 303,749 303,749*
Convertible subordinated notes payable due September
4, 1997, with interest at 18% 500,000 100,000*
F-14
<PAGE>
Note payable to related party relating to the
acquisition of the Fairfield building, due January 2,
1997 with interest at 15% 425,000 425,000*
Note payable to a related party, due in monthly
installments of $1,270, including principal and
interest at 18% through February 1998 9,505 11,709*
Note payable to a stockholder relating to purchase of
furniture and equipment for the Penz Corp., due in
monthly installments of $900 at June 30, 1996 including
principal and interest at prime plus 1% through 2009.
The Company was released from this debt in fiscal year
1997 as a result of the sale of this location (note 4) 173 ---
Notes payable relating to bridge financing, due
December 31, 1997 with interest at 10% and a default --- 220,000*
interest rate of 14% for $120,000 of principal
Notes payable relating to bridge financing due May 31,
1998 with interest of 14%. --- 100,000*
Note payable to investment banking firm due May 31,
1998 with interest at 8%. --- 50,000*
Note payable relating to bridge financing due October
31, 1998 with interest at 16%. --- 50,000
Note payable relating to acquisition of lease, due in
monthly installments of $2,867, including principal and
interest at 8% through July 2010. The Company was
released from this debt in fiscal 1998 as a result of the
sale of the location (note 4) 277,516 ---
Notes payable relating to acquisition of lease, due in
monthly installments of $1,666 of principal plus interest
at 1% over prime (9.5% at June 29, 1997 through
September 1, 2000) 64,998 44,998
------- ------
2,083,255 $1,807,545
Less: Current maturities 835,335 1,282,539
Less: Liabilities relating to assets held for sale 702,914 ---
----------- -----------
$ 545,006 $ 525,006
=========== ===========
*Obligation in default at June 28, 1998
</TABLE>
Notes payable to shareholders and other related parties (Company officers
and directors) were $551,579 and $553,385 at June 29, 1997 and June 28, 1998,
respectively.
F-15
<PAGE>
At June 28, 1998, notes payable aggregating $1,212,547 were unpaid and in
default. Additionally, interest payments on these obligations were also not paid
in fiscal 1998. As indicated in note 18, in July 1999 the Company utilized the
proceeds of a private placement to pay $639,000 of notes payable and $860,000 of
notes payable converted their obligations into Series B preferred stock,
inclusive of Series B convertible notes payable not in default at year-end.
Maturities of these notes is as follows:
Fiscal year ended:
1999 $1,282,539
2000 19,992
2001 and Thereafter 505,014
----------
$1,807,545
==========
(10) Financing Arrangements
In July 1995, the Company redeemed $225,000 of the Series A notes and
restructured the remaining principle amount outstanding of $1,575,000. This
redemption was partially funded by a $50,000 note payable issued in June 1995 by
the Company, with interest at 9%, and repaid in July 1995, together with 10,000
shares of common stock, valued at the IPO price of $5.50 per share. The value of
the common stock was recorded as interest expense by the Company. Each $25,000
principal amount of Notes was exchanged as follows: (i) $8,334 paid in August
and September 1995 (the "First Payment"); and (ii) a 9% $8,333 Series A Note
(the Series A Notes) due 13 months after the first payment, and a 9% $8,333
Series B Note (the Series B Notes) due five years after the first payment was
issued to each Noteholder with the First Payment. Each Series B Note is
convertible into common stock thirteen months after issuance at a conversion
price equal to 70% of the initial public offering price of the common stock
sold, with piggy-back registration rights for the shares underlying the Series B
Notes. Each Series B Note is redeemable with 30 days prior written notice at any
time after the closing bid price of the common stock is 150% of the conversion
price for the ten consecutive trading days ending within 15 days of the date of
notice of redemption. As a result of the restructuring of this debt, the related
debt issuance costs were written off in July 1995. An extraordinary gain of
$89,710, net of the write-off of $72,114 debt issuance costs was recognized in
fiscal 1996.
In fiscal 1997, the Company offered an extension agreement to the Series A
noteholders, providing for a one year extension of the maturity date, in
exchange for Series C notes that provided for an increase in the interest rate
from 9% to 15% and one warrant for every dollar of indebtedness. The warrants
provide for exercise prices ranging between $2.50 - $3.00 and expire on August
6, 2001. Noteholders aggregating $303,749 accepted the terms of the extension
and the remaining $221,243 was paid in cash. At June 28, 1998, the $303,749 was
unpaid and in default (note 18).
In March 1996, the Company entered into an agreement with an investment
banking firm to sell 200,000 shares of Series A preferred stock and 800,000
common stock warrants in a private placement for a total consideration of
$5,000,000. The preferred stock was valued at $24.50 per share and each warrant
at $.125 per warrant. The warrants are exercisable at a price of $7.00 per share
and expire on August 31, 2001. On June 30, 1996, the Company closed on the sale
of 54,500 shares of the aforementioned Series A preferred stock and 218,000
common stock purchase warrants. The underwriter received warrants to purchase
27,250 shares of common stock at $3.78 per share which expire on August 31,
2001. The net proceeds of the offering were $1,129,082, net of commissions and
expenses of $233,418. In July 1996, the Company sold to an outside investor,
through a separate offering, an additional 2,000 shares of preferred stock under
the same terms as noted above.
On March 4, 1997, the Company entered into a private financing arrangement
for $500,000 of convertible subordinated notes. The notes are payable on
September 4, 1997. The principal amount of the Notes may be converted into the
Company's common stock at a conversion price of $0.75 per share anytime before
the repayment of principal. The notes are fully subordinated to all "senior
indebtedness" of the Company and are secured by all the issued and outstanding
shares of the Company's wholly-owned subsidiaries: Rattlesnake Ventures, Inc.,
F-16
<PAGE>
Rattlesnake-Danbury, Inc., Rattlesnake-Flemington, Inc. and
Rattlesnake-Lynbrook, Inc. The notes matured on September 4, 1997 and $400,000
was paid in fiscal 1998. The remaining $100,000 was in default on June 28, 1998
(note 18).
A $425,000 note payable associated with the acquisition of the Fairfield
restaurant matured on January 2, 1997. The restaurant was sold on March 24, 1998
and the note was restructured to provide for interest payments of $5,500.44
monthly through June 24, 1998, with the remaining principal and any unpaid
interest due on June 24, 1998. The obligation was unpaid and in default on June
28, 1998 (note 18).
In September 1997, the Company completed a bridge financing under which it
sold units consisting of notes and warrants totaling $250,000, which were due
December 31, 1997. Each full unit consisted of (i) the Company's ten percent
(10%) promissory note in the principal amount of $50,000 (the "Note"), and (ii)
upon repayment of the Note, one four-year warrant for each dollar of financing
provided herewith, at the rate of one warrant convertible into one share of the
Company's common stock at the average bid price on the day of the receipt of the
financing. The Company made principal payments of $30,000 in fiscal 1998 and the
remaining $220,000 was outstanding and in default at June 28, 1998 (note 18).
On September 8, 1997, the Company repriced warrants issued to three Series
C note holders with principal aggregating $62,499 in return for extension of the
re-payment period to December 15, 1997. The noteholders received 30,000 warrants
as a result of the Company's failure to satisfy the debt on July 15, 1997.
On December 8, 1997, the Company entered into a refinancing arrangement in
which it raised $500,000 in a convertible note. $400,000 of the proceeds were
utilized to reduce the 18% convertible subordinated notes due September 4, 1997.
