-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BslFkDt7hrf30isoKJaEAC9VM53QLd1IRrjVUwQa5DG0HgwWWkfEzc6KP6Yk3eD4 qdzd017l9Bht1jYpOSU1QA== 0001005477-00-002113.txt : 20000314 0001005477-00-002113.hdr.sgml : 20000314 ACCESSION NUMBER: 0001005477-00-002113 CONFORMED SUBMISSION TYPE: 10SB12G/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20000313 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIMFAST GROUP INC CENTRAL INDEX KEY: 0001089297 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 880367136 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10SB12G/A SEC ACT: SEC FILE NUMBER: 000-26675 FILM NUMBER: 567259 BUSINESS ADDRESS: STREET 1: 777 S HARBOUR ISLAND BLVD 260 CITY: TAMPA STATE: FL ZIP: 33602 BUSINESS PHONE: 8132750050 MAIL ADDRESS: STREET 1: 777 S. HARBOR ISLAND BLVD., SUITE 260 CITY: TAMPA STATE: FL ZIP: 33602 10SB12G/A 1 AMENDMENT #2 TO FORM 10-SB UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20529 FORM 10-SB Amendment #2 TRIMFAST GROUP, INC. (Name of Small Business Issuer) NEVADA 88-0367136 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 777 S. Harbour Island Blvd. Suite 780, Tampa, Florida 33602 (Address of principal executive offices) (813) 275-0050 (Issuer's telephone number) Securities to be registered under Section 12(b) of the Act: Title of each class to Name of Each Exchange be registered None None Securities to be registered under Section 12(g) of the Act: Common Stock, $.001 Par Value TABLE OF CONTENTS Part I Page Item 1. Description Of Business ........................................ 2 Item 2. Management's Discussion And Analysis Or Plan Of Operation ...... 19 Item 3. Description Of Property ........................................ 22 Item 4. Security Ownership Of Certain Beneficial Owners And Management . 23 Item 5. Directors, Executive Officers, Promoters And Control Persons ... 24 Item 6. Executive Compensation .......................................... 25 Item 7. Certain Relationships And Related Transactions .................. 26 Item 8. Description Of Securities ....................................... 27 Part II Item 1. Market For Common Equity And Related Stockholder Matters ....... 35 Item 2. Legal Proceedings .............................................. 36 Item 3. Changes In And Disagreements With Accountants .................. 38 Item 4. Recent Sale Of Unregistered Securities ......................... 38 Item 5. Indemnification Of Directors And Officers ...................... 41 Part III Index To Exhibits ....................................................... 45 Part F/S Financial Statements ........................................... 46 1 References in this document to "us," "we," or "the Company" refer to TrimFast Group, Inc., its predecessors and its subsidiaries. ITEM 1. DESCRIPTION OF THE BUSINESS. Business Development. We were incorporated in the State of Nevada on February 23, 1987 as Kendrex Systems, Inc. On November 18, 1996, we reverse split our common stock. We issued one (1) new share of our common stock in exchange for five (5) outstanding shares of our common stock.* On the same day, we entered into a reverse acquisition with HLHK World Group, Inc. (hereinafter "World Group"), a Nevada corporation, and subsequently changed our name to HLHK World Group, Inc. World Group was in the business of telecommunications, an area in which we wished to pursue the available opportunities. Pursuant to the terms of this acquisition, we issued 6,000,000 of our post-split common shares to the shareholders of World Group plus 250,000 of our post-split shares as finder's fees. As a result of this transaction, World Group became our wholly owned subsidiary. On August 12, 1998, we acquired TrimFast, Inc., which was incorporated in the State of Florida on April 28, 1991, in a common stock for common stock exchange. Pursuant to the terms of this merger, we issued 1,370,049 shares of our common stock to the shareholders of Trimfast, Inc. As such, the shareholders of Trimfast, Inc. obtained control of our Company, and Trimfast, Inc. became our wholly owned subsidiary. On September 4, 1998, we changed our name to TrimFast Group, Inc. We continued the operations of Trimfast, Inc. As such, the accounting and disclosure throughout this document reflects Trimfast, Inc. as the surviving corporation. Prior to and at the time of this transaction, Trimfast, Inc. was engaged in the business of formulating and distributing dietary and vitamin supplements. We entered into the merger with Trimfast, Inc. because we believed that the nutrition and vitamin supplement field represented a business opportunity for us. On December 20, 1998 we reverse split our common stock. We issued one (1) new share of our common stock in exchange for ten (10) outstanding shares of our common stock.* (* Both stock splits are reflected in the numbers and calculations throughout this document unless otherwise indicated.) On September 4, 1998, we incorporated Body Life Sciences, Inc. (hereinafter "Body Life"), a Florida corporation, as a wholly owned subsidiary of Trimfast, Inc. We formed this subsidiary in order to expand our business by offering products under the Body Life trade name. On March 18, 1999, we acquired IMMMU, Inc. (hereinafter "IMMMU"), a Delaware corporation, and IMMCEL Pharmaceuticals, Inc. (hereinafter "IMMCEL"), a New York corporation. Both companies were engaged in the business of developing and marketing nutritional supplements manufactured by third parties. Pursuant to the terms of this acquisition, IMMMU and IMMCEL became our wholly owned subsidiaries. We issued 235,000 shares of our common stock, $50,000 in cash, an option agreement based upon performance criteria and an employment agreement pursuant to the terms of the agreement. 2 We rescinded these acquisitions effective November 1, 1999. In accordance with a recission agreement dated October 23, 1999 the following consideration was returned and delivered on November 30, 1999, as follows: (i) from our company to the prior shareholders of IMMMU and IMMCEL, Leo Ehrlich, Helenka Bodner and Joseph Levi, stock certificates reflecting 200 shares each of IMMMU and IMMCEL, representing all of the outstanding shares of those corporations; (ii) to our company, stock certificates reflecting 150,750 shares, 60,750 shares and 13,500 shares of our restricted common stock, respectively from prior IMMMU and IMMCEL shareholders, Bodner, Ehrlich and Levi. In addition, on November 12, 1999, the $50,000 cash payment was returned to us by IMMMU shareholders Bodner, Ehrlich and Levi and on November 15, we received the final 10,000 free trading shares of our common stock from Moisha Bodner. We had a verbal agreement with Aryeh Trading, a third party investment group, for the purchase of 155,000 shares of our stock. Aryeh Trading purchased the shares; however the agreement provided that if the IMMMU/ IMMCEL acquisitions were not completed, we had the option to repurchase the shares solely at our discretion. We have not exercised that option. From our operations of IMMMU/IMMCEL we had a loss of $88,830. We maintained sufficient reserves to cover this loss from our retained earnings. To date, we have received no amounts from IMMMU/IMMCEL to reimburse us for such loss. We initially believed that the acquisitions of these companies would enhance our product lines. However, we were unable to obtain audited financial statements for the companies. In addition, these companies were unable to obtain audited financial statements. As such, our management deemed it in our best interest to rescind the transactions. We rescinded the transaction because: i) These companies may have had undisclosed liabilities; ii) We were unable to verify inventory; and iii) We were unable to verify previous sales. As a result of the rescission, we have no formal agreement to sell IMMMU and IMMCEL products in the United States. This rescission has reduced our product line by approximately 18 products. We do not feel this will have a materially adverse affect on our operations given the short period of time in which these companies were our subsidiaries. Despite the above, management believed that the products of IMMMU would enhance our product line. Our management deemed it in our best interest to enter into a distribution agreement with IMMMU to sell their products in Canada. On November 1, 1999, we entered into an exclusive distributor agreement with IMMMU, Inc. Such agreement provides that IMMMU appoints us as the exclusive distributor of products in Canada. Under the agreement, we may market, sell, and distribute IMMMU products pursuant to a pricing structure set forth by IMMMU. The compensation provision for the Canadian distribution agreement is verbal and requires us to pay IMMMU 12% of our sales of IMMMU products. The agreement includes provisions that we will be indemnified by IMMMU for any loss, damages, claim or settlement that may arise out of any defect, known or unknown, in any of 3 the products at the time of manufacture, assuming no material alteration of the product occurred after manufacture. There is no assurance that IMMMU will have sufficient assets or insurance coverage to indemnify us against any such liabilities. The agreement is for a term of November 1, 1999 through December 31, 2001 with automatic renewals. Either party may terminate the agreement on thirty days written notice. On April 21, 1999, we formed a wholly owned subsidiary Nutrition Cafe, Inc., a Florida Corporation which operates a website NutritionCafe.com. The website is designed to provide nutritional information, provide links to other informative sites and to market and sell our products. On May 24, 1999, we acquired certain assets of Ice Cold Water, Inc. (hereinafter "Ice Water"), a Florida corporation incorporated on August 7, 1997, including certain receivables, inventory, property, equipment, a customer list and the name "Ice Cold Water" and all other intellectual property rights associated with the name. We acquired these assets for $20,000 cash and a promissory note in the amount of $100,000 at 8.5% per annum due in four monthly installments of $25,000 plus accrued interest. The installment payments commenced on June 10, 1999. The promissory note was secured by 23,000 restricted shares of our common stock and held in escrow. The acquisition agreement provides in the event of our default upon the terms of the agreement, we must release to Ice Water an amount of our restricted stock equal to the outstanding principal and accrued interest balance. On November 22, 1999, the escrow agent was notified of a default upon the promissory note of $30,881 and released 7,323 of our shares to satisfy the note. At the time of this transaction, Ice Water was engaged in the business of selling bottled water and leasing water coolers in Tampa, Florida and the surrounding metropolitan areas. We entered into this transaction in order to expand our product line to include water products, which would also complement our existing line of nutritional supplements. On November 7, 1999 Perfumania.com, Inc. signed a letter of intent to acquire Nutrition Cafe.com. The letter of intent provides proposed terms in which Perfumania.com., Inc. would acquire NutritionCafe.com from our company. The agreement provides that our company would sell to Perfumania.com, Inc. all of the assets of NutritionCafe.com, including, but not limited to, goodwill, trademarks, trade secrets, other proprietary information, domain trade registrations, computer software and hardware and inventory. Perfumania.com, Inc. would provide the Company with shares of their common stock valued at $1,000,000 and $500,000 in cash consideration for the acquisition of NutritionCafe.com. On November 30, 1999, we received approval from the Deutsche Borse AG for our stock to start trading on the Third Segment of the Frankfurt Stock Exchange. Our common stock trades under the German trading symbol "TFT" . On December 23, 1999, our company entered into a letter of intent to sign a licensing agreement with Marvel Characters, Inc. (Marvel Comics) granting Trimfast a license to market Spiderman's Children's Chewable Multi-Vitamin and Mineral Supplement. Business Description. I. Nutritional Product Line Activities. 4 We are engaged in the nutraceutical business. We formulate, distribute and market natural dietary supplements and health and fitness products through wholesale and retail outlets. Third parties do all manufacturing of our products. We also distribute bottled water through our subsidiary Ice Water. We sell approximately thirty-three (33) varieties of vitamins, nutritional supplements, weight loss and muscle growth supplements and food supplements under brand line names TrimFast, Body Life Sciences and IMMMU. TrimFast and Body Life are our own product lines. We sell the IMMMU products through an exclusive distributor agreement. (See this ITEM above). Products are formulated in vitamins/minerals combinations with varying potency levels. They are offered in soft-gel, two-piece capsule, chewable, and liquid and powder forms to accommodate various consumer preferences. There can be no assurances that any of our products will produce the desired results since the consuming population is diverse in their physical, psychological and mental makeup and differs in their metabolic rates, genetic composition and other factors and hence there is no scientific basis for believing that any of the desired results will be produced. Further, there have been occurrences where ingredients in certain nutritional supplements have been determined to be harmful when consumed by humans. We believe that our products do not currently contain any ingredients not safe for human consumption, however there is no assurance this assumption is correct. (See PART II, ITEM 2. Legal Proceedings). Any product liability claims made against us could have an adverse affect on our business. Many of the ingredients in our products are vitamins, minerals, herbs and other substances for which there is not a long history of human consumption. In addition, although we believe all of our products to be safe when taken as directed by us, there is little experience with human consumption of certain of these innovative product ingredients in concentrated form. Accordingly, no assurance can be given that our products, even when used as directed, will have the effects intended or be safe for human consumption. However, because we are highly dependent upon consumers' perception of the safety and quality of our products as well as similar products distributed by other companies (which may not adhere to the same quality standards as we do), we could be adversely affected in the event any of our products or any similar products distributed by other companies should prove or be asserted to be harmful to consumers. In addition, because of our dependence upon consumer perceptions, adverse publicity associated with illness or other adverse effects resulting from consumers' failure to consume our products as we suggest or other misuse or abuse of our products or any similar products distributed by other companies could have a material adverse effect on the results of our operations and financial condition. We, like any other retailer, distributor and manufacturer of products that are designed to be ingested, face an inherent risk of exposure to product liability claims in the event that the use of our products results in injury. Such claims may include, among others, that our products contain contaminants or include inadequate instructions as to use or inadequate warnings concerning side effects and interactions with other substances. With respect to product liability claims, we have $1,000,000 per occurrence and $2,000,000 in aggregate liability insurance subject to a self-insurance retention of $10,000. In addition, if such claims should exceed $2,000,000, we have excess umbrella liability insurance of up to $4,000,000. However, there can be no assurance that such insurance will continue to be available at a reasonable cost, or, if available, will be adequate to cover liabilities. We generally 5 do not obtain contractual indemnification from parties supplying raw materials or marketing our products. In any event, any such indemnification if obtained will be