The remaining $100,000 was outstanding at June 28, 1998 and is in default (note
18). In March 1998, the December 1997 note was satisfied by conversion into
937,000 shares of the Company's common stock.
Between March 1998 and September 1998, the Company privately sold
approximately $850,000 of its common stock at $.15 per share. As of June 28,
1998, the Company had sold 4,480,000 shares of common stock and received
proceeds of $543,548, net of expenses.
In fiscal 1998, the Company entered into private financing arrangements to
provide an aggregate of $150,000 of bridge financing at interest rates ranging
from 14% to 16%, payable on dates ranging between May 31, 1998 and October 31,
1998. At June 28, 1998, $100,000 of the debt was unpaid and in default (note
18).
In 1998, the Company executed a $50,000 convertible note agreement with an
investment banking firm for services rendered. The note is convertible into
250,000 shares of common stock, bears interest at 8% and matured on May 31,
1998. The note was in default on June 28, 1998 and was subsequently satisfied by
conversion into equity (note 18).
(11) Accrued Expenses and Other Liabilities
(a) Accrued Expenses
Accrued expenses consist of the following:
June 29, 1997 June 28, 1998
Interest payable $ 166,515 424,610
Severance liabilities 80,696 ---
Other 57,867 152,664
Accrued payroll 52,329 52,140
---------- --------
$ 357,407 629,414
========== ========
F-17
<PAGE>
(b) Other Liabilities
The Company has entered into marketing agreements whereby it receives
temporary financing in exchange for participating in discounted price meal
programs. At June 29, 1997 and June 28, 1998 , the balances outstanding under
this program were $218,220 and $182,971, respectively, which are included in
other liabilities in the accompanying consolidated balance sheets.
(12) Income Taxes
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No.109, "Accounting for Income Taxes".
SFAS 109 requires a change from the deferred method of accounting for income
taxes of APB Opinion 11 to the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carry forwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS 109,
the effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
There was no income tax expense for any period presented due to losses
incurred by the Company. Components of the deferred tax assets and deferred tax
liabilities at June 29, 1997 and June 28, 1998 are presented below:
<TABLE>
<CAPTION>
June 29, 1997 June 28, 1998
<S> <C> <C>
Deferred tax assets:
Net operating loss carry forward $ 4,349,000 5,584,600
Fixed assets --- 15,324
----------- ----------
Total gross deferred tax assets 4,349,000 5,599,924
Less valuation allowance 4,336,000 5,599,924
----------- ---------
Net deferred tax assets 13,000 ---
Deferred tax liabilities:
Fixed assets 13,000 ---
----------- ---------
Net deferred tax liability $ --- ---
=========== ==========
</TABLE>
The valuation allowance for deferred tax assets as of July 1, 1996 and June
30, 1997 was $4,336,000 and $5,599,924, respectively. The change in the total
valuation allowance for the years ended June 29, 1997 and June 28, 1998 was
$1,986,000 and $1,263,924, respectively. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which the net operating losses and
temporary differences become deductible. Management considers projected future
taxable income and tax planning strategies in making this assessment. At June
29, 1997 and June 28, 1998, the Company has net operating loss carry forwards
for Federal and State income tax purposes of approximately $10,873,000 and
$13,962,000, respectively (the NOL carry forwards), which are available to
offset future taxable income, if any, through 2013. Based upon the limited
operating history of the Company and losses incurred to date, management has
fully reserved the deferred tax asset.
In accordance with Section 382 of the Internal Revenue Code of 1986, as
amended, as it applies to the NOL carry forwards, a change in more than 50% in
F-18
<PAGE>
the beneficial ownership of the Company within a three-year period (an
"Ownership Change") will place an annual limitation on the Company's ability to
utilize its existing NOL carryforwards to offset United States Federal taxable
income in future years. Generally, such limitation would be equal to the value
of the Company as of the date of the Ownership Change multiplied by the Federal
long-term tax exempt interest rate, as published by the Internal Revenue
Service. The Company believes that Ownership Changes have occurred and would
cause the annual limitations as described above to apply. The Company has not
determined what the maximum annual amount of taxable income is that can be
reduced by the NOL carryforwards.
(13) Commitments
Commitments
The Company's operations are principally conducted in leased premises.
Remaining lease terms range through 2002 and include options for extension. The
leases contain contingent rental provisions based upon a percentage of gross
sales. As of June 29, 1998, the Company has operating lease commitments as
follows, for its Flemington and South Norwalk restaurants:
1999 128,000
2000 128,233
2001 130,800
2002 126,600
2003 13,400
-------
$ 527,033
==========
Certain shareholders and former officers have personally guaranteed lease
payments for one location.
Pursuant to sales agreements for the Company's New York City and White
Plains, New York restaurants (note 4), the Company guarantees specified lease
obligations. As of June 28, 1998, the Company has not been notified of any
claims against these guarantees.
The Company is also a defendant in litigation regarding lease guarantees
for its former Lynbrook, New York facility (note 16).
Contingent rental payments on building leases are typically made based on
the percentage of gross sales on the individual restaurants that exceed
predetermined levels. The percentage of gross sales to be paid and related gross
sales level vary by unit. There were no contingent rental payments in any of the
periods presented.
Rent expense was $677,877, $930,676 and $426,923 and for the periods ended
June 30, 1996, June 29, 1997 and June 28, 1998, respectively.
(14) Employee Benefit Plans
(a) Stock Option Plan
In December 1994, the Company adopted the 1994 Employees Stock Option Plan
(the Employees Plan), which provides for the issuance of incentive stock options
(ISO's) and non-qualified options (Non-ISO's) to officers and key employees. Up
to 1,000,000 shares of the Company's common stock have been reserved for
issuance under the Plan. The Plan is currently administered by the Board of
Directors of the Company. The term of the options is generally for a period of 5
years. The exercise price for non-qualified options outstanding under the
Employees Plan can be no less that 100% of the fair market value, as defined, of
the Company's common stock at the date of the grant. For ISO's, the exercise
price can be generally no less than the fair market value of the Company's
common stock at the date of the grant, with the exception of any employee who
prior to the granting of the option, is a 10% or greater stockholder as defined,
for which the exercise price can be no less than 110% of the fair market value
of the Company's common stock at the date of grant.
F-19
<PAGE>
In December 1994, the Company adopted the non-Executive Director Stock
Option Plan (the Director Plan), which provides for the issuance of non-ISO's to
non-executive directors, as defined, and members of any advisory board
established by the Company who are not full-time employees of the Company. The
Company has reserved 500,000 shares for issuance under the provisions of the
Director Plan. The Director Plan provides that each non-executive director will
automatically be granted an option to purchase 25,000 shares upon joining the
Board of Directors and 15,000 shares on each December 1st thereafter, provided
such person has served as a director for the 12 months immediately prior to such
December 1st. The exercise price for options granted under the Director Plan
shall be 100% of the fair market value of the Common Stock on the date of grant.
At June 28, 1998, there were 1,000,000 and 295,000 additional shares
available for grant under the Employees and Director Plans, respectively. The
per share weighted-average fair value of stock options granted during 1996 and
1997 was $1.22 and $0.51, respectively for those options whose exercise price
equaled the market price of the stock on the date of grant and $0 and $.05,
respectively for those options whose exercise price was above the market price
of the stock on the date of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions: 1996 and 1997 - expected
dividend yield 0%, risk-free interest rate of between 5.07% and 5.86%, an
expected life of between approximately 2.5 - 5 years and expected stock
volatility of between 38 - 130%. There were no shares granted in 1998.
The Company applies APB Opinion No.25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its employees and
directors stock options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No.123, the Company's net loss would have been increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Net loss available to common
shareholders: As reported $(3,193,155) (4,901,675) (3,339,957)
Pro-forma $(3,403,118) (5,371,634) (3,422,957)
Loss per share: As reported $ (1.23) (1.85) (0.80)
Pro-forma $ (1.31) (2.03) (0.82)
</TABLE>
Pro forma net loss reflects only options and warrants granted in 1996 and
1997. Therefore, the full impact of calculating compensation cost for stock
options and warrants under SFAS No.123 is not reflected in the pro forma net
income amounts presented above because compensation cost for options and
warrants granted prior to July 1, 1995 were not considered.
Activity in non-ISO's was as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number Option Price Exercise
of Shares per Share Price
<S> <C> <C> <C>
Options outstanding June 30, 1995 600,000 $ 4.50 $ 2.63
Options Granted 124,000 5.25 3.06
------- -------- -----------
Options outstanding June 30, 1996 724,000 4.50-5.25 4.25
Options Granted 396,000 0.25-2.25 .44
Terminated Options (427,000) .375-5.25 3.21
--------- --------- ------------
Options outstanding June 29, 1997 693,000 $0.25-5.25 $ 3.11
Options Granted --- --- ---
F-20
<PAGE>
Terminated Options (488,000) 0.25-5.25 $ 3.00
--------- --------- -----------
Options outstanding June 28, 1998 205,000 $4.50-5.25 $ 4.88
======= ========== ===========
</TABLE>
Activity in ISO's was as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number Option Price Exercise
of Shares per Share Price
<S> <C> <C> <C>
Options outstanding June 30, 1995 87,000 $4.50-5.50 $ 2.41
Options Granted 78,500 3.50-5.25 2.99
Terminated Options (36,000) 4.50 2.91
-------- ---------- ------------
Options outstanding June 30, 1996 129,500 3.50-5.50 4.14
Options Granted 44,000 0.25-2.63 3.53
Terminated Options (70,000) 2.50-5.25 3.62
-------- --------- -----------
Options outstanding June 29, 1997 103,500 $0.25-5.50 5.35
Options Granted --- --- ---
Terminated Options (103,500) $0.25-5.50 5.35
=========== ========== ============
Options outstanding June 28, 1998 ---- $ ---- $ ----
=========== ========== ============
</TABLE>
The Employees and Director Plans expire in December 2004, unless terminated
earlier by the Board of Directors under conditions specified in the respective
Plans. No options have been exercised as of June 30, 1996, June 29, 1997 and
June 28, 1998.
At June 28, 1998, the range of exercise prices and range of the remaining
contractual life of outstanding options was $4.50 - 5.25 and approximately 1.5 -
2.5 years, respectively.
At June 30, 1996, June 29, 1997 and June 28, 1998, the number of options
exercisable was 346,167, 653,500, and 205,000, respectively, and the
weighted-average exercise price of those options was $4.24, $3.40, and $4.88,
respectively.
The Company granted 335,000 shares of restricted warrants to employees and
directors during the 1997 fiscal year. The warrants were granted on June 2,
1997; 200,000 as a result of the separation agreement signed between the Company
and the Executive Vice President (note 13(c)) and 135,000 shares of options
previously issued to the Vice President of Finance which were terminated as of
this date and warrants were issued in their place with the exercise price equal
to the market price of the stock on the date of grant.
The Company granted 717,992 shares of warrants to non-employees during 1997
for services performed. The total compensation cost recognized in fiscal 1997
for these stock-based compensation awards was approximately $294,000 using the
Black Scholes option-pricing model with the following assumptions - expected
dividend yield 0%, risk-free interest rate of 5.25%, expected life of 5 years
and expected stock volatility of 86%.
F-21
<PAGE>
(b) Employment Agreements
The Company and its Chairman, President and Executive Vice President
(collectively, the Senior Management Group) entered into employment agreements
in December 1994 for a period commencing in December 1994 through December 1997.
The agreements provide for annual compensation for the Senior Management Group
collectively of $250,000, increasing by 10% annually, plus certain other
benefits. The agreements also provide for annual aggregate incentive
compensation for the Senior Management Group, as defined.
The agreements also provide that upon a change in control, as defined, that
all stock options held by the employee become immediately exercisable and that a
credit equivalent to three times the employee's annual compensation be credited
against the exercise price of the options.
On June 6, 1996, the board of directors authorized additional compensation
aggregating $70,000 for the aforementioned executive officers.
The Company and its Vice-Chairman & Chief Administrative Officer entered
into a part-time employment agreement in December 1995 for a period commencing
December 1995 through December 1998. The agreement provides for annual
compensation of $90,000 increasing 10% per annum, plus certain other benefits.
An additional $20,000 was paid for services rendered in fiscal 1996 provided
over and above the part-time agreement. The employee is also entitled to receive
a bonus during each year of this agreement, determined by the Board of
Directors. The Board of Directors and/or the Compensation Committee shall set
forth a formula for determining the bonus for each year.
On March 15, 1997 an agreement was signed between the Company and Vice
Chairman & Chief Administrative Officer which amended the December 1995
employment agreement. Under the new agreement, the former Vice Chairman & Chief
Administrative Officer will accept the position of Acting Co-Chief Executive
Officer. This agreement waives any base rate or annual rate increases per the
previous agreement and modified the term to March 1, 1997 through February 28,
1999. Services are provided on a part-time consulting basis. The compensation
for the period March 1, 1997 through February 28, 1999 will be $75,000, plus
benefits. This agreement also included the grant of an option to purchase
125,000 shares of stock at the closing price on the date of this agreement. The
agreement also includes that in the event the stock options previously granted
under the current Company stock option plans are repriced for any employee, the
existing stock option grants for the acting Co-CEO will be repriced at the same
time as any repricing and under the same terms and conditions. No such options
were repriced and the agreement was replaced with a May 1998 consulting
agreement (note 15).
Subsequent to June 1998, the Company entered into a three year employment
agreement, as amended, with the Chief Financial Officer providing for fixed
compensation of $52,000 in year one, with a time allowance in year one to
complete certain projects and commercially standard compensation for full time
services to be determined for years two and three. The executive has also been
granted options to purchase common stock as follows: 100,000 vesting at close of
year one; 100,000 vesting at close of year two; 100,000 vesting at close of year
three at the exercise price of $.05, the fair value at the date of grant, with
additional options to purchase 200,000 shares exercisable at the close of each
of years two and three.
In October 1998, the Company entered into a three year employment
agreement, as revised, with an individual to act as President and/or Chief
Executive Officer and as a member of the Board of Directors of the Company,
effective upon the completion of the private placement in February 1999. In
consideration, the employee is to receive a monthly fee of $7,917 plus
reasonable expenses and a $30,000 sign-on bonus. In addition, the employee shall
be entitled to a performance bonus and shall receive a warrant to purchase an
amount of Common Stock equal to ten (10%) of the outstanding common stock of the
Company, on a fully diluted basis, after the private placement financing at
$0.05 per share, the fair value at the date of grant, representing 30,000,000
shares, exercisable for a period of five years, one third of the number of
shares covered thereby vesting at the time of the private placement financing,
and one third (1/3) at the end of each one year period thereafter during the
term.