limited by our terms and, as a practical matter, to the creditworthiness of the indemnifying party. In the event that we do not have adequate insurance or contractual indemnification, product liabilities relating to defective products could have a material adverse effect on our operations and financial conditions. Specific Products. The TrimFast Dietary Supplement, formerly named Herbal Plus, was introduced in January of 1999. It is an all-natural herbal formula marketed weight loss supplement. It is sold by distributors and in the following health food stores and weight loss centers: Ansley's Natural Marketplace, Beehive Natural Foods of Miami, The Honey Tree, Health Quest, Natural Nutrition, Physicians Weight Loss Clinics and Supplement Warehouse. TrimFast was designed to assist in curbing appetite and increasing metabolism to affect the fat burning process. In addition, TrimFast was designed to increase energy and reduce water retention. However, there can be no assurances that this product will have such effects uniformly upon all users since the consuming population is diverse from the standpoint of various metabolic rates. The TrimFast product has also been used in combination with St. Johns Wort to provide the mental drive in implementing the positive effects of St. Johns Wort - reducing stress and nervous tension and causing an alert mood. This product is packaged in a one-month supply bottle. Immune Blast, introduced in July of 1998, is an all-natural immune system enhancer designed to aid in the prevention of colds and flu. The product is marketed to the distributors: Abyss Distributors and Nutraline Distributors. Max Impact is an entire product line targeted to convenience stores and gasoline outlets. The products include all-natural packages, thirty count bottles and daily supply packages of St. John's Wort, Trim Fast, Sudden Energy and Ginseng Zing. Kicks, introduced in October of 1998, is an all natural chewable multi-vitamin and mineral supplement developed and formulated exclusively for active children and young athletes. This product is designed to compete with national brand children's vitamins such as Flintstones. The TrimFast Weight Loss Bar is a new product we introduced on June 14, 1999. We designed this product to assist the user in a weight loss program by helping to curb appetite, increase metabolism and increase energy levels; however, there can be no assurance that any one or all of these effects will be produced in all or any case. This product was designed to be implemented in conjunction with a sensible nutritional diet program with exercise. The product was designed to compete with several national companies including Slim Fast, Nestle's, MediFast and Pounds Off nutrition. This product is offered in three flavors: chocolate chocolate chip, chocolate peanut butter and passion fruit. St. John's Wort: The only herb that has been scientifically studied and proven to elevate mood and positive outlook, reduce stress and nervous tension which is used to treat depression and mood related ailments. 6 Big Bad Rooster. A supplement designed to stimulate the male and female reproductive, nervous and circulatory systems. The supplement contains an alkaloid, yohimbine, which is believed by some to stimulate blood vessel engorgement in the pelvic area, even though there is no scientific basis for such conclusions. Herbal Fen. A natural dietary supplement containing 5-Hydroxytryptophan that helps increase brain levels of serotonin, a neurotransmitter that regulates key functions related to moods. Body Life, our wholly owned subsidiary, will market under its trade name Muscle Recovery nutritional supplement. This product is a comprehensive remedy for muscle aches, pains and soreness. It is to be taken immediately after injury or exercise to boost the body's natural recuperative powers. To date, we have not undergone any research and development of potential new products or regarding any other areas of potential development. Although we plan to devote 2% of our revenues to research and development within the next fiscal year, such plans are totally dependent upon a number of factors, including: sufficient revenue streams to support this expense, the retention of qualified personnel participating in research and development. Currently we employ Steve Kushner, the company nutritionist that has over 20 years of practical experience and trained under Dr. Hazel Parcells. In addition, we must have the ability to attract new qualified personnel to perform research and development and numerous other factors which management may have not currently contemplated. Competition. Nutritional and dietary supplement products involve highly competitive markets. We are in the process of developing our marketing strategies and product lines and expect that both will involve an ever-changing and evolving process. Although we will attempt to competitively price our products, provide superior quality products, and achieve success through attentive and efficient customer service and effective marketability strategies, we are limited by a number of factors, including the developmental character of our company and the unpredictability and uncertainty of our future revenues. In addition, we are limited by the intensely competitive nature of the dietary food and vitamin product industry in which more established companies may offer any combination of the following: superior service, more competitive pricing, superior product quality and availability, a variety of marketing strategies and distribution networks and profitability achieved through sales volume and narrow profit margins. There are many well-established competitors with substantially greater financial revenues, as well as, significant new market entrants. Many of these competitors have been in existence for substantially longer periods of time than we have and may be better established in the market where we want to operate. Further, they may have sufficient revenue streams to engage in extensive advertising and promotional campaigns far in excess of our marketing capabilities. In addition, many of the competitors in this field are privately held, leading to unavailability of data of the size of our competition. Accordingly, our competition is difficult to assess with any preciseness. Distribution Methods for our Dietary and Nutritional Supplements. 7 We utilize five different distribution channels for our health and fitness products. These are wholesalers, distributors, food brokers, and direct sales to retail outlets and the Internet. Currently, we distribute to twelve (12) wholesalers and fifteen (15) distributors. We also have agreements with eleven (11) food brokerage firms that sell products to nationwide retailers and distributors. Wholesalers buy products directly from us. These wholesalers in turn sell to independent sales agents, who then sell to various retail establishments. The distributors on the other hand buy the product directly from us and resell to various retail outlets. Brokers are contracted to sell our products to retail chains, distributors and wholesalers. Any retail accounts secured by the brokers are directed to the distributors that currently supply the retailer with other products. Wholesalers and distributors are set up on terms of two percent (2%) fifteen- (15) days net thirty (30) days as long as pre-approved credit has been established. If credit has not been approved, we require one-half (1/2) of the purchase order price upon ordering and the balance due on delivery. We also market through direct response television advertising. Inside sales personnel who work directly for us will accept orders, arrange for production and delivery of the products as required to service demand and co-ordinate delivery of product to retailers and end customers. Prospective retail locations include convenience stores, supermarkets, drug stores, health clubs, gasoline outlets, restaurants and bars, and health specialty outlets. Once the purchase order has been verified, shipping instructions are delivered to our distribution center where orders are fulfilled within forty-eight (48) hours. Typically, product orders are generally shipped by UPS ground transportation and customers receive their product within seven (7) days. Express delivery services are also available. Express product orders are generally shipped within twenty-four (24) hours. Special order products may take up to a week to deliver but, in general, can be shipped within seventy-two (72) hours. Unless alternate payment plans are provided, payment is due within thirty (30) days of delivery. II. Internet Activities: Nutrition Cafe. Nutrition Cafe, Inc., a wholly owned subsidiary of the Company, launched its Internet site (www.nutritioncafe.com) in June of 1999. The Internet site became fully operational on July 1, 1999 and currently offers approximately 1,365 products. Through this Internet site, we offer nutritional products, including vitamins, minerals, dietary supplements, sports nutrition products and homeopathic products for sale to the public. These products are also offered at our retail store located in Clearwater, Florida. We will attempt to market approximately 10,000 vitamins, herbs, dietary supplements and homeopathic products to members at distributor wholesale prices. The Internet site is planned to promote all of our products, as well as, market and sell vitamins and nutritional products from such other manufacturers as Met-Rx, Prolabs and Nature's Way. Our warehouse facility is equipped with adequate space to accommodate these expanded number of products and product lines. 8 In addition to offering a complete line of vitamins and supplements, the nutritioncafe.com web page offers visitors advice relating to a variety of highlighted subject areas including nutrition, health, diet, physical fitness and nutritional supplements. Daily columns on such topics as health care, vitamins, homeopathic remedies, chiropractic care, fitness and exercise may also be provided. Management believes that the subject areas, style and special features are arranged in a simple, easy-to-use fashion intended to enhance product search and customer knowledge while encouraging repeat business. There can be no assurance that we will have the ability to effectively market our current products or those of other manufacturers. In addition, there can be no assurance that our Internet site will be able to market a projected 10,000 such products. The marketability rate resulting from our Internet site is dependent upon revenues from our Internet site and other sources, the relative success of promoting our Internet site and competition from well-established Internet sites operated by strong revenue based companies with long-life operational success. Membership. During the period from July 1, 1999 to January 18, 2000, anyone wishing to purchase products from the NutritionCafe.com site was required to purchase a membership at the price of $9.95 per month. Memberships were sold on a pay-as-you-go basis in one-month increments. Members had the option to continue their membership each month and no long-term agreements were required. Competing web sites did not charge a membership fee. As such, we decided to eliminate the monthly membership fee on January 19, 2000, because we believed that it would increase our ability to attract new customers. At that time, there were 1,330 enrolled members. Payment. Payment for orders placed on the nutritioncafe.com website may be made by check, money order or credit card. Because of consumer concern on the issue of utilizing their credit card for Internet purchases, we utilize secure server software. This software encrypts all of the customer personal information including credit card number, name and address, so that it cannot be read during Internet transmission. Availability and Shipment. Most of the products that are ordered from the Nutrition Cafe site would be available for shipment within forty-eight (48) hours. Those products not in stock can be ordered from various distributors or directly from the manufacturer. Delivery time for these products can range from two (2) to four (4) weeks. Orders are planned to be shipped via UPS ground transportation. Express delivery options will be available at an additional cost. Our goal is to continue developing our distribution infrastructure to increase efficiency and support greater customer demand. Marketing And Promotion. Our marketing strategy is designed to strengthen the nutritioncafe.com brand name, to increase customer traffic to the nutritioncafe.com website, to build customer loyalty, to increase the membership base and to encourage repeat business. We intend to utilize traditional advertising media to gain name recognition in the general public including television, radio and print advertising. We also intend to utilize banners, agreements with search engine providers and hyperlinks. All products 9 sold on our website are offered with a 100% money back guarantee, if the customer is dissatisfied for any reason with the purchase. Competition. The online commerce market, particularly over the Web, is new, rapidly evolving and intensely competitive. Our current or potential competitors include Rexall Sundown, Metabolife and Lifetrends International, each of which may be or are currently offering their products on the Web. We also face competition from such indirect sources as Yahoo and AOL that are involved in online commerce either directly or in collaboration with other retailers, traditional retailers who currently sell, or who may sell, products or services through the Internet. We believe that the principal competitive edge in our market will be brand recognition, price, selection, and a knowledgeable provider of health care products, reliability and speed of performance. As the online commerce market continues to grow, other companies may enter into business combinations or alliances that strengthen their competitive positions. Our prospective customers already have the opportunity to purchase various nutritional supplements from various websites including greentree.com, rx.com, drugstore.com and vitamin.com. Retail Location. On May 15, 1999, we opened a Nutrition Cafe retail store at our warehouse facility in Clearwater. The retail establishment occupies approximately 1,300 square feet of space and caters primarily to local clientele. We expect to use this store to test the viability of opening additional Nutrition Cafe retail establishments. Raw Materials, Suppliers and Manufacturing. While we employ our own consultants to develop new product mixes, we do not currently manufacture any of our products; instead, we rely on third-party contract manufacturers. Currently, Innovative Labs, Phillips Pharmatech Labs, Inc., Dolisos America, Inc. and Five Star Brands, Inc. manufacture most of the products for TrimFast and Body Life Sciences. We procure raw materials from various suppliers, but we contract our finished product production to one third party primarily. Since December 1998, we have used a second production factory for some of our products to reduce the risk of having a sole producer of our products or in the event that any manufacturer ceases operations or cannot continue to manufacture any product for us. We believe that there will be little difficulty in locating a manufacturer to produce any of our products without delivery delays or significantly higher costs. The raw materials required for the manufacture of our products are readily available from a number of different sources. As such, we do not believe there will be any difficulties obtaining the required raw materials. III. Bottled Water Activities. We recently acquired the assets of Ice Water, a bottled water distributor located in the Tampa, Florida area. Ice Water delivers bottled water to a base of customers in the Tampa, Florida area. Customers typically either own or rent their water coolers from Ice Water. Rental customers typically sign a one-year contract, providing Ice Water with a modest, but relatively stable stream of 10 revenue from both a monthly cooler rental charge and the sale of bottled water. Water only customers generate revenues for us through the sale of bottled water and ancillary services such as