F-22
<PAGE>
In February 1998, the Company executed a four year employment agreement
with the then President and Chief Executive Officer, which provides for annual
compensation of $150,000. The agreement was amended in October 1998 to reduce
the annual compensation to $85,000, provided for a $25,000 cash payment and the
executive accepted a new position as Vice President.
(c) Separation Agreements
On March 15, 1997 an agreement was signed between the Company and the then
Chairman & Chief Executive Officer which terminated the previous December 1,
1994 employment agreement and any and all oral agreements relating to his
employment. The agreement included payments for expense reimbursement, accrued
and unused vacation, medical, dental, disability and life insurance and
severance payments, all unpaid amounts are accrued at June 29, 1997. In
connection with this agreement, the Chief Executive Officer's employee stock
options shall be immediately vested and shall be amended to constitute
non-qualified employee stock options and the strike price is reduced to an
exercise price of $2.00, the fair value at the date of grant.
On May 29, 1997 an agreement was signed between the Company and a Director
of the Company for acceptance of the position of acting Co-CEO for up to 150
days. This agreement included five months of compensation at $5,000 a month and
100,000 warrants at the closing bid on the date of this agreement.
On June 2, 1997 an agreement was signed between the Company and an
Executive Vice President which terminated the December 1, 1994 employment
agreement and any and all oral agreements relating to his employment. The
agreement included payments for expense reimbursement, accrued and unused
vacation, medical, dental, disability and life insurance and severance payments,
all of which is accrued at June 29, 1997. In connection with this agreement, the
Executive Vice President's stock options were replaced by a warrant to purchase
up to 200,000 shares of common stock exercisable at the closing bid on the date
of this agreement.
On July 25, 1997, an agreement was signed between the Company and then
President which terminated the previous December 1, 1994 agreement and any and
all oral agreements relating to the employment. The agreement included payments
for expense reimbursement, accrued and unused vacation, medical, dental,
disability and life insurance and severance payments. In connection with this
agreement, the President's employee stock options are replaced by a warrant to
purchase up to 150,000 shares of common stock exercisable at the closing bid
price on July 18, 1997.
In October 1998, the Company and a Vice President terminated a March 1998
employment agreement. The executive is to receive $15,000 over a one year
period.
(15) Consulting Agreements
On May 1, 1998, the Company entered into a three year consulting agreement
with its former Vice Chairman and current Secretary, which replaced a March 15,
1997 employment agreement to provide financial and related services to the
Company with compensation of $7,000 per month. The consultant, in consideration
for services, received 500,000 shares of the Company's common stock, of which
250,000 shares are subject to anti-dilution provisions and 250,000 shares which
may be repurchased at the Company's option under specified conditions. In
addition, the consultant received a warrant, expiring in April 30, 2003, to
purchase an additional 250,000 at an exercise price of $.15 per share.
On July 20, 1998, the Company entered into a three year consulting
agreement with an individual to provide service to design and implement the
future expansion of the Company's planned restaurant concepts. In consideration,
the consultant is to receive a monthly fee of $1,000 plus reasonable expenses.
The consultant purchased $100,000 of common stock and received a warrant to
purchase 300,000 shares of the Company's common stock, with an initial exercise
price of $0.48 per share expiring in July 2002, vesting one-third annually.
In October 1998, the Company entered into a three year consulting
agreement, as revised, with an individual to provide advice and consultation in
the implementation of the future expansion of the Company's planned restaurant
concepts. In consideration, the consultant shall serve without regular, periodic
compensation. The consultant shall be entitled to a performance bonus and shall
receive a warrant, immediately exercisable, to purchase an amount of common
F-23
<PAGE>
stock equal to fifteen of the outstanding common stock of the Company, on a
fully diluted basis, after the private placement financing at $0.05 per share,
exercisable for a period of five years, representing 45,000,000 shares.
(16) Litigation
The Company is a co-defendant in an action brought by an owner of an
apartment above the South Norwalk Company restaurant for negligence per se,
intentional infliction of emotional distress, negligent infliction of emotional
distress, and violations of the Connecticut Unfair Trade Practices Act (CUTPA)
based upon alleged excessive noise and rude and/or threatening conduct of
employees. The jury awarded a verdict in the amount of $625,000 against various
defendants, including the Company's former Chairman on August 5, 1998. On
November 20, 1998, the Court set aside the jury's verdict as to all counts
against the Company except for plaintiff's claim for negligence per se and
accordingly reduced the jury's award to $225,000. The jury's award is currently
on appeal by the Company, and plaintiff has appealed the Court's decision to set
aside a portion of the jury's verdict and reduce the award. There are also
potential claims of indemnification by other defendants against the Company in
the event the plaintiff's appeal is successful.
In July 1999, a demand letter was tendered to the Company by the legal
counsel of the former Chairman seeking indemnification from potential
liabilities arising out of this matter. This demand is based on an
indemnification provision in an agreement between the former Chairman and the
Company. The Company believes that there are valid defenses to the
indemnification claim.
Plaintiff's negligence claims in this matter are arguably covered by one or
more of the Company's insurance policies. Farmington Casualty Company
("Farmington") and Insurance Company of Greater New York ("GNY"), two out of
three of the Company's insurance carriers, retained counsel to represent the
Company and defended the Company in this case under a reservation of rights. The
third, Public Service Mutual Ins. Co., denied coverage for the claim altogether.
GNY and Farmington have continued to prosecute the appeal in this matter, but
under a reservation of rights. The Company has advised Farmington and GNY that
it intends to pursue its rights in an action for damages and declaratory relief
in the event that the appeal is unsuccessful and the insurance carriers refuse
to provide coverage for plaintiff's claims. GNY and Farmington continue to
reserve all rights with respect to coverage.
Settlement negotiations are ongoing, however, there can be no assurance of
a satisfactory settlement.
The Company is a defendant in an action for an alleged breach of a
commercial lease in which damages exceeding $190,000 are being sought. The
Company has disputed this claim and believes that the plaintiff has inadequately
responded to the Company's demand for discovery and inspection and
interrogatories. A compliance conference was adjourned to September 15, 1999.
The Company intends to vigorously defend this action.
The Company is also a party in various other legal actions incidental to
the normal conduct of its business. Management does not believe that the
ultimate resolution of these actions will have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
(17) Earnings Per Share
As discussed in note 2, the Company adopted Statement 128, which replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Dilutive net loss per share for fiscal 1996, 1997
and 1998 are the same as basic net loss per share due to the anti-dilutive
effect of the assumed conversion of preferred stock, and exercise of stock
options and warrants.
The following table reconciles net loss per share with net loss per share
available to common stockholders:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net loss per share (1.23) (1.81) $(0.78)
Net loss per share attributable to preferred stock dividends --- (0.04) (0.02)
------ ------ -------
Net loss per share available to common stockholders (1.23) (1.85) $(0.80)
======= ====== =======
</TABLE>
F-24
<PAGE>
(18) Subsequent Events
On July 2, 1998 The Rattlesnake Holding Company, Inc. signed an agreement
to purchase some of the assets of 1562 Restaurant Corporation located at 1562
2nd Avenue, New York City. The purchase price was $425,000 payable $20,000 on
contract, $105,000 at closing, and a promissory note at 8.5% payable in 72
payments of $5,332.52. The Company decided not to pursue the acquisition of this
restaurant.
On July 3, 1998, the Company entered into a contract for the purchase of a
restaurant facility in Greenwich, Connecticut for $400,000 in a combination of
cash and notes. The Company ultimately chose not to purchase this property.