cooler repairs. We believe that direct delivery water cooler companies enjoy several advantages over retailers of bottled water. Management believes the strong industry growth has been and will continue to be driven by: (i) concerns related to the quality of tap water sources, (ii) consumer preferences for healthy products, (iii) taste preferences over tap water and other refreshment beverages and (iv) favorable demographics. Tap Water Concerns. The aging of the tap water supply infrastructure and the high cost of adequately maintaining or replacing existing water delivery systems have resulted in an increase in tap water contamination incidences in recent years. Consequently, there has been a decrease in consumers' confidence in the quality of tap water, accompanied by an increase in consumption of bottled water. Management believes that this trend will continue. Healthy Products. There is a movement toward a healthier lifestyle and the consumption of healthy products, a theme that we attempt to promote in our varied line of products. Within the "healthy products" segment, clear or natural colored products are experiencing significant growth. Bottled water is perceived as a product with strong health and fitness appeal. Competition. The bottled water industry is highly fragmented in North America. The bottled water market is comprised of approximately 2,500 companies generating approximately $4.0 billion in sales. Of these companies, the five largest companies account for approximately 55% of the total market, with the remainder comprised of hundreds of small regional companies. Management believes that the industry will continue to consolidate as (i) operating leverage of the larger companies makes the smaller companies uncompetitive, (ii) succession issues at many smaller, family owned companies lead a number of independent companies to exit the industry, and (iii) pressure to meet improving water quality standards eliminates low quality producers. We compete in the "alternative to tap water" market in two areas. First, we compete directly with other home and office delivery bottled water companies in our geographic markets. This segment is highly fragmented with the vast majority of the companies being operated as small entrepreneurial and family-owned businesses. We also compete indirectly with companies that distribute water through retail stores and vending machines. Management believes that the competitive advantage of water coolers over these alternative distribution channels is primarily based on the convenience of home or office delivery and, to a lesser extent, price. Similarly, we compete with providers of on-premises water filtration systems, including systems distributed through retail outlets, which we believe are aimed at less affluent consumers. In certain markets, we market and provide on-premises water filtration systems. 11 The "alternative to tap water" industry also includes a number of well-established, well-capitalized companies. These include Nestle S.A., which owns Perrier and the Perrier Group of America. Perrier Group of America operates the Arrowhead, Poland Spring, Zephyrhills, Ozarka, Oasis and Great Bear brands. Suntory owns Belmont Springs, Hinkley & Schmitt, Crystal, Kentwood, and Polar. BSN Group owns the Evian and Dannon brands and also operates the Crystal Spring (Toronto), Spring Valley, and Laurentian businesses. McKesson Corporation operates the Sparkletts business. Ionics Incorporated operates the Aquacool businesses. In addition, United States Filter Corp. and Culligan Water Technologies, Inc. compete in the water filtration segment. Business and Products. We primarily market two types of water. These are spring water and premium drinking water. Spring Water. Spring water is water that has been naturally filtered by its passage through various geological layers, and is drawn from a protected underground reservoir called an aquifer. It can then be either bottled at the source or transported in stainless steel tankers to a more strategically located bottling facility. Before bottling, spring water is passed through a micron filter that removes sediment while retaining the natural mineral content of the water. The water is then purified through an industry standard purification process known as ozonation. The Company draws its spring water from local sources. The spring water is bottled at the source or transported to an independently owned bottling facility. At the bottling facility, the spring water is filtered and ozonated. Ozonation is a process whereby impurities not removed through ordinary filtration are removed through the injection of oxygen. The process involves a special form of oxygen, ozone, which is the strongest disinfectant and oxidizing agent available for water treatment. The added oxygen quickly dissipates and results in tasteless and odorless purification as compared to chlorination. This process is designed to prevent bacteria and other contaminants from being transferred from the spring or the tanker to the finished product. Premium Drinking Water. Premium Drinking Water is drawn from local municipal sources. It is passed through a series of carbon and sand filters, processed by either reverse osmosis or deionization, ozonated and then bottled. Premium drinking water has 99.9% of all impurities removed from it, including its natural mineral content. Premium drinking water, like spring water is obtained from an independent bottler. Premium drinking water is accessed through local, publicly available water supplies. It is further purified through reverse osmosis to remove chlorine and other chemicals frequently found in tap water. The product then goes through the ozonation process prior to bottling as premium drinking water. All water is obtained from sources in the Tampa area. We do not do any bottling; rather, we rely upon independent bottlers to deliver our supply of water bottles and coolers that, in turn, are delivered to our customers. Water Coolers. 12 Rental customers typically sign a one-year contract, providing us with a stream of relatively stable revenue from both a monthly cooler rental charge and the sale of bottled water. While pricing varies depending on the water cooler selected and the lease term selected by the customer, our current average monthly rental charge for our coolers is approximately $8 -$10 per month. We strip down, clean, and redeploy returned water coolers prior to all new installations. Our average cost per water cooler is approximately $150, and we estimate that the average life of a water cooler is ten (10) years. The typical pay back period on a water cooler investment (assuming only rental revenue) is approximately fifteen (15) months. In the event of termination of the rental agreement, water coolers can be readily redeployed at a relatively low cost to us. In addition, we charge a water cooler collection fee in certain markets when a customer opts to discontinue purchasing water. Delivery. We believe that one of the most important success factors in the delivered bottled water business is delivery route efficiency. Route efficiency is the critical cost factor in the water cooler business, as the average cost of local delivery per bottle is over four (4) times the cost of preparing one (1) bottle for distribution. However, the marginal distribution cost of an additional bottle on an existing route is relatively low. Dependence on a Few Customers. As of December 31, 1998, we had only 79 customers, of whom one (1) accounted for sixty percent (60%) of our business and two (2) accounted for an additional thirteen percent (13%) of our business. Although, our marketing strategy contemplates increasing our customer base to 250 there are no assurances that we will meet this goal. Intellectual Property. We currently rely primarily on common law and proprietary protection. Our business prospects will depend largely upon our ability to capitalize on favorable consumer recognition of our trade names. We do not hold a trademark registration for most of our products. We have been granted trademarks in the state of Florida for TrimFast, Herbal Blast and Water with an Attitude. TrimFast has also been registered with the U.S. Patent and Trademark Office (75-029550). We have applied for trademark protection for Kicks. These applications are currently pending, have not been approved and may not ever be approved. Even, if obtained, there can be no assurance that our trademarks will not violate the proprietary rights of others or that our trademarks would be upheld and not prevented from using our trademarks, if challenged, any of which could have an adverse effect on us. It is possible that our competitors will adopt product or service names similar to ours, thereby impeding our ability to build brand identity and possibly leading to customer confusion. Our inability to protect our trade names will have a material adverse effect on our business, results of operations and financial condition. We also rely on trade secrets and proprietary know-how, and employ various methods, to protect our concepts. However, such methods may not afford complete protection, and there can be no assurance that others will not independently develop similar know-how or obtain access to our know-how and concepts. We do not maintain confidentiality or 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 our trade secrets. Third parties may assert infringement claims against us or 13 against third parties upon whom we rely and, in the event of an unfavorable ruling on any claim, we may be unable to obtain a license or similar agreement to use technology that we rely upon to conduct our business. Unlike pharmaceutical products that rely on specific combinations of drugs and chemicals, patents cannot protect herbal products. However, management believes that simply knowing the ingredients to an herbal product does not mean that other manufacturers can duplicate the product. Effective trademark, copyright and trade secret protection may not be available in every country in which we may offer or intend to offer or sell our products. Failure to adequately protect our intellectual property rights could harm brand-name recognition, devalue our proprietary content and adversely affect our ability to compete effectively in the marketplace. Further, defending the intellectual property rights could result in the expenditure of significant financial and managerial resources, which could materially affect the operations of the business. While we believe that our steps are adequate to secure our intellectual property rights, there can be no assurance that a third party will not misappropriate any of our proprietary information. Government Approval and Regulation. We do not plan to collect sales or other similar taxes in respect of goods sold by our Nutriction Cafe.com website except where required by law for purchasers located in certain jurisdictions. However, one or more states or the federal government may seek to impose sales tax collection obligations on out-of-state companies (such as nutritioncafe.com) which engage in or facilitate online commerce, and a number of proposals have been made at the state and local level that would impose additional taxes on the sale of goods and services through the Internet. Such proposals, if adopted, could substantially impair the growth of electronic commerce, and could adversely affect our opportunity to derive financial benefit from such activities. Due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted with respect to the Internet, covering issues such as user privacy, pricing, and characteristics and quality of products and services. Furthermore, the growth and development of the market for Internet commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on those companies conducting business over the Internet. The adoption of any additional laws or regulations may decrease the growth of the Internet, which, in turn, could decrease the demand for our Internet products and increase our cost of doing business or otherwise have an adverse effect on our business, results of operations and financial condition. Moreover, the applicability to the Internet of existing laws in various jurisdictions governing issues such as sales tax, libel and personal privacy is uncertain and may take years to resolve. In addition, since our service is available over the Internet in multiple states and we may sell to numerous consumer residents in such states, such jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each such state. Our failure to qualify as a foreign corporation in a jurisdiction where we are required to do so could subject our business to taxes and penalties for failure to qualify. Any such existing or new legislation or regulation, including state sales tax, or the application of laws or regulations from jurisdictions whose laws do not currently apply to our business, could have a material adverse effect on our business, results of operations and financial condition. 14 The manufacturing, processing, formulating, packaging, labeling, distributing, selling and advertising of our products are subject to regulation by one or more federal agencies. The most active regulation has been administered by The Food and Drug Administration (hereinafter the "FDA") which regulates our products pursuant to the Federal Food, Drug and Cosmetic Act (hereinafter the "FDCA") and regulations promulgated thereunder. In particular, the FDA regulates the safety, manufacturing, labeling and distribution of dietary supplements, including vitamins, minerals and herbs, food additives, food supplements, over-the-counter drugs and prescription drugs, medical devices and cosmetics. In addition, the Federal Trade Commission (hereinafter the "FTC") has overlapping jurisdiction with the FDA to regulate the labeling, promotion and advertising of dietary supplements, over the counter drugs, cosmetics and foods. Although the dietary supplement industry is subject to regulation by the FDA and local authorities, dietary supplements, including vitamins, minerals, herbs and other dietary ingredients, now have been statutorily affirmed as a "food." Dietary supplement companies are authorized to make substantiated statements of nutritional support and, subject to several possible limitations, to market manufacture-substantiated-as-safe dietary supplement products without FDA pre-clearance. Failure to comply with applicable FDA requirements can result in sanctions being imposed on the Company or the manufacturers of our products, including but not limited to fines, injunctions, product recalls, seizures and criminal prosecution. Compliance with applicable FDA and any state or local statutes is critical. Although we believe that we are in compliance with applicable statutes, there can be no assurance that, should the FDA amend its guidelines or impose more stringent interpretations of current laws or regulations, we would be able to comply with these new guidelines. We are unable to predict the nature of such future laws, regulations, interpretations or applications, nor can we predict what effect additional governmental regulations or administrative orders, when and if promulgated, would have on our business in the future. These regulations could, however, require the reformation of certain products to meet new standards, market withdrawal or discontinuation of certain products not able to be reformulated, imposition of additional record keeping requirements, expanded documentation regarding the properties of certain products, expanded or different labeling and/or additional scientific substantiation. The FDCA has been amended several times with respect to dietary supplements, most recently by the Dietary Supplement Health and Education Act of 1994 (hereinafter "DSHEA"). DSHEA was enacted on October 15, 1994. It provides a new statutory framework governing the composition and labeling of dietary supplements. DSHEA provides a regulatory framework to ensure safe, quality dietary supplements and the dissemination of accurate information about such products. Under DSHEA, dietary supplements are generally excluded from the legal definition of "food additive." With respect to composition, DSHEA created a new class of "dietary supplements", consisting of vitamins, minerals, herbs, amino acids and other dietary substances for human use to supplement the diet, as well as concentrates, metabolites, extracts or combinations of such dietary ingredients. Generally, under DSHEA, dietary ingredients that were on the market before October 15, 1994 may be sold without FDA pre-approval and without notifying the FDA. On the other hand, a new dietary 15 ingredient (one not lawfully on the market before October 15, 1994) requires proof that it has been present in the food supply as an article used for food without being chemically altered, or evidence of a history of use or other evidence of safety establishing that it is reasonably expected to be safe. The FDA must be supplied with such evidence at least seventy-five (75) days before the initial introduction into interstate commerce use of a new dietary ingredient. There can be no assurance that the FDA will accept the evidence of safety for any new dietary ingredients that we may decide to use, and the FDA's refusal to accept such evidence could result in regulation of such dietary ingredients as adulterated until such time as reasonable expectation of safety for the ingredient can be established to the satisfaction of the FDA. As for labeling, DSHEA permits "statements of nutritional support" for dietary supplements without FDA pre-approval. Such statements may describe how particular dietary ingredients affect the structure, function or general well-being of the body, or the mechanism of action by which a dietary ingredient may affect body structure, function or well-being (but may not state that a dietary supplement will diagnose, mitigate, treat, cure or prevent a disease). A company making a statement of nutritional support must possess substantiating evidence for the statement, and, for such statements that are not about the effects on the body as a result of a dietary supplement used as a tool for its nutritive value and are not otherwise "health claims," disclose on the label that the FDA has not reviewed that statement and that the product is not intended for use for a disease, and notify the FDA of the statement within thirty (30) days after its initial use. The manner for making the disclosure and notifying the FDA are set forth in the regulations. However, there can be no assurance that the FDA will not determine that a given statement of nutritional support that we decide to make is a drug claim rather than an acceptable nutritional support statement. Such a determination would require deletion of the drug claim or our submission, and the FDA's approval of a New Drug Application (hereinafter "NDA"), which would entail costly and time-consuming clinical studies. In addition, DSHEA allows the dissemination of "third party literature", publications such as reprints of scientific articles linking particular dietary ingredients with health benefits. Third party literature is exempted from FDA regulation as dietary supplement "labeling" and may be used in connection with the sale of dietary supplements to consumers. Such a publication may be so used if, among other things, it is not false or misleading, no particular manufacturer or brand of dietary supplement is promoted and a balanced view of available scientific information on the subject matter is presented. There can be no assurance, however, that all pieces of third party literature that may be disseminated in connection with our products will be determined by the FDA to satisfy each of these requirements, and any such failure could subject the product involved to regulation as a new drug or as a "misbranded" product. DSHEA permits substantiated, truthful and non-misleading statements of nutritional support to be made in labeling, such as statements describing general well being resulting from consumption of a dietary ingredient or the role of a nutrient or dietary ingredient in affecting or maintaining structure or function of the body. Any statement of nutritional support beyond traditional claims must be accompanied by disclosure that the FDA has not evaluated such statement and that the product is not intended to cure or prevent any disease. We anticipate that the FDA will promulgate Good Manufacturing Practices (hereinafter "GMPs"), which are specific to dietary supplements and require at least some of the quality control provisions contained in the GMPs for drugs. Management anticipates that the FDA may promulgate GMP regulations authorized by DSHEA, which are 16 specific to dietary supplements. GMP regulation would require supplements to be prepared, packaged and held in compliance with such rules, and may require similar quality control provisions contained in the GMP regulations for drugs. There can be no assurance that, if the FDA adopts GMP regulations specific to dietary supplements, that either we or our manufacturers will be able to comply with such GMP rules upon promulgation or without incurring material expenses to do so. Our products and product related activities may also be subject to regulation by other regulatory agencies, including but not limited to the FTC, the Consumer Products Safety Commission, the United States Department of Agriculture, the United States Postal Service, the United States Environmental Protection Agency and the Occupational Safety and Health Administration. These activities are also regulated by various agencies of the states and localities in which our products are sold. Advertising of dietary supplement products is subject to regulation by the FTC under the Federal Trade Commission Act (hereinafter the "FTCA"). Section 5 of the FTCA prohibits unfair methods of competition and unfair or deceptive trade acts or practices in or affecting commerce. Section 12 of the FTCA provides that the dissemination or the causing to be disseminated of any false advertising pertaining to drugs or foods, which would include dietary supplements, is and unfair or deceptive act or practice. Under the FTC's Substantiation Doctrine, an advertiser is required to have a "reasonable basis" for all objective product claims before the claims are made. Pursuant to this FTC requirement, we are required to have adequate substantiation of all material advertising claims made for its products. Failure to adequately substantiate claims may be considered either deceptive or unfair practices. In recent years the FTC has initiated numerous investigations of dietary supplement and weight loss products and companies. The FTC has recently issued a guidance document to assist supplement marketers of dietary supplement products in understanding and complying with the substantiation requirement. The FTC is authorized to use a variety of processes and remedies for enforcement, both administratively and judicially including compulsory process, cease and desist orders, and injunctions. FTC enforcement can result in orders requiring, among other things, limits on advertising, corrective advertising, consumer redress, divestiture of assets, rescission of contracts and such other relief as may be deemed necessary. State and local authorities can also regulate advertising and labeling for dietary supplements and conventional foods. There can be no assurance that state and local authorities will not commence regulatory action that could restrict the permissible scope of our product claims. Employees. We currently have fifteen (15) employees, of whom eleven (11) are employed full-time and four (4) are employed part-time. Material Agreements. License Agreement with WCW. In June 1999 we developed our first private label product by entering into a licensing agreement with the World Championship Wrestling Organization ("WCW") 17 to produce Energy Bars in three flavors under the WCW brand name in the United States, its territories and possessions and its Military Installations. This license agreement is non-exclusive and expires on December 31, 2002. This agreement provides that we may use logos, slogans and the likeness of WCW wrestlers, as provided by WCW, on the labels of our energy bars, which have been designed to target an audience of millions of adults and children watching and attending professional wrestling matches. Our agreement with WCW provides that WCW will receive royalty payments of 6% of net sales with the following minimum payments guaranteed: (i) December 31, 1999 - - $100,000; (ii) June 30, 2000 - $100,000; (iii) September 30, 2000 - $100,000; (iv) December 31, 2000 - $100,000; and (v) June 30, 2001 - $100,000. There is no provision in this agreement to grant authority to our company to sell the Energy Bars at WCW wrestling matches. WCW would not be the proper party from which to obtain this authority, since the company which manages the location of each individual wrestling match would grant this authority. We have no plans of pursuing any such grant with any venue at which the WCW wrestling matches are held. Venture Direct Worldwide Agreement. On June 29, 1999 we entered into an agreement with Venture Direct Worldwide Inc. as agent for Microsoft Network to exclusively utilize the keywords vitamins, supplements and Sports Nutrition on the Microsoft Network. Venture Direct never provided any services to our company and the contract was terminated on December 31, 1999. May Davis Group of New York Agreement. We have entered into a series of agreements with the May Davis Group of New York, whereby the May Davis Group of New York acts as a placement agent for our securities offered and sold in private placements. In exchange for these services, May Davis Group of New York has been compensated with options to purchase forty thousand (40,000) shares of our common stock at a variable price depending on an equation involving the trading price at the time of exercise. Such options are exercisable for sixteen (16) months from the date of each agreement and have registration rights. Year 2000 Compliance. Our systems are Year 2000 ("Y2K") compliant. The cost of such compliance on our part was less than $5,000. The Y2K compliance issue is the result of computer programs being written using two digits rather than four to define the applicable year. Computer programs that have time sensitive software may recognize a date using "00" as the year 1900 rather than 2000. This could result in a systems failure or miscalculation causing disruption of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. We have verified that our two principal customers are Y2K compliant. We do not know if our other suppliers or distributors are Y2K compliant, but believe there will be no material adverse impact upon us if one of our individual distributors or manufacturers is not Y2K compliant. We have experienced no adverse affects related to the Y2K compliance issue at any time. We are unaware of any adverse affects experienced by any of our suppliers related to the Y2K compliance issue. 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS/PLAN OF OPERATION FINANCIAL STATEMENT PRESENTATION. The financial statements are presented without comparable 1998 quarterly information. We were not publicly traded in 1998 and systems, though adequate to address annual audit needs, were not in place to allow for extracting reliable quarterly information. We have presented the comparison with adjustments from the year end 1998 numbers. RESULTS OF OPERATIONS. December 31, 1997 and 1998 as compared to September 30, 1999 Sales for the nine months ended September 30, 1999 were $581,337 as compared to $1,925,332 for the year ended December 31, 1998 ($1,443,999 adjusted proportionately for the nine months ended September 30, 1998 and $22,338 as of December 31, 1997). The significant decline in sales from 1998 to 1999 is primarily attributable to our decision to discontinue the sale of Revivarant, a muscle replenishment supplement, which accounted for approximately $1.4 million of revenues during 1998. This decision was initiated by an industry wide investigation by the Food and Drug Administration into the active ingredient in Revivarant. Our salaries increased from $131,633 in 1997 to $221,773 in 1998 to $505,372 for the nine months ended September 30, 1999 for several reasons. Our 1999 salaries include increased expenses of support staff. Specifically, we added two administrative assistants, upgraded our accounting position to Chief Financial Officer and added a salesman to our staff. In addition, during 1999 we added two new subsidiaries, Ice Cold Water and Nutrition Cafe, which account for approximately 40% of the increased salary reported. Moreover, the employment market in Tampa has been highly competitive in 1999 resulting in our company paying higher wages to all employees to retain and recruit qualified employees. Management expected that the introduction of the IMMCEL and IMMMU product lines would add to revenues. However, customer acceptance proved disappointing and the prior owner, and key employee refused to honor his contractual commitments to manage the newly added subsidiaries. As a result, we have rescinded our agreement with the prior owners of IMMMU and IMMCEL and will focus on the expansion of our own line of nutritional supplements. All rights title and interest to the IMMMU/IMMCEL product lines will revert back to their prior owners, all consideration paid or received will be returned and any profits or losses generated from the operation on IMMMU and IMMCEL will be allocated to its prior owners. We recorded in the "Receivable - other" account the loss from operating IMMMU and IMMCEL for the period of time we managed those companies. We then recorded a 100% reserve against the balance. As of December 31, 1999, the receivable and reserve balances were $88,830. Management believes that a significant boost to its revenues will be generated from its licensing agreement with World Championship Wrestling ("WCW"). We intend to sell high nutrition, energy bars with the WCW logo and images of the various wrestling personalities. Both food brokers and retail stores have shown tremendous interest in the product. Although we have made shipments to small retailers, we anticipate that our shipments to large retailers will commence with the launch of our national advertising campaign, which is tentatively scheduled to begin in May. While there can 19 be no assurance that the product will meet anticipated demand, management believes that the sale of the WCW energy bars will be a significant source of revenues for the Company. With the acquisition, formation and expansion of business activities during 1999, operating expenses increased significantly. Salaries total $31,633 and $221,773 for the year ended December 31, 1997 and 1998 respectively, as compared to $505,372 for the nine months ended September 30, 1999. New employees had to be hired to handle the increased business activities of the Company. For the nine months ended September 30, 1999, we recorded $1,467,900 in professional fees. A significant portion of this amount is non-cash expense, representing the issuance of common stock to certain professionals in exchange for professional services. Management anticipates that professional fees will decline significantly in the future. Selling general and administrative expenses were $92,565 and $423,289 for the years ended December 31, 1997 and December 31, 1998 respectively, as compared to $623,451 for the nine months ended September 30, 1999. Approximately $175,000 of this increase was attributable to advertising for NutritionCafe. Approximately $250,000 of the interest expense of $354,569 is attributable to the intrinsic value of the convertible debenture executed by the Company. Net loss for the year ended December 31, 1997 was $151,846. Net income for the year ended December, 31 1998 was $22,026. Income before income taxes for the year ended December 31, 1998 was $42,626. We have generated a net loss of $3,478,802 for the nine months ended September 30, 1999 or net loss of $0.87 per share. LIQUIDITY AND CAPITAL RESOURCES. December 31, 1997 & 1998 as compared to September 30, 1999. Total cash and cash equivalents as of September 30, 1999 were $100,312 as compared to $120,938 as of December 31, 1998 and $17,658 as of December 31, 1997, a decline of approximately 17% from the period ending December 31, 1998 to the period ending September 30, 1999. Trade receivables were $4,889 at December 31, 1997 and $357,889 at December 31, 1998, including $267,240 related to Cutting Edge that was subsequently written off, but declined to $318,407 for the period ending September 30, 1999. Our 1998 trade receivables also included $11,745 related to IMMMU and IMMCEL, an amount for which we maintained adequate receivables and was fully reserved to cover an allowance for bad debt. Inventory was $23,699 at December 31, 1997, increased to $188,737 at December 31, 1998 and to $377,270 at September 30, 1999. This increase in inventory is attributable to the launch of Nutrition Cafe and the inventory that we are required to carry to meet customer orders. Total current assets were $46,246 at December 31, 1997 and $673,364 at December 31, 1998 and increased approximately 40% to $1,308,267 at September 30, 1999. 