Between October 1998 and December 1998, the Company entered into private
financing arrangements with three individuals to provide $150,000 of bridge
financing at 16% interest per annum, plus warrants, with due dates of the
earlier of the closing of the proposed private placement or ninety days,
respectively. All notes were satisfied by payment of cash and/or conversion to
Company equity at the initial closing of the private placement on February 17,
1999.
In December 1998, certain management personnel deferred a portion of their
salary pending completion of the private placement financing. This debt was
satisfied by a payment of cash and conversion of the remaining balance to equity
of the initial closing of the private placement.
On October 27, 1998, the Company commenced an offering (the "Offering") of
its Series B Convertible Preferred Shares, $.10 par value. Between February 17,
1999 and July 2, 1999, the Company sold approximately $6,000,000 of Series B
Preferred Shares pursuant to the Offering and converted approximately $1,350,000
of its debt to Company equity. During the Offering, the Company satisfied, by
payment of cash and/or equity in the form of preferred and/or common stock, the
following: (a) all outstanding Series C promissory notes; (b) certain
outstanding Series B promissory notes; (c) all outstanding promissory notes
related to the Fairfield facility; and (d) all outstanding promissory notes from
(i) September 1997, (ii) March through June 1998, and (iii) October and November
1998, effectively satisfying all short term and long term debt which was in
default.
The preferred shares will be convertible, at the option of the holder at
any time after November 1999, at a conversion price initially equal to $0.05 per
share of common stock. The conversion rate will be reduced by 10% per month for
each month the Company fails to comply with its obligations to file, and in good
faith process, a registration statement.
The conversion price is subject to the adjustments on the terms set forth
in the Certificate of Designation. The outstanding preferred shares shall be
converted, with no action on the part of the holder, if, at any time after
February 2000, the common stock into which the same is converted is registered
under the Securities Act and the closing bid price of the common stock for
twenty consecutive trading days is at least four times the conversion price
($0.20 based on the initial conversion price of $0.05).
Holders of preferred shares are entitled to receive, quarterly, dividends
at the rate of 8% per annum before any dividends may be paid with respect to the
Common Stock, which shall be paid in cash or preferred shares at the election of
the Company. If there is a failure to pay dividends, the Placement Agent, on
behalf of such holders, has the right to designate one director to the Company's
Board. In addition, if the Company fails to comply with its obligations to file
and process a Registration Statement, the dividend rate will increase to 14% per
annum from issuance.
Pursuant to the March 1998 agreement to acquire the Ottomanelli Group (note
3) additional consideration, due to anti-dilution provisions contained in the
agreements in the form of common stock payable to the Ottomanelli Group
shareholders as a result of the private placement. In February 1999, 5,000,000
shares of common stock were issued pursuant to the anti-dilution provisions,
which included a maximum addition which was met.
In May 1999, the Company changed its fiscal year from the last Sunday in
June of each year to June 30th of each year.
F-25
<PAGE>
(19) Other Information
On September 17, 1997, the Company received a letter from NASDAQ indicating
that the Company would be removed from the NASDAQ Small Cap listing at the close
of business on September 17, 1997 due to its failure to comply with the minimum
capital and surplus requirement of $1,000,000 and the $1.00 minimum stock price.
On November 4, 1997 the Boston Stock Exchange suspended trading and has
applied for the delisting of the Company common stock from such exchange
pursuant to Rule 12d-2f2.
F-26
<PAGE>
THE RATTLESNAKE HOLDING COMPANY, INC.
Unaudited Consolidated Balance Sheet
March 31, 1999
<TABLE>
<CAPTION>
Assets 1999
-----------
<S> <C>
Current assets:
Cash $ 3,660,354
Accounts receivable 21,843
Inventory 16,028
Prepaid expenses and other current assets 1,000
------------
Total current assets 3,699,225
------------
Property and equipment, net 80,193
Intangible assets, net 22,502
Other assets, net 85,621
------------
$ 3,887,541
============
Liabilities And Stockholders' Equity
Current liabilities:
Current maturities of notes payable $ 252,544
Accounts payable 594,460
Accrued expenses 457,314
Other current liabilities 183,079
------------
Total current liabilities $ 1,487,397
------------
Notes payable, net of current maturities 229,173
------------
$ 1,716,570
------------
Stockholders' equity
Preferred stock, $.10 par value, 5,000,000 shares authorized,
200,000 designated Series A none issued and
outstanding $ -
500,000 designated Series B, 307,104 issued and
outstanding 30,710
Common stock, $.001 par value -400,000,000 and 20,000,000
shares authorized 29,505,066 issued and outstanding 29,506
Additional paid-in capital 20,285,532
Accumulated deficit (18,174,777)
------------
2,170,971
------------
$ 3,887,541
============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-27
<PAGE>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
Three and Nine Months Ended March 29, 1998 and March 31, 1999
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 29, March 31, March 29, March 31,
1998 1999 1998 1999
<S> <C> <C> <C> <C>
Restaurant sales $ 857,926 322,808 2,989,049 1,421,073
Less: promotional sales 41,628 10,548 107,307 55,664
---------- ------- --------- ---------
Net restaurant sales 816,298 312,260 2,881,742 1,365,409
Costs and expenses:
Cost of food and beverage sales 266,849 98,763 932,746 520,759
Restaurant salaries and benefits 283,145 112,429 949,877 560,770
Occupancy and related expenses 186,066 40,271 712,449 416,747
Depreciation and amortization expense 91,667 13,893 275,001 36,175
---------- ------- --------- ---------
Total restaurant costs and expenses 827,727 265,356 2,870,073 1,534,451
Selling, general and administrative 83,205 1,587,185 686,803 2,050,405
Loss on closure of restaurant sites and - 365,000 - 365,000
impairment charges
Interest expense, net 81,988 65,154 179,335 196,340
Litigation award - - - 225,000
Miscellaneous expenses (income) 2,907 (2,332) 10,038 (1,708)
---------- ------- --------- ---------
Net loss before extraordinary item (179,529) (1,968,103) (864,507) (3,004,079)
---------- ----------- --------- -----------
Extraordinary item:
Gain on forgiveness of debt - 254,360 - 343,310
---------- ----------- --------- -----------
Net loss (179,529) (1,713,743) 864,507 2,660,769
---------- ----------- --------- -----------
Dividends on preferred shares (77,863) - (77,863) -
---------- ----------- --------- -----------
Net loss available to common shareholders $(257,392) (1,713,743) (942,370) (2,660,769)
========== =========== ========= ===========
Net loss per share:
Loss before extraordinary item $ (0.10) (0.09) (0.36) (0.19)
Extraordinary item - 0.01 - 0.02
---------- ----------- --------- -----------
Net loss-Basic and diluted $ (0.10) (0.08) (0.36) (0.17)
========== =========== ========= ===========
Weighted average number of common
and common equivalent shares
outstanding - Basic and diluted 2,650,227 21,441,412 2,650,227 15,609,352
========== ========== ========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-28
<PAGE>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements Of Cash Flows
<TABLE>
<CAPTION>
Nine months ended
March 28, March 31,
1998 1999
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (864,507) (2,660,769)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 290,321 36,175
Litigation award - 225,000
Issuance of common stock for services rendered - 218,676
Impairment charge - 365,000
Stock compensation - 106,077
Valuation of warrants for services - 1,093,873
Gain on extinguishment of debt - (343,310)
Changes in assets and liabilities:
Increase in accounts receivable (18,367) (5,012)
Decrease in inventory 219 13,369
Increase in prepaids and other assets (14,989) (978)
(Decrease) increase accounts payable and accrued expenses 453,388 (322,576)
Increase in other current liabilities 489 108
--------- -----------
Net cash used in operating activities (153,446) (1,274,367)
--------- -----------
Cash flows from investing activities:
Capital expenditures - (26,900)
Net cash used in investing activities - (26,900)
Cash flows from financing activities:
Proceeds from issuance of convertible notes 750,000 150,000
Proceeds from issuance of common stock, net - 153,500
Financing costs (230,000) -
Proceeds from issuance of Series B preferred stock, net - 4,732,624
Principal repayments of borrowings (415,854) (385,831)
--------- ----------
Net cash provided by financing activities 104,146 4,650,293
--------- ----------
Net increase (decrease) in cash (49,300) 3,349,026
Cash, beginning of period 68,022 311,328
-------- ---------
Cash, end of period $ 18,722 3,660,354
========== ==========
Cash paid during the period for:
Interest $ 7,599 223,202
========== =========
Income taxes $ 6,891 -
========== =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-29
<PAGE>
THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of consolidation
The consolidated financial statements include the accounts of The
Rattlesnake Holding Company, Inc. and subsidiaries (the "Company"). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
2. Consolidated financial statements
The accompanying unaudited consolidated financial statements as shown in
the index were prepared in accordance with generally accepted accounting
principles. These statements include all adjustments which, in the opinion of
management, are necessary to present fairly the consolidated financial position
of the Company as of March 31, 1999; the results of operations for the three and
nine month periods ended March 31, 1999 and March 29, 1998; and the cash flows
for the nine month periods ended March 31, 1999 and March 29,1998. In the
opinion of management, all necessary adjustments that were made are of a normal
recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed, reclassified or omitted. It is suggested that these
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-KSB for the year end June 28, 1998. The results of operations for the
period ended March 31, 1999 are not necessarily indicative of the operating
results that may be achieved for the full year.