20 Property and equipment increased from $5,481 on December 31, 1997 to $33,403 on December 31, 1998 and to $1,459,270 on September 30, 1999. This increase is due primarily to our purchase of the facility, which houses our warehouse operations for Nutrition Cafe, and the equipment purchased to operate this facility. The $228,705 attributable to software development represents our investment in the Nutrition Cafe website software. We also experienced a significant increase in liabilities. Accounts payable increased from $14,873 on December 31, 1997 to $625,767 on December 31, 1998 and to $926,612 on September 30, 1999. In addition, we issued a convertible debt instrument in the amount of $1,000,000 in 1999. The proceeds raised from this debt offering were used to purchase the warehouse facility. Management believes that we have sufficient revenue and reserves to finance ongoing business activities. BUSINESS DEVELOPMENT. Trimfast, Inc. was organized as a Florida corporation in April of 1997 and, in its first year of operations generated revenues of $22,338. Start-up and operating costs totaled $164,559 that resulted in a net loss of $151,846. Trimfast, Inc.'s president, Michael Muzio, who, as of December 31, 1997, was owed a total of $150,200, funded these operating expenses. Fiscal year 1998 represented the first full year of operations for Trimfast, Inc. From the beginning, management chose not to invest the capital required to lease or acquire the machinery needed to manufacture their products. Instead, Trimfast, Inc. relied upon contract manufacturers, freeing working capital for other matters. At the beginning of August 1998, our assets were negligible, totaling $599. Liabilities at that time totaled $680,917 with no revenues being generated and no business plan in place. Accumulated losses totaled $1,122,218 with a stockholders deficiency of $680,318. Due to the lack of revenues and no business plan, our management sought out an acquisition candidate and, on August 11, 1998, acquired all of the issued and outstanding shares of common stock of Trimfast, Inc., a company engaged in the nutraceutical business. With the addition of our wholly owned subsidiary, Trimfast, Inc., revenues in 1998 were $1,925,332. Cost of sales was $567,472 resulting in a gross profit of $1,357,860. Operating expenses totaled $1,314,797 resulting in income from operations of $43,063. We recorded $503,839 in bad debt expense in December 1998. This sum was partially due to the financial difficulties experienced by Cutting Edge, a customer who accounted for approximately sixty percent (60%) of our revenues in 1998 and the bankruptcy of another customer. The bad debt expense of $267,240 attributable to Cutting Edge represented 50% of the receivable balance due from Cutting Edge at December 31, 1998 and was due to the failure of Cutting Edge to return product we sold to them. In December 1998, we recorded the bad debt expense relating to Cutting Edge and ceased doing business with them at that time. During 1998, a total of three (3) customers accounted for approximately seventy-three (73%) of our sales. Prior to our acquisition of Trimfast, Inc., Trimfast, Inc. was engaged in the nutraceutical business, distributing health and fitness products. 21 Our cash balance as of December 31, 1998 was $105,641. We also had approximately $358,000 in accounts receivable and $188,000 in inventory. Our total assets as of December 31, 1998 were $731,438. Liabilities totaled $718,467 that was comprised of approximately $626,000 in accounts payable, $72,000 in notes and $20,600 in income taxes payable. 1998 represented a growing year for us. Relationships with distributors, manufacturers and wholesalers had to be established. Manufacturing rates and shipping costs all had to be analyzed and evaluated. With our acquisition of Trimfast, Inc. in 1998, we opened new financing opportunities that would have otherwise been foreclosed to us. We received a significant capital infusion through the issuance of our common stock in private placements and borrowed funds from private lenders. 1999 saw our launch of the NutritionCafe website and the purchase of the assets of Ice Water. Management believes direct sales to consumers will significantly reduce reliance on several customers. During the next twelve months of operation, management remains confident that revenues from operations will be able to support our ongoing operations. Should the Company determine additional financing is necessary, the additional financing will be to expand current or proposed operations. Debentures. In June 1999, we entered into a debenture agreement. As a result, we have $1,000,000 of 7.0% convertible debentures outstanding, which mature on June 14, 2002. After the date of issuance and continuing until the maturity date of the Debentures, the Debentures may be converted, at the option of the holder, into shares of our common stock, $0.001 par value per share, at a conversion price equal to the lesser of $8.50 or 80.0% of the 5 day average closing bid price as reported by Bloomberg, LP for the five consecutive trading days prior to the conversion date. Interest will be paid on the Debentures at a rate of 7.0% per annum, at the time of any conversion, with respect to the principal amount of the Debenture being converted, until the principal amount is paid in full or has been converted entirely. Interest may be paid in cash or shares of common stock, at our option. With our twenty (20) days notice, we may redeem the Debentures in whole or in part at any such time as the closing bid price of our common stock, as reported by Bloomberg, LP, falls to $6.00 or less at a redemption price equal to the principal amount of the Debenture being redeemed plus accrued interest on such amount and the profit that the holder would have received upon conversions of that portion of the Debenture being redeemed. ITEM 3. DESCRIPTION OF PROPERTY Our executive offices are located at 777 South Harbour Island Boulevard, Suite 780, Tampa, Florida 33602, where we lease approximately 2,772 square feet of office space at a monthly rent of $5,197.50. We feel that this space is adequate for our needs at this time. The current lease term expires on October 31, 2004. Upon such expiration, we believe that we will be able to obtain renewal terms or a lease for new space at terms favorable to the Company. 22 We also exercised a lease option to acquire a 17,000 square foot warehouse facility in Clearwater, Florida. The total purchase price for the property was $1.2 million. On July 30, 1999, we paid for the warehouse facility in full with funds raised from the issuance of preferred stock and warrants. ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following tables set forth the ownership, as of September 30, 1999, of our common stock by our officers, directors and principal shareholders who are known by us to own, either beneficially or of record, more than 5% of said stock and by all directors as a group. Security Ownership of Certain Beneficial Owners.
TITLE OF NO. OF NATURE OF CURRENT CLASS NAME & ADDRESS SHARES OWNERSHIP %OWNED - ---------------------------------------------------------------------------------------------- Common Michael Muzio 1,194,203 Direct 26.30% 4957 Bayshore Blvd. Tampa, Florida 33611 Common Mark Sansom 344,000 Direct 07.58% 4061 South Powers Circle Salt Lake City, UT 84124 Security Ownership of Officers and Directors. TITLE OF NO. OF NATURE OF CLASS NAME & ADDRESS SHARES(1) OWNERSHIP %OWNED - ---------------------------------------------------------------------------------------------- Common Michael Muzio 1,194,203 Direct 26.30% 4957 Bayshore Blvd. Tampa, Florida 33611 Common Gregg Vosler 0 Direct 0% 851 Lantana Avenue Clearwater Beach, Florida 34630 Common Christopher Hee 1,590 Direct Less than 1% 3152 Fiesta Drive Dunedin, Florida 34689 Common John Troy 0 Direct 0% 4014 W Waters Avenue #1508 Tampa, Florida 33614 - ----------------------------------------------------------------------------------------------
23 All Officers and Directors as a Group (3 Individuals) 1,195,793 26.5%
(1) Any shares of Common stock underlying outstanding options, warrants or convertible debentures are included in the figures under number of shares. Changes in Control. There are currently no arrangements, which would result in a change in control of our Company. ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS Our Bylaws provide that we shall have a minimum of three (3) directors on the board at any one time. Vacancies are filled by a majority vote of the remaining directors then in office. The directors and executive officers of the Company are as follows: NAME AND ADDRESS AGE POSITIONS HELD - -------------------------------------------------------------------------------- Michael Muzio 35 President/Treasurer/Director 4957 Bayshore Blvd. Tampa Florida 33611 Gregg Vosler 52 Vice President/Secretary/Director 851 Lantana Avenue Clearwater Beach Florida 34630 Christopher Hee 58 Director 3152 Fiesta Drive Dunedin Florida 34689 John Troy 37 Chief Financial Officer 4014 W Waters Avenue #1508 Tampa, Florida 33614 The directors named above will serve until the next annual meeting of our shareholders or until their successors shall have been elected and accepted their positions. Directors are elected for one-year terms. Mr. Muzio, Mr. Vosler and Mr. Troy are parties to oral employment agreements with the Company that pays annual salaries of $150,000, $50,000 and $65,000 respectively. In addition, these oral employment agreements include provisions for family health insurance coverage through the Company, provisions for memberships at the Harbour Island Athletic Club, and Mr. Vosler has use of an automobile owned by the Company. We have no minimum or maximum bonuses, which are implied or expressly communicated, to any of our employees. Bonuses are only paid at the direction of our Board of Directors. All factors affecting performance are evaluated by our board of directors, including the company's overall 24 performance and the impact that individual had upon our performance. When appropriate, a bonus amount is proposed to the Board of Directors and is submitted for a vote. MICHAEL MUZIO: Since 1996, Mr. Muzio has served as president of the Company and Trimfast, Inc. Prior thereto, from 1991 until 1995 he served as chief executive officer of Advanced Medical Diagnostics, Inc. Research and development in health related products represent a significant portion of his prior work experience. In 1994, Mr. Muzio filed for Bankruptcy Protection under Chapter 7 in the Southern District of Florida, Case Number 93-5409-8P7. GREGG VOSLER: Mr. Vosler has served as vice president of the Company and Trimfast, Inc. since November of 1997. Previously, from June 1996 to November 1997, he served as Director of Development for Physician's Weight Loss Center in Akron, Ohio. In that capacity he was responsible for systems and franchise development in the United States. From 1993 through June 1996, he served as an independent consultant in the medical weight loss and health industry. CHRISTOPHER HEE: Mr. Hee was appointed to serve as a director of the Company on October 6, 1998. Dr. Hee received his M.D. degree at Sydney University, in Sydney, Australia. He completed his residency at State General Hospital in Melaka, Malaysia in 1975. Dr. Hee opened and operated four medical clinics in Tampin, Malaysia from 1981 to 1992. After gaining admission to practice medicine in the United States in 1992, Dr. Hee became the Chief Medical Officer of the Tampa Military Processing Station for the United States Department of Defense, where he still presently works. Dr. Hee provides the Board with the medical background and skills necessary for the Company to develop vitamins and supplements. JOHN TROY: Mr. Troy became our Chief Financial Officer in October of 1999. Prior to his current position, he served as a Controller for EnviroSys International from February to September of 1999. From November 1997 through October 1998, Mr. Troy was an Assistant Controller of Raymond James & Associates. From November 1995 through May of 1997, he was Accounting Manager at Lykes, Financial Services Division. Prior to this position, Mr. Troy was a Controller of Chico's FAS, Inc. until March of 1995. Mr. Troy obtained his Associates of Science Degree in May of 1988 from Holyoke Community College and his Bachelor of Science Degree in Accounting from Western New England College in 1990. ITEM 6. EXECUTIVE COMPENSATION Mr. Muzio, our president and treasurer, oversees the operations of the Trimfast, Inc. subsidiary and in consideration thereof, receives annual compensation of $150,000. Mr. Vosler, the Company's vice president and secretary, oversees sales and in consideration thereof receives annual compensation of $50,000. Mr. Muzio and Mr. Vosler exercise complete control over employee compensation. Mr. Troy is responsible for the accounting and financial reporting activities of the Company and receives annual compensation of $65,000. The terms and conditions of each officer's employment is reviewed annually by our Board of Directors who may also award annual bonuses. There is no compensation paid to our board 25 members for serving on the Board of Directors. However, board members are reimbursed for all costs and expenses incurred in either attending Board meetings or, for any expenses incurred on our behalf. The following table sets forth the compensation of the company's three (3) officers for the last three (3) fiscal years: SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Name & ------------------- ---------------------- Other Position Year Salary Bonus Other Stock SARs LTIP Comp - -------------------------------------------------------------------------------------------------------------------- Michael Muzio 1999 $150,000 $0 $0 $0 $0 $0 $0 President & 1998 $150,000 $0 $0 $240,000(1) $0 $0 $0 Treasurer 1997 $0 $0 $0 $0 $0 $0 $0 Gregg Vosler 1999 $50,000 $0 $0 $0 $0 $0 $0 Vice President 1998 $50,000 $0 $0 $96,000(1) $0 $0 $0 & Secretary 1997 $31,000 $0 $0 $0 $0 $0 $0 John Troy 1999 $52,500 $0 $0 $53,750(2) $0 $0 $0 Chief Financial 1998 $0 $0 $0 $0 $0 $0 $0 Officer 1997 $0 $0 $0 $0 $0 $0 $0
(1) The amount used in this table was calculated using the market close price for TRIM common stock on December 31, 1998. (2) The amount used in this table was calculated using the market close price for TRIM common stock on December 31, 1999. ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On August 12, 1998, we acquired all of the issued and outstanding shares of common stock of Trimfast, Inc., in exchange for the issuance of 1,370,049 shares of our common stock. In conjunction therewith, Michael Muzio acquired 975,000 shares of our common stock and Gregg Vosler was issued 120,000 shares of our common stock. As a result of this transaction the shareholders of Trimfast, Inc. gained control of our Company after August 12, 1998. On December 8, 1998, Mr. Muzio purchased all 508,313 shares of our outstanding common stock held beneficially by our prior principal shareholder in a private transaction. Effective December 31, 1998, our principal shareholder exchanged $126,664 of loans due to him by us for 70,358 shares of our common stock. The number of shares received by Mr. Muzio was on a dollar for dollar basis, based upon the outstanding debt obligation as of December 1, 1998 and the stock valued at $1.80 per share, with the debt due Mr. Muzio. During 1998, we issued 19,500 shares of our common stock to Marsha Hardin, an associate and business consultant to Mr. Muzio, in a related party exchange for a loan payable by us in the amount of $40,000. 26 Mr. Muzio has entered into an oral employment agreement with us, which pays him an annual compensation of $150,000. It is expected that we will renew this agreement in the year 2001. Mr. Vosler has entered into an oral employment agreement with us, which pays him an annual compensation of $50,000. It is expected that we will renew this agreement in the year 2001. As of January 1, 2000, Mr. Troy has entered into an oral employment agreement with us, which pays him an annual compensation of $65,000. It is expected that we will renew this agreement in the year 2001. We periodically advance funds to the principal stockholder and his affiliates as well as borrow funds from the same parties. All of these amounts are interest free without specific repayment terms. Such amounts do not exceed $60,000, and we do not currently anticipate any repayment through issuances of our common or preferred stock. ITEM 8. DESCRIPTION OF SECURITIES The following description is a summary and is qualified in its entirety by the provisions of our Articles of Incorporation and Bylaws, copies of which have been filed as exhibits to the Registration Statement. COMMON STOCK. General. We are authorized to issue one-hundred million (100,000,000) shares of common stock having a par value of $ 0.001 per share. As of September 30, 1999, there were 4,540,978 common shares issued and outstanding. All shares of common stock outstanding are validly issued, fully paid and non-assessable. Voting Rights. Each share of common stock entitles the holder thereof to one vote, either in person or by proxy, at meetings of shareholders. The holders are not permitted to vote their shares cumulatively. Accordingly, the holders of common stock holding, in the aggregate, more than fifty percent (50%) of the total voting rights can elect all of our directors and, in such event, the holders of the remaining minority shares will not be able to elect any of such directors. The vote of the holders of a majority of the issued and outstanding shares of common stock entitled to vote thereon is sufficient to authorize, affirm, ratify or consent to any item submitted a vote of the shareholders, except as otherwise provided by law. Dividend Policy. All shares of common stock are entitled to participate ratably in dividends when and as declared by our Board of Directors out of the funds legally available therefore and subject to the rights, if any, of the holders of outstanding shares of preferred stock. Any such dividends may be paid in cash, property or additional shares of common stock. We have not paid any dividends since our inception and presently anticipate that all earnings, if any, will be retained for development of our business, and that no dividends on the shares of common stock will be declared in the foreseeable future. Any future dividends will be subject to the discretion of our Board of Directors and will depend upon, among other things, our future earnings, operating and financial condition, our capital requirements, general 27 business conditions and other pertinent facts. Therefore, there can be no assurance that any dividends on the common stock will be paid in the future. Miscellaneous Rights and Provisions. Holders of common stock have no preemptive or other subscription rights, conversion rights, redemption or sinking fund provisions. In the event of our dissolution, whether voluntary or involuntary, each share of common stock is entitled to share ratably in any assets available for distribution to holders of our equity after satisfaction of all liabilities and payment of the applicable liquidation preference of any outstanding shares of preferred stock. Under Nevada law, stockholders may take certain actions without the holding of a meeting by a written consent or consents signed by the holders of a majority of the outstanding shares of the capital stock of the company entitled to vote thereon. Prompt notice of the taking of any action without a meeting by less than unanimous consent of the stockholders will be given to those stockholders who do not consent in writing to the action. The purposes of this provision are to facilitate action by stockholders and to reduce corporate expense associated with annual special meetings of the shareholders. If shareholder action is taken by written consent, we will be required to send each shareholder entitled to vote on the applicable matter, but whose consent was not solicited, an information statement containing information about the action taken. PREFERRED STOCK. We have authorized the issuance of twenty million (20,000,000) shares of Class A Preferred Stock with a par value of $0.01 and twenty-million (20,000,000) shares of Class B Preferred Stock with a par value of $0.01. These shares have such rights and preferences as determined by the Board of Directors. The Board of Director's ability to issue preferred stock without further shareholder approval has the potential to delay, defer or prevent a change in control of the Company. As of July 16, 1999, there were 15,000 shares of Series A Preferred Stock, par value $0.01 per share, outstanding. According to the terms of the Security Purchase Agreement for these shares signed on the same date, such shares were purchased at a price of $100.00 per share. The shares are (i) validly issued, fully paid and non-assessable and (ii) free from all taxes, liens and charges with respect to the issue thereof. All shares of our common stock are declared junior in rank to such Series A preferred shares. Dividends. Regular Dividends. Each holder of the preferred shares shall be entitled to receive on each July 1 and January 1, or if such date is not a business day, the immediately subsequent business day, commencing January 1, 2000, dividends at a rate of eight percent (8%) per annum, computed on the basis of $100.00 per preferred share. Such dividends shall be cumulative from (and including) the issuance date of such preferred shares and shall accrue daily, whether or not earned or declared, thereafter until paid, and shall be calculated on the basis of a 360 day year. Dividends shall be payable in cash; provided, however, that in lieu of paying such dividends in cash, we may, at our option, pay any or all of such dividends by delivery of a number of shares of our common stock equal to the quotient of (x) the dollar amount of the Regular Dividends to be paid on such date, divided by (y) the conversion 28 price, as provided by agreement, determined on the day which is the third (3rd) business day prior to the date. Participating Dividends. In the event any dividend or other distribution payable in cash or other property is declared on our common stock, each Series A preferred shareholder on the record date for such dividend or distribution shall be entitled to receive, per preferred share on the date of payment or distribution of such dividend or other distribution, the amount of cash or property equal to the cash or property which would be received by the Series A preferred shareholders of the number of shares of common stock into which such preferred share would be converted immediately prior to such record date. Conversion. Any holder of the Series A preferred shares shall be entitled to convert any whole number of preferred shares into fully paid and nonassessable shares of Common Stock in accordance with the Certificate of Designations, Preferences and Rights for such preferred shares. Without our prior consent, a holder shall not be entitled to convert any preferred shares during the period beginning on and including the issuance date and ending on and including the date that is 120 days after such issuance date. We shall not issue any fraction of a share of common stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of common stock, we shall round such fraction of a share of common stock up to the nearest whole share. Each share of the Series A Preferred Stock is convertible at the lesser of (a) $8.5938 or (b) 80% of the market price of the common stock as defined in the agreement and is subject to adjustment as provided in the Certificate of Designations, Preferences and Rights for such preferred shares which is included as an exhibit to this Registration Statement. Adjustment is provided for in situations such as, but not limited to: our issuance of options, our issuance of convertible securities, or our change or alternative treatment of option prices or prices of conversion. Voting. Holders of Series A preferred shares shall have no voting rights, except as required by law, including but not limited to the General Corporation Law of the State of Nevada, and as expressly provided in the Certificate of Designations, Preferences and Rights. The person or persons entitled to receive the shares of common stock issuable upon a conversion of Series A preferred shares shall be treated for all purposes as the record holder or holders of such shares of common stock, with rights described above, on the date of conversion. Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of the Series A preferred shares shall be entitled to receive in cash out of our assets, whether from capital or from earnings available for distribution to our stockholders, before any amount shall be paid to the holders of any of our capital stock of any class junior in rank to the preferred shares in respect of the preferences as to the distributions and payments upon our liquidation, dissolution and winding up, an amount per preferred share equal to $100 and any accrued but unpaid Regular Dividends and Participating Dividends. If insufficient funds are available to fulfill this obligation, 29 each Series A preferred shareholder would receive his pro rata share. Redemption. In addition to all other rights of the holders of Series A preferred shares, upon our consummation of a major transaction or triggering event, as defined by the Certificate of Designations, Preferences and Rights for such preferred shares, each holder of Series A preferred shares shall have the right, at their option, to require us to redeem all or a portion of such holder's preferred shares at a price per Series A preferred share equal to the greater of (i) 125% of the stated value of such preferred share and (ii) the product of the conversion rate in effect at such time as such holder delivers a Notice of Redemption at Option of Buyer and the Closing Sale Price of our common stock on the date immediately preceding such major transaction or triggering event on which the principal market, or the market or exchange where the common stock is then traded, is open for trading. Taxes. We shall pay any and all taxes that may be payable with respect to the issuance and delivery of common stock upon the conversion of Series A preferred shares. THE FOLLOWING DESCRIPTIONS OF CERTAIN TERMS OF THE DEBENTURES AND WARRANTS DO NOT PURPORT TO BE COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE DEBENTURES AND WARRANTS PURSUANT TO WHICH THE DEBENTURES AND WARRANTS WERE ISSUED, A COPY OF WHICH IS AN EXHIBIT TO THE REGISTRATION STATEMENT. TERMS (WHETHER OR NOT CAPITALIZED) USED BUT NOT DEFINED IN THIS SECTION HAVE THE MEANINGS GIVEN TO THEM IN THE RESPECTIVE WARRANTS OR DEBENTURES. WARRANTS. MAY 1999 WARRANTS. In General. We have warrants outstanding to purchase 20,000 common shares at an exercise price of $4.00 per share. These warrants are exercisable on any date until May 12, 2000. In addition, we have warrants outstanding to purchase 20,000 common shares at an exercise price of $7.00 per share. These warrants are exercisable on any date until May 13, 2000. These warrants carry no other rights or provisions. JULY 1999 WARRANTS. In General. We currently have Warrants outstanding affording the holders thereof the opportunity to purchase a total of 223,881 shares of our common stock. The holders of the Warrants are entitled to purchase each share of common stock at a price of $10.31 per common share (subject to adjustment as hereinafter provided) at any time until 11:59 p.m. Central Time on July 16, 2002. Unless exercised, the Warrants will automatically expire on July 16, 2002. The Warrant Agreement may be amended, subject to certain exceptions, by the Company and the warrant agent with the consent in writing of the holders of at least a majority of the Warrants, provided that no such action may increase the Warrant Exercise Price of the Warrants or decrease the number of shares or class of stock obtainable 30 upon exercise of any Warrants without the written consent of the holder of such Warrant. Adjustment of Warrant Exercise Price. The Warrant Exercise Price and the number of shares of common stock issuable upon exercise of the Warrant may be adjusted from time to time due to our subsequent issuance of any shares of common stock not issued in connection with an approved stock plan or upon exercise or conversion of the other Securities, our issuance of options, our issuance of convertible securities, our declaration of dividends or subscription rights, our subdivision or combination of common stock, our distribution of our assets other than dividends, or other certain events undertaken on our part including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features. Immediately upon any adjustment of the Warrant Exercise Price, we are required to give written notice thereof to the holders of these Warrants, setting forth in reasonable detail, and certifying the calculation of such adjustment. Further, we are required to give written notice to the holders of these Warrants at least twenty (20) days prior to the date on which we close our books or take a record (a) with respect to any dividend or distribution upon the common stock, (b) with respect to any pro rata subscription offer to holders of common stock or (c) for determining rights to vote with respect to any organic change, dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such holder. Failure to Issue. If we shall fail for any reason or for no reason to issue to the holder, on a timely basis as described in the Warrant, a certificate for the number of shares of common stock to which the holder is entitled upon the holder's exercise of this Warrant or a new Warrant for the number of shares of common stock to which such holder is entitled pursuant to the Warrant, we shall pay the amount of 0.25% of the product of (a) the number of shares of common stock not issued to the holder on a timely basis and to which the holder is entitled and/or, the number of shares represented by the portion of this Warrant which is not being converted, as the case may be, and (b) the average of the closing bid price of our common stock for the three consecutive trading days immediately preceding the last possible date which we could have issued such common stock or Warrant, as the case may be, to the holder as additional damages in cash each day the issuance of such common stock certificate or new Warrant, as the case may be, is not timely effected. Taxes. We shall pay any and all taxes which may be payable with respect to the issuance and delivery of Securities upon exercise of the Warrant. JULY 1999 WARRANTS. In General. We have warrants outstanding to purchase 18,000 common shares at an exercise price of $4.00 per share. These warrants are exercisable on any date until July 26, 2000. In addition, we have warrants outstanding to purchase 50,000 common shares at an exercise price of $4.00 per share. These 31 warrants are exercisable on any date until July 29, 2000. These warrants carry no other rights or provisions. DEBENTURES. In General. We have $1,000,000 of 7.0% convertible debentures outstanding, which mature on June 14, 2002. After the date of issuance and continuing until the maturity date of the Debentures, the Debentures may be converted, at the option of the holder, into shares of our common stock, $0.001 par value per share at a conversion price equal to the lesser of $8.50 or 80.0% of the 5 day average closing bid price as reported by Bloomberg, LP for the five consecutive trading days prior to the