3. Basis of presentation
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principals. Actual results could
differ from those estimates.
The accompanying consolidated financial statements have been prepared on a
going concern basis that contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.
However, due to the matters discussed below, its continuation as a going concern
cannot be reasonably assured.
The Company has incurred aggregate losses since inception of $18,174,777,
inclusive of a net loss for the nine months ended March 31, 1999 of $3,004,079,
excluding the impact of an extraordinary gain of $343,310 in 1999 relating to
the forgiveness of debt. Based upon interim financial information prepared by
management, the Company has continued to incur losses in the fourth quarter of
fiscal 1999.
In July 1998, the Company's management recognized that it had a limited
future as an operator of Rattlesnake restaurants. As a result, management set
out to: (i) increase the Company's working capital through the consummation of a
private placement offering of the Company's securities; (ii) assemble a new,
highly experienced and established management team; and (iii) alter the
Company's restaurant theme and menu and develop restaurants with a new concept
and menu.
F-30
<PAGE>
Subsequent to the completion of the private placement in February 1999
which effectively satisfied all short and long-term debt that was in default
(see Financing Arrangements below), the Company has assembled a new management
team and developed a new restaurant theme which will be introduced at the
recently reacquired Danbury, Connecticut location.
Management believes that the finalization of its cost reduction plan and
its approximately $6,000,000 private placement financing will enable the Company
to achieve profitable operations and restore liquidity. However, no assurance
can be made regarding the achievement of the goals outlined in the strategic
plan as outlined above, or if such plans are achieved, that the Company's
operations will be profitable.
4. Financing Arrangements
In connection with the private placement, the Company sold 211,289 shares
of Series B preferred stock at $25 per share, generating gross proceeds of
$5,282,225. As part of the private placement, noteholders, including $303,749 of
Series C notes with maturity dates of August 6, 1997 and December 15, 1997,
$100,000 convertible subordinated notes payable matured September 4, 1997,
$425,000 note payable matured on January 2, 1997, $11,709 note payable matured
in February 1998, $220,000 note payable matured on December 31, 1997, $100,000
notes payable matured on May 31, 1998, $50,000 note payable matured on May 31,
1998, and a $2,089 subordinated note payable matured on August 6, 1996, such
obligations aggregating $1,212,547 and all of which were in default, including
accrued and unpaid interest of approximately $428,500, entered into a series of
debt satisfaction agreements, whereby in exchange for cash payments, the
issuance of 2,200,000 shares of common stock, with a fair value of $0.05 per
share, the issuance of 29,645 shares of Series B preferred stock at $25 per
share and, to the mortgage holder of the Fairfield facility, a discounted note
receivable arising from the sale of the Fairfield property with a fair value of
$115,000, all of the above mentioned indebtedness was extinguished. As a result
of this transactions, an extraordinary gain of $254,360 and an additional
$115,000 loss on restaurant closures was recognized in the quarter ended March
31, 1999.
The preferred shares will be convertible, at the option of the holder at
any time after November 1999, at a conversion price initially equal to $0.05 per
share of common stock. The conversion rate will be reduced by 10% per month for
each month the Company fails to comply with its obligations to file, and in good
faith process, a registration statement.
The conversion price is subject to the adjustments on the terms set forth
in the Certificate of Designation. The outstanding preferred shares shall be
converted, with no action on the part of the holder, if, at any time after
February 2000, the common stock into which the same is converted is registered
under the Securities Act and the closing bid price of the common stock for
twenty consecutive trading days is at least four times the conversion price
($0.20 based on the initial conversion price of $0.05).
Holders of preferred shares are entitled to receive, quarterly, dividends
at the rate of 8% per annum before any dividends may be paid with respect to the
Common Stock, which shall be paid in cash or preferred shares at the election of
the Company. If there is a failure to pay dividends, the Placement Agent, on
behalf of such holders, has the right to designate one director to the Company's
Board. In addition, if the Company fails to comply with its obligations to file
and process a Registration Statement, the dividend rate will increase to 14% per
annum from issuance.
In connection with the private placement, $270,000 of Series B noteholders
converted their obligations into 10,800 shares of Series B preferred stock at
$25 per share. Additionally, approximately $350,000 of accounts payable,
including compensation deferred by certain members of management, converted
their receivables into approximately 7,000,000 shares of common stock at the
fair value of $0.05 per share.
Also coincident with the private placement, the holders of 56,500 shares of
Series A preferred stock exchanged their holdings for 55,370 shares of Series B
preferred stock and waived their rights to all unpaid and accumulated dividends.
Pursuant to the March 1998 agreement to acquire the Ottomanelli Group,
additional consideration, due to anti-dilution provisions contained in the
agreements, common stock was payable to the Ottomanelli Group shareholders, as a
result of the private placement. In February 1999, 5,000,000 shares of common
F-31
<PAGE>
stock were issued pursuant to such anti-dilution provisions, which included a
maximum addition which was met. As the Company recorded an impairment charge in
fiscal 1999 relating to the termination of the operations of the Ottomanelli
restaurants, the fair value of the common stock issued, $250,000, was recognized
as a further impairment loss in the quarter ended March 31, 1999.
A consultant received approximately 1,900,000 shares of common stock with a
fair value of $0.05 per share, aggregating $95,000, which was recognized as
professional fees in fiscal 1999.
In August 1998, the Company issued a sixty (60) day convertible note in the
principal amount of $100,000 at an interest rate of 8% to an investment bank in
consideration for professional services rendered. In February 1999, such note
was satisfied by conversion into Company equity.
During the quarter ended September 30, 1998, the Company privately sold
1,100,000 shares of its common stock at $.15 per share for an aggregate of
$165,000.
In October 1998, a $100,000 remaining outstanding balance from a $500,000
convertible note due September 4, 1997, with unpaid accrued interest of
approximately $90,000, accepted common stock with a fair value of $100,000 in
exchange for the forgiveness of all outstanding obligations. Accordingly, the
Company has recorded an extraordinary gain of $88,950 in the quarter ended
December 31, 1998.
Between October 1998 and December 1998, the Company entered into private
financing arrangements with three individuals to provide $150,000 of bridge
financing at 16% interest per annum, plus warrants, with due dates of the
earlier of the closing of the proposed private placement or ninety (90) days,
respectively. All notes were satisfied by payment of cash and/or conversion to
Company equity at the Initial Closing of the Offering February 17, 1999.
5. Restaurant Operations
On July 2, 1998, The Rattlesnake Holding Company, Inc. signed an agreement
to purchase some of the assets of 1562 Restaurant Corp. located at 1562 2nd
Avenue, New York City. The purchase price was $425,000 payable $20,000 on
contract, $105,000 at closing, and a promissory note at 8.5% payable in 72
payments of $5,332.52. The Company decided not to pursue the acquisition of this
restaurant.
On July 3, 1998, the Company entered into a contract for the purchase of a
restaurant facility in Greenwich, Connecticut for $400,000 in a combination of
cash and notes. The Company ultimately chose not to purchase this property.
On April 15, 1999, the Company reacquired the Danbury, Connecticut,
facility for $1,350,000 in cash.
6. Recent Accounting Pronouncements
In June 1997, the FASB issued Statement 131, "Disclosures About Segments of
an Enterprise and Related Information", effective for fiscal years beginning
after December 15, 1997. This statement establishes standards for reporting
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standard for related disclosure
about products and services, geographic areas and major customers. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. This Statement requires reporting segment profit and loss, certain
specific revenue and expense items and segment assets. It also requires
reconciliations of total segment revenues, total segment profit and loss, total
segment assets and other amounts disclosed for segments to corresponding amounts
reported in the consolidated financial statements. Restatement of comparative
information for earlier periods presented is required in the initial year of
application. Interim information is not required until the second year of
application, at which time comparative information is required. The adoption of
the Statement in fiscal 1999 will nit have a material impact on its financial
reporting as the Company has one operating segment.
F-32
<PAGE>
In June 1998, Statement of Financial Accounting Standards No "Accounting
for derivative Instruments and Hedging Activities" ("Statement 133"), was issued
which is effective for fiscal years beginning June 15, 2000. Statement 133
standardizes the accounting for derivative instruments and requires that all
derivative instruments be carries at fair value. The Company has not determined
the impact that Statement 133 will have on its financial statements and believes
that such determination will not be meaningful until closer to the date of
initial adoption.
7. Litigation
The Company is a co-defendant in an action brought by an owner of an
apartment above the South Norwalk Company restaurant for negligence per se,
intentional infliction of emotional distress, negligent infliction of emotional
distress, and violations of the Connecticut Unfair Trade Practices Act (CUTPA)
based upon alleged excessive noise and rude and/or threatening conduct of
employees. The jury awarded a verdict in the amount of $625,000 against various
defendants, including the Company's former Chairman on August 5, 1998.
Accordingly, the Company has recorded a $625,000 charge in the quarter ended
September 30, 1998 to accrue this judgment. On November 20, 1998, the Court set
aside the jury's verdict as to all counts against the Company except for
plaintiff's claim for negligence per se and accordingly reduced the jury's award
to $225,000. Accordingly, the Company reduced by $400,000, in the quarter ended
December 31, 1998, the amount of the accrual recognized in the quarter ended
September 30, 1998. The jury's award is currently on appeal by the Company, and
plaintiff has appealed the Court's decision to set aside a portion of the jury's
verdict and reduce the award. There are also potential claims of indemnification
by other defendants against the Company in the event the plaintiff's appeal is
successful.
In July 1999, a demand letter was tendered to the Company by the legal
counsel of the former Chairman seeking indemnification from potential
liabilities arising out of this matter. This demand is based on an
indemnification provision in an agreement between the former Chairman and the
Company. The Company believes that there are valid defenses to the
indemnification claim.
Plaintiff's negligence claims in this matter are arguably covered by one or
more of the Company's insurance policies. Farmington Casualty Company
("Farmington") and Insurance Company of Greater New York ("GNY"), two out of
three of the Company's insurance carriers, retained counsel to represent the
Company and defended the Company in this case under a reservation of rights. The
third, Public Service Mutual Ins. Co., denied coverage for the claim altogether.
GNY and Farmington have continued to prosecute the appeal in this matter, but
under a reservation of rights. The Company has advised Farmington and GNY that
it intends to pursue its rights in an action for damages and declaratory relief
in the event that the appeal is unsuccessful and the insurance carriers refuse
to provide coverage for plaintiff's claims. GNY and Farmington continue to
reserve all rights with respect to coverage.
Settlement negotiations are ongoing, however, there can be no assurance of
a satisfactory settlement.
The Company is a defendant in an action for an alleged breach of a
commercial lease in which damages exceeding $190,000 are being sought. The
Company has disputed this claim and believes that the plaintiff has inadequately
responded to the Company's demand for discovery and inspection and
interrogatories. A compliance conference was adjourned to September 15, 1999.
The Company intends to vigorously defend this action.
The Company is also a party in various other legal actions incidental to
the normal conduct of its business. Management does not believe that the
ultimate resolution of these actions will have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
F-33
<PAGE>
No dealer, sales representative or other person has been authorized to give
any information or to make any representation in connection with this offering
other than those contained in this prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company, or any underwriter. This prospectus does not constitute an offer
to sell or a solicitation of any offer to buy common stock by anyone in any
jurisdiction in which such an offer or solicitation is not authorized, or in
which the person making such an offer or solicitation is not qualified to do so,
or to any person to whom it is unlawful to make such an offer or solicitation.
Neither the delivery of this prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that the information contained herein
is correct as of any date subsequent to the date of this prospectus.
--------------
TABLE OF CONTENTS
Page
Prospectus Summary...................................
Risk Factors.........................................
Dividend Policy......................................
Capitalization.......................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................
Use of Proceeds......................................
Determination of Offering Price......................
Selling Security Holders.............................
Plan of Distribution.................................
Description of Securities............................
Our Business.........................................
Legal Matters........................................
Experts ............................................
--------------
Until ______, 1999 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered Securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
======================================
200,000,000 Shares
THE RATTLESNAKE HOLDING COMPANY, INC.
Common Stock
PROSPECTUS
__________, 1999
======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts, payable by the Registrant in connection with the sale of
the securities being registered. All amounts are estimates except the SEC
registration fee.
SEC Registration Fee................................. $
*Printing Costs......................................
*Legal Fees and Expenses.............................
*Accounting Fees and Expenses........................
*Blue Sky Fees and Expenses..........................
*Transfer Agent and Registrar Fees...................
*Miscellaneous.......................................
Total ............................................ $
*To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person being
or having been a director, officer, employee or agent to the Registrant. The
Delaware General Corporation Law provides that Section 145 is not exclusive of
other rights to which those seeking indemnification may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise.