conversion date. Interest. Interest will be paid on the Debentures at a rate of 7.0% per annum, at the time of any conversion, with respect to the principal amount of the Debenture being converted, until the principal amount is paid in full or has been converted entirely. Interest may be paid in cash or shares of common stock, at our option. Redemption. With our twenty (20) days notice, we may redeem the Debentures in whole or in part at any such time as the closing bid price of our common stock, as reported by Bloomberg, LP, falls to $6.00 or less at a redemption price equal to the principal amount of the Debenture being redeemed plus accrued interest on such amount and the profit that the holder would have received upon conversions of that portion of the Debenture being redeemed. Marketability. Prior to this offering, there has been no public market for the Debentures and a limited public market for our common stock. There can be no assurance that a public market will develop for the Debentures or that the public market for the common stock will continue after the closing of this offering. The terms of the Debentures were determined by negotiation between the parties bound thereby and do not necessarily bear any direct relationship to our assets, earnings, book value per share or other generally accepted criteria of value. Our common stock is presently quoted on the OTCBB under the trading symbol "TRIM." Taxes and Fees. We shall pay any and all documentary, stamp, or similar issue or transfer tax due on the issue of shares of common stock upon conversion of the Debenture. Conversion of Debentures. The holder of a Debenture will be entitled at any time prior to the close of business on June 14, 2002, subject to prior redemption and conversion, to convert the Debentures in denominations of $5,000, or multiples thereof, at the principal amount thereof, into shares of our common stock at the conversion price of conversion price of the lesser of $8.50 or 80.0% of the 5 day average closing bid price as reported by Bloomberg, LP, for the five consecutive trading days prior to the conversion date. We will 32 not issue fractional shares upon conversion of Debentures. Instead, we will round up or down, as the case may be, to the nearest whole share. The number of shares of common stock purchasable upon the conversion of the debenture is subject to adjustment in certain events, as set forth in the Debentures. Such adjustments include the issuance of our stock as a dividend or distribution on the common stock; subdivisions, combinations and reclassifications of the common stock; the issuance to all holders of common stock of certain rights (but only when the rights become exercisable) or warrants entitling them to subscribe for our common stock at less than the current market price; except for cash dividends permitted by the Indenture, the distribution to all holders of our common stock of our assets or debt securities or rights (other than those referred to above, but only when such additional rights become exercisable) or warrants (other than those referred to above) to purchase our assets, debt securities or other securities; the issuance, in certain circumstances, of shares of our common stock for less than the then current market price; and the issuance in certain circumstances of securities which are convertible into or exchangeable for common stock (other than pursuant to transactions described above) for a consideration per share less than the then current market price of the common stock. If we consolidate or merge with or into or transfer or lease all or substantially all of our assets to any person, the person must assume in writing our obligations under the Debenture. Events of Default. In the event that the common stock is not delivered per the written instruction of the Debenture holder, within seven (7) business days of the conversion date, we must pay the Debenture holder one percent (1.0%) in cash of the dollar value of the Debentures being converted per each day after the seventh (7th) business day following the conversion date that the common stock is not delivered. A provision for liquidated damages is also included in the Debenture in order to provide for damages that would be difficult to ascertain in the case of default on our part. Should the delivery of shares of common stock upon conversion be delayed by our failure to have the common stock necessary for complete conversion available, we have agreed to pay to all holders of the outstanding Debentures for conversion default. The exact terms of such conversion default payment are included in the Debenture. An Event of Default occurs if we default in payment of any principal of the Debenture when the same becomes due and payable at maturity, upon redemption or otherwise; default for five (5) business days on a payment other than the principal; fail to comply with the provisions of the Debenture for the period and after the notice required by the Debenture; engage in certain events of bankruptcy, insolvency or reorganization; or fail to maintain listing on any recognized exchange including the OTCBB. We must cure such default within five (5) business days of such notice as provided for in the Debenture, or the Debenture holder will have the right to accelerate the payments due and declare the remaining principal amount of the Debenture to be due and payable upon such failure to cure. SHARES ELIGIBLE FOR FUTURE SALE. A significant portion of the shares of our common stock currently outstanding are "restricted 33 securities" within the meaning of Rule 144 promulgated under the Securities Act, and may not be sold except in compliance with the registration requirements of the Securities Act or an applicable exemption under the Securities Act, including an exemption pursuant to Rule 144 thereunder. In general, under Rule 144 as currently in effect, any of our affiliates and any person (or persons whose sales are aggregated) who has beneficially owned his or her restricted shares for at least one year, may be entitled to sell in the open market within any three-month period a number of shares of common stock that does not exceed the greater of (i) 1% of the then outstanding shares of our common stock, or (ii) the average weekly trading volume in the common stock during the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to certain limitations on manner of sale, notice requirements, and availability of current public information about us. Non-affiliates who have held their restricted shares for one year may be entitled to sell their shares under Rule 144 without regard to any of the above limitations, provided they have not been affiliates for the three months preceding such sale. Further, Rule 144A as currently in effect, in general, permits unlimited resales of certain restricted securities of any issuer provided that the purchaser is an institution that owns and invests on a discretionary basis at least $100 million in securities or is a registered broker-dealer that owns and invests $10 million in securities. Rule 144A allows our existing stockholders to sell their shares of common stock to such institutions and registered broker-dealers without regard to any volume or other restrictions. Unlike under Rule 144, restricted securities sold under Rule 144A to non-affiliates do not lose their status as restricted securities. TRANSFER AGENT. Florida Atlantic Stock Transfer, located in Tamarac, Florida, has recently been appointed the transfer agent of our common stock and preferred stock. Our prior transfer agent was in Nevada, and we wanted to appoint a transfer agent in the Eastern Standard Time Zone for convenience purposes. 34 PART II. ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Market Information. Our common stock is currently traded on the National Association of Securities Dealers Automated Quotation System Over the Counter Bulletin Board ("OTCBB") under the symbol "TRIM." As of December 31, 1999, there were 4,517,362 common shares and 15,000 preferred shares outstanding. There is limited trading activity in our securities, and there can be no assurance a regular trading market for our common stock will be sustained. The following table sets forth, for the period indicated, the bid price range of our common stock. Please note that the prices reflected prior to August 12, 1998 reflect those of World Group and are not representative of the current business activities reflected throughout this registration statement. High Bid Low Bid -------- ------- 1997 Quarter Ended March 31, 1997 $ 9.00 $ 3.37 Quarter Ended June 30, 1997 5.50 1.55 Quarter Ended September 30, 1997 3.75 1.50 Quarter Ended December 31, 1997 2.62 0.25 1998 Quarter Ended March 31, 1998 $12.50 $ 2.50 Quarter Ended June 30, 1998 5.31 3.10 Quarter Ended September 30, 1998 2.60 1.50 Quarter Ended December 31, 1998 5.30 1.20 1999 Quarter Ended March 31, 1999 $ 6.31 $ 2.75 Quarter Ended June 30, 1999 10.37 5.12 Quarter Ended September 30, 1999 9.19 7.06 Quarter Ended December 31, 1999 7.31 4.00 Such market quotations reflect the high bid and low prices as reflected by the OTC BB or by prices, without retail mark-up, markdown or commissions and may not necessarily represent actual transactions. The following companies serve as market makers for our securities: D.L. Cromwell, Wilson Davis and Knight Securities. Holders. As of June 1, 1999 there were approximately 159 holders of record of our common stock. 35 Dividends. We have not paid any cash dividends since our inception, and the Board of Directors does not contemplate doing so in the near future. Any decisions as to future payment of dividends will depend on our earnings and financial position and such other factors, as the Board of Directors deems relevant. ITEM 2. LEGAL PROCEEDINGS Product Liability. Three lawsuits have been filed against us in connection with the sale of Revivarant, a product containing the chemical GBL which has been determined by the Food and Drug Administration to be unsafe for human consumption. In an action filed in the District Court of the Fourth District of Idaho on June 7, 1999 (Case No. CV PI 9900250D; Jensen v. Body Life Sciences, Inc. & Trimfast Group, Inc. ), in an action filed in the Circuit Court for Harrison County, Mississippi on June 14, 1999 (Peck v. Trimfast Group, Inc.) and in a separate action filed in the Circuit Court of Tennessee for the Thirteenth Judicial District at Memphis on April 5, 1999 (Case No. 301672-5TD; Cliffton v. Body Life Sciences, Inc., seeking $400,000 in compensatory damages and $300,000 in punitive damages), the consumer of the product alleges serious harm, including seizures and loss of consciousness requiring hospitalization, from the consumption of Revivarant. In the Jensen case, the plaintiff has requested an unspecified amount of damages "to be proven at the time of trial, including punitive damages." In the Peck case, the plaintiff has requested an unspecified amount of "actual, compensatory and punitive damages." We estimate that the total damages sought in these cases may be millions of dollars in aggregate. We have retained counsel to represent our interests in these claims, but have not had a sufficient period of time to investigate the merits of these claims. We have received notice indicating that three other parties have hired counsel in connection with potential product liability claims arising from the use of Revivarant. This substance was sold throughout the United States in health stores. Pursuant to a voluntary agreement with the Food and Drug Administration, we have removed this product from sale. All of the aforementioned claims have been submitted to Royal Insurance Company. At the time that the alleged causes of action arose, we had product liability insurance under the policy of our third party manufacturer in the amount of $1,000,000 per occurrence and up to $2,000,000 in the aggregate. We have since obtained a company owned policy with an effective date of May 27, 1999. Our company owned product liability insurance will not be available to cover these claims, should we be found liable. As such, our business, results of operations and financial condition could be adversely affected, if we are found liable for these claims. Since our company owned product liability insurance only became effective on May 27, 1999, we may have no insurance coverage, other than under our third party manufacturer's policy, for the above mentioned claims or for future claims relating to the sale of Revivarant. Further, we have insufficient assets available to pay any such product liability claims. Any judgment or claim in favor of the Claimant could have a materially adverse effect our operations. 36 We are presently engaged in various legal actions as mentioned above, although ultimate liability for such other actions cannot be determined at the present time. As a result, our business could be adversely affected. Intellectual Property. In June of 1999, we received a written communication from counsel for Slimfast Foods Company including a demand to cease and desist use of the TrimFast name. To date, no litigation has been filed in this matter, and management feels confident that our registration of the name with the U.S. Patent and Trademark office as well as the State of Florida will be sufficient to defend this usage. We believe that there is no confusion between the TrimFast and Slimfast in the marketplace, and the matter has been referred to outside counsel for an opinion on this matter. Should Slimfast Foods Company file suit in this matter and a judgment be rendered against us, it could have a material adverse effect on our business and operations. Breach of Contract. Phillips Pharmatech Labs filed suit against us on July 12,1999 (County Court Pinellas 99-004791; Phillips Pharmatech Labs v. Body Life Sciences, Inc.) seeking damages in the amount of $14,000 in outstanding invoices for prior products not delivered. We have not had the opportunity to evaluate the likelihood of an unfavorable outcome in this suit, but plan to vigorously defend this action. Should a judgment be granted against us, the amount should not exceed the damages claimed. On June 14, 1999, a suit was filed against us for breach of contract (Case No. 99-8611CC; L.and N. Label Company, Inc. v. Trimfast, Inc.) claiming damages in the amount of approximately $10,500.00 as a result of labels being produced for us. We have not had the opportunity to evaluate the likelihood of an unfavorable outcome in this suit, but plan to vigorously defend this action. Should a judgment be granted against us, the amount should not exceed the damages claimed. On April 21, 1999, a suit was filed against us for breach of contract (Case No. 99-5117CC; Graffitti Graphics Corporation v. Trimfast, Inc.) claiming damages in the amount of approximately $5,500.00. We have not had the opportunity to evaluate the likelihood of an unfavorable outcome in this suit, but plan to vigorously defend this action. Should a judgment be granted against us, the amount should not exceed the damages claimed. On June 1, 1999, a suit was filed against us for breach of contract (Supreme Court of New Jersey Docket # BER-L-4756-99; Kingchem, Inc. v. TrimFast Group, Inc.) claiming damages in the amount of approximately $35,000. Kingchem was one of our suppliers, until a dispute arose about the quantity of supplies that had been delivered. This suit is a result of our inability to resolve the dispute. The parties have not reached any agreement and we have made no payments as of the date of this registration statement. Should a judgment be granted against us, the amount should not exceed the damages claimed. Other. 