Article VII of the Registrant's Bylaws provides for indemnification by
Registrant of its directors, officers and employees to the fullest extent
permitted by the Delaware General Corporation Law. Section 102(b)(7) of the
Delaware General Corporation Law permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall bot be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability ((i)for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for unlawful payments or
dividends or unlawful stock repurchases, redemptions or other distributions, or
(iv) for any transaction from which the director derived an improper personal
benefit. The Registrant's Amended and Restated Certificate of Incorporation
provides for such limitation of liability. The Registrant intends to obtain
directors, and officers, insurance providing indemnification for certain of the
Registrant's directors, officers and employees for certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal year ended June 30, 1999, the Company commenced an
offering (the "Offering") of its Series B Convertible Preferred Shares, $.10 par
value. Between February 17, 1999 and July 2, 1999, the Company sold
approximately $6,000,000 of Series B Preferred Shares pursuant to the Offering
and converted approximately $1,350,000 of its debt to Company equity. During the
Offering, the Company satisfied, by payment of cash and/or equity in the form of
II-1
<PAGE>
preferred and/or common stock, the following: (a) all outstanding Series C
promissory notes; (b) certain outstanding Series B promissory notes; (c) all
outstanding promissory notes related to the Fairfield facility; and (d) all
outstanding promissory notes from (i) September 1997, (ii) March through June
1998, and (iii) October and November 1998, effectively satisfying all short term
and long term debt save approximately $229,000 of Series B Notes due July 2000.
During the fiscal year ended June 28, 1998, the Company privately sold
approximately $850,000 of its common stock at $.15 per share and issued
convertible promissory notes for approximately $50,000. All notes were satisfied
by payment of cash and/or conversion to Company equity at the Initial Closing of
the Offering. In addition, certain management personnel deferred a portion of
their salary pending completion of the Offering. This debt was satisfied by
payment of cash and conversion to Company equity at the Initial Closing of the
Offering.
During the fiscal year ended June 29, 1997, the Company converted debt to
equity resulting in the issuance of an additional 6,493 shares of common stock.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
(a)
Exhibit No. Description
<S> <C>
3.1* Form of Restated Certificate of Incorporation of the Registrant
3.1.1*** Designation of Preferred Stock
3.1.2 Amendment to Certificate of Incorporation regarding capitalization of Registrant
3.2* By-Laws
4.1* Form of Common Stock Certificate
4.2+ Form of Series B Preferred Stock Certificate
5.1+ Opinion of Ruskin, Moscou, Evans & Faltischek, P.C.
10.1* 1994 Employee Stock Option Plan
10.2* 1994 Non-executive Directors Stock Option Plan
10.3*** Employment Agreement with Stephen A. Stein
10.3.1+ Revised Employment Agreement with Stephen A. Stein
10.4*** Lease Agreement with Jack Cioffi Trust ULWT dated April 15, 1996 together with Exhibits
10.5*** Form of Series C Note
10.6**** License Agreement by and between Ottomanelli Bros., Ltd. and The Rattlesnake Holding
Company, Inc.
10.7+ Convertible Subordinated Secured 18% Promissory Note dated March 4, 1997, in favor of J.L.B. of Nevada, Inc.
II-2
<PAGE>
10.8+ Convertible Subordinated Secured 18% Promissory Note dated March 4, 1997, in favor of Michael Lauer
10.09**** Reorganization and Stock Exchange Agreement among The Rattlesnake Holding Company, Inc.
and Ottomanelli Brothers West, Ltd., Ottomanelli's Cafe Franchising Corp., 34th St. Cafe
Associates Inc., Garden State Cafe Corp.
10.10**** Modification Agreement to the Reorganization and Stock Exchange Agreement among The
Rattlesnake Holding Company, Inc. and Ottomanelli Brothers West, Ltd., Ottomanelli Cafe
Franchising Corp., 34th St. Cafe Associates, Inc., Garden State Cafe Corp. and their shareholders,
dated February 26, 1998.
10.11**** Amendment Agreement among The Rattlesnake Holding Company, Inc. and Ottomanelli Brothers
West, Ltd., Ottomanelli Cafe Franchising Corp., 34th St. Cafe Associates, Inc., Garden State Cafe
Corp., Nicolo Ottomanelli and Joseph Ottomanelli, dated April 27, 1998.
10.12**** Registration Rights Agreement dated February 26, 1997.
10.13+ William J. Opper Severance Agreement
10.14**** Shelly Frank Consulting Agreement dated as of October 1998.
10.15**** Kenneth Berry Employment Agreement dated as of October 1998.
10.16**** A.G. (Sandy) Rappaport Consulting Agreement dated as of July 20, 1998.
10.17**** Frank Ferro Employment Agreement dated as of September 1998.
10.18**** Stephan A. Stein Consulting Agreement dated as of May 1, 1998.
10.18.1**** Amendment to Stephan A. Stein Consulting Agreement dated as of March 15, 1997.
10.19**** Nicolo Ottomanelli Employment Agreement dated as of February 26, 1998.
10.19.1**** Amendment to Nicolo Ottomanelli Employment Agreement dated as of October 1998.
10.20**** Form of Shelly Frank and Kenneth Berry Warrants
10.21**** Form of Investor Rights Agreement for Subscribers in Offering
10.22**** Form of Warrant Issued to Commonwealth Associates in Offering
22*** Subsidiary List
23.1 Consent of KPMG LLP
23.2 Consent of Ruskin, Moscou, Evans & Faltischek, P.C. (included in Exhibit 5.1)
24 Power or Attorney (included on signature page)
</TABLE>
II-3
<PAGE>
- ------------------------
* Previously filed with the Commission with the Company's registration
on Form SB-2 (File No. 33-88486)
** Previously filed with the Company's 10-KSB for the year ended
June 30, 1995.
*** Previously filed with the Company's 10-KSB for the year ended
June 30, 1996.
**** Previously filed with the Company's 10-KSB for the year ended
June 28, 1998.
+ To be filed by amendment.
(b) Reports on Form 8-K
None.
(c) Financial Statement Schedules. Schedules not listed above have been
omitted because the information required to be set forth herein is not
applicable or is shown in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933,as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public polity as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that: (1) For purposes of
determining any liability under the Act, the information omitted from the form
of prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4), or 497(h) under the Act shall be deemed to be part of
this registration statement as of the time it was declared effective. (2) For
the purpose of determining any liability under the Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 13th day of
August, 1999.
/s/
------------------------
Kenneth Berry, President
/s/
---------------------------
Frank Ferro, Vice President
POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENT, that persons whose
signatures appear below each severally constitutes and appoints Kenneth Berry
and Stephan A. Stein, and each of them, as true and lawful attorneys-in-fact and
agents, with full powers of substitution and resubstitution, for them in their
name, place and stead, in any and all capacities, to sign any and all amendments
(including pre-effective and post-effective amendments) to this Registration
Statement and to sign any registration statement (and any post-effective
amendments thereto) relating to the same offering as this Registration Statement
that is to be effective upon filing pursuant to Rule 462(b) under the Securities
Act of 1933, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as they might or could do in person, hereby ratifying and confirming
all which said attorneys-in-fact and agents, or any of them, or their substitute
or substitutes, may lawfully do, or cause to be done by virtue thereof. Pursuant
to the requirements of the Securities Act of 1933, as amended, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
/S/
- ----------------------------------
Kenneth Berry Director August 13, 1999
/S/ Director August 13, 1999
- ----------------------------------
Stephan A. Stein
/S/ Director August 13, 1999
- ----------------------------------
Nicolo Ottomanelli
</TABLE>
II-5
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
The Rattlesnake Holding Company, Inc.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
------------
Meville, New York
August 13, 1999