37 In 1999, we initiated a legal proceeding against a former major customer in April of 1999 (Case No. 99-003807; Body Life Sciences, Inc. v. Threshold Technology, Inc.) to collect amounts receivable from such customer in an approximate amount of $535,000.00 as of December 31, 1998. Such receivables related to products sold to that customer during 1998, a portion of which were voluntarily recalled by us in January 1999, but never returned by the customer. The amounts recalled included 27 boxes of (12 count) 32oz. Revivarant, 1 Box of (9 count) 32oz. Revivarant, 3 Bottles of 4oz. Revivarant, 29 Boxes of (12 count) 200g Revivarant and some individual products from these lines. These products were voluntarily recalled because they contained GBL, which was found by the FDA to cause significant and potentially dangerous sedating effects. These products have no commercial value as they were recalled. We have had difficulty ascertaining the domicile of corporation, and are in the process of attempting to confirm that we are making a claim against the appropriate defendant. Once this is ascertained, we will proceed with this action. Bankruptcy. We incorporated HLHK International Systems Pte Ltd., as a wholly owned subsidiary in the State of Nevada on July 8, 1996 to conduct telecommunications business in Malaysia and Singapore. This entity filed for bankruptcy protection in Singapore, and pursuant to The Companies Act Cap 50, the affairs of HLHK Interactive were wound up by High Court Order No. 84 of 1988 on May 22, 1998. We have no operations through this subsidiary and do not plan to have operations through this subsidiary in the future. ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS The accounting firm of Schvaneveldt and Company previously audited our financial statements. As a result of the stock exchange agreement entered into between the Shareholders of Trimfast, Inc. and us on August 12, 1998, there was a change in control of the Company and a relocation of our principal place of business from Las Vegas, Nevada to Tampa, Florida. As a result of this move, the Board of Directors felt that we would be better served by retaining an accounting firm located in the State of Florida. As a result, we engaged the firm of Weinberg & Co. to conduct our latest audit. ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES In April 1997, we issued 1,286,625 shares of our common stock to then existing shareholders of TrimFast, Inc. in reliance upon the exemption from registration contained in Section 4(2) of the Act, in our acquisition of TrimFast, Inc. We believed section 4(2) was available because there was no general solicitation or advertising used in connection with the offering and the transaction did not involve a public offering. During the period from June 1998 through August 1998, we issued 63,924 shares of our common stock for cash. These shares were issued pursuant to Section 4(2) of the Act. We believed section 4(2) was available because there was no general solicitation or advertising used in connection with the 38 offering and the transaction did not involve a public offering. In July 1998, we issued 19,500 shares of our common stock in repayment of a loan of $40,000 due by the Company. These shares were issued pursuant to Section 4(2) of the Act. We believed section 4(2) was available because there was no general solicitation or advertising used in connection with the offering and the transaction did not involve a public offering. On August 12, 1998, pursuant to the merger agreement and recapitalization of Trimfast Inc., the Company issued 817,749 shares of common stock to the prior stockholders of HLHK World Group, Inc. Additionally, on August 12, 1998 we issued 500 shares of our common stock to an employee for a bonus, 5,000 shares of our common stock in consideration of legal services provided to the Company and 75,000 shares of our common stock in exchange for and outstanding loan to principal stockholders in the amount of $491,123. In December 1998, we exchanged 70,358 shares of our common stock for an outstanding loan from Mr. Muzio to the Company for $126,574. These shares were issued pursuant to Section 4(2) of the Act. We believed section 4(2) was available because there was no general solicitation or advertising used in connection with the offering and the transaction did not involve a public offering. We conducted an offering pursuant to Rule 504 of Regulation D of the Securities Act of 1933, as amended, raising total cash proceeds of $934,500 and resulting in the issuance of 403,000 shares of common stock. At the time of the offering, we were not subject to the reporting requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We were not a development stage company at the time of the offering and had not raised funds in the twelve months prior to the offering in reliance on Section 3(b) of the Act. A Form D was filed in connection with the offering. These shares were purchased from February 9, 1999 through April 5, 1999. Each shareholder in this offering received subscription documents stating that the securities had not been registered under the Act, and subsequently made representations that they were purchasing for investment purposes only and not with a view toward distribution of the securities. On July 13, 1999, we issued 155,000 restricted shares of our common stock for $4.00 each to Aryeh Trading. Under this agreement, the Company can repurchase these shares at our discretion for $8.00 each. These shares were issued pursuant to Section 4(2) of the Act. We believed section 4(2) was available because there was no general solicitation or advertising used in connection with the offering and the transaction did not involve a public offering. In consideration other than cash, pursuant to various agreements we issued the following shares of our restricted common stock: On January 6, 1999, we issued 75,000 shares of our common stock to employees as bonuses. Additionally, we issued 402,100 shares of our common stock in consideration of various Consulting Services rendered to the Company. On January 18, 1999, we issued 82,950 shares on our common stock in consideration of various consulting services. These shares were issued pursuant to Section 39 4(2) of the Act. We believed section 4(2) was available because there was no general solicitation or advertising used in connection with the offering and the transaction did not involve a public offering. On February 8, 1999 we issued 30,000 shares of our common stock in consideration of consulting services. On February 9, 1999, we issued 20,000 shares of our common stock in consideration of Nutrition Consulting Services rendered to the Company. On February 19, 1999 we issued 220,000 shares of our common stock in consideration of Consulting Services rendered to the Company. On February 19, 1999, we issued 8,000 shares of our common stock and on April 21, 1999 we issued 2,500 shares of our common stock for cancellation of a bridge loan of $25,000 due by the Company. These shares were issued pursuant to Section 4(2) of the Act. We believed section 4(2) was available because there was no general solicitation or advertising used in connection with the offering and the transaction did not involve a public offering. On March 15, 1999 we issued 25,000 shares of our common stock in consideration of consulting services. On March 18, 1999, we issued 225,000 shares of our common stock to the then existing shareholders of IMMMU and IMMCEL in reliance upon the exemption from registration contained in Section 4(2) of the Act in our acquisitions of IMMMU and IMMCEL. This transaction was rescinded on October 23, 1999. These shares were issued pursuant to Section 4(2) of the Act. We believed section 4(2) was available because there was no general solicitation or advertising used in connection with the offering and the transaction did not involve a public offering. On April 5, 1999, we issued 42,500 shares of our common stock in consideration of Business & Legal Consulting Services rendered to the Company. On April 21, 1999, we issued 14,000 shares of our common stock in consideration of cancellation of a Bridge Loan due of $25,125. On April 22, 1999, we issued 20,000 shares of our common stock in consideration of Business Consulting Services rendered to the Company. On April 26, 1999, we issued 125,000 shares of our common stock in consideration of Financial Consulting Services rendered to the Company. On April 30, 1999, we issued 20,000 shares of our common stock in consideration of Website Consulting Services rendered to the Company, 7,000 for Landscaping Services rendered to the Company, and 5,000 for Employee Bonuses in 1999. These shares were issued pursuant to Section 4(2) of the Act. We believed section 4(2) was available because there was no general solicitation or advertising used in connection with the offering and the transaction did not involve a public offering. On May 19, 1999, we issued 150,000 shares of our common stock in consideration of Business Consulting Services rendered to the Company. On May 26, 1999, we issued 23,000 shares of our common stock in consideration of the acquisition of Ice Water and 3,750 shares of our common stock in consideration of Business Consulting Services rendered to the Company. These shares were issued pursuant to Section 4(2) of the Act. We believed section 4(2) was available because there was no general solicitation or advertising used in connection with the offering and the transaction did not involve a public offering. On June 1, 1999, we issued 17,000 shares of our common stock in consideration of Construction Services rendered to the Company and 47,500 shares of our common stock for Nutritional Consulting 40 Services rendered to the Company. On June 2, 1999, we issued 22,000 shares of our common stock in exchange for Public Relations Services rendered for the Company. On June 17, 1999, we issued 15,000 shares of our common stock in exchange for Nutritional Consulting Services rendered for the Company. On June 30, 1999, we issued 10,000 shares of our common stock in exchange for Legal Services rendered for the Company. These shares were issued pursuant to Section 4(2) of the Act. Also on June 30, 1999, we issued 30,500 restricted shares of our common stock at $4.00 per share in an offering made in reliance upon the exemption from registration contained in Section 4(2) of the Act (May Davis Placements). We believed section 4(2) was available because there was no general solicitation or advertising used in connection with the offering and the transaction did not involve a public offering. On July 7, 1999, we issued 10,000 shares of our common stock in exchange for Legal Services rendered for the Company. On July 19, 1999, we issued 30,000 shares of our common stock for consulting services rendered to the Company. In July 1999 we received 50,000 shares of our common stock from a principal stockholder in exchange for $400,000 owed to the company. These shares were issued pursuant to Section 4(2) of the Act. We believed section 4(2) was available because there was no general solicitation or advertising used in connection with the offering and the transaction did not involve a public offering. On August 3, 1999, we issued 10,000 shares of our common stock in exchange for Business Consulting Services and 10,000 shares of our common stock in consideration for Legal Services rendered to the Company. These shares were issued pursuant to Section 4(2) of the Act. We believed section 4(2) was available because there was no general solicitation or advertising used in connection with the offering and the transaction did not involve a public offering. The aforementioned issuances and sales were made in reliance upon the exemption from registration contained in Section 4(2) of the Act. The purchasers of the securities described above acquired them for their own account and not with a view to any distribution thereof to the public. The shares which have been issued pursuant to Section 4(2), bear legends stating that the securities may not be offered, sold or transferred other than pursuant to an effective Registration Statement under the Act, or an exemption from such registration requirements. The Registrant will place stop transfer instructions with its transfer agent with respect to all such securities. In May of 1999, we issued warrants for the purchase of 40,000 shares of our common stock in exchange for placement services. Of these, 20,000 were issued to Cranshire Capital and are exercisable on any date until May 12, 2000 at a price of $4.00 per share. The remaining 20,000 were issued to Namex and are exercisable on any date until May 13, 2000 at a price of $7.00 per share. These warrants were issued without registration in reliance on the exemption from registration provided in Section 4(2) of the Securities Act. In June 1999, we issued a total of $1,000,000 in convertible debentures to Calp II LP, a Bermuda corporation with a mailing address in Toronto, Ontario, out of a total offering of $3 million. The Company issued these debentures in reliance upon the exemption from registration contained in 41 Section 4(2) of the Act and Rule 506 of Regulation D promulgated under the Act. The issuance of the convertible debenture was an isolated issuance of securities to a non-U.S. entity, which is also an accredited investor. We believed section 4(2) was available because there was no general solicitation or advertising used in connection with the offering and the transaction did not involve a public offering. In July 1999, we issued 15,000 Class A convertible preferred shares to Cranshire Capital, The Dotcom Fund, Keyway Investments and Robert Investments, Inc. in consideration of $1,500,000 paid to the Company. The Company relied upon the exemption from registration provided in Section 4(2) of the Act. We believed section 4(2) was available because there was no general solicitation or advertising used in connection with the offering and the transaction did not involve a public offering. In July 1999, we issued warrants, which entitle the holder thereof to purchase a total of 223,881 shares of our common stock at a variable price, to Cranshire Capital, The Dotcom Fund, Keyway Investments and Robert Investments, Inc. Such warrants are exercisable at any time until July 16, 2002. The Company relied upon the exemption from registration provided in Section 4(2) of the Act. We believed section 4(2) was available because there was no general solicitation or advertising used in connection with the offering and the transaction did not involve a public offering. In July of 1999, we issued warrants to purchase 68,000 shares of our common stock in exchange for consulting services. Of these, 18,000 were issued to Francois Goelo and are exercisable on any date until July 26, 2000 at a price of $4.00 per share. The remaining 50,000 were issued to Sal Russo and are exercisable on any date until July 29, 2000 at a price of $4.00 per share. These warrants were issued without registration in reliance on the exemption from registration provided in Section 4(2) of the Act. We believed section 4(2) was available because there was no general solicitation or advertising used in connection with the offering and the transaction did not involve a public offering. ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 78.7502 of the NRS provides that Nevada corporations may limit, through indemnification, the personal liability of their directors or officers in actions, claims or proceedings brought against such person by reason of that person's current or former status as an officer or director of the corporation. Indemnification of directors or officers is available if the person acted in good faith and in a manner the person reasonably believed was, at least, not opposed to the best interests of the corporation. In the event of a criminal action or proceeding, indemnification is not available if the person had reasonable cause to believe their action was unlawful. Further, in an action brought by the corporation or in the right of the corporation, if the person, after exhaustion of all appeals, is found to be liable to the corporation, or if the person makes payment to the corporation in settlement of the action, indemnification is available only to the extent a court of competent jurisdiction determines the person is fairly and reasonably entitled to indemnification. Such discretionary indemnification is available only as authorized on a case-by-case basis by: (1) the 42 stockholders; (2) a majority of a quorum of the board of directors consisting of members of the board who were not parties to the action, suit or proceeding; (3) if a majority of a quorum of the Board of Directors consisting of members of the Board who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion; or (4) if a quorum of the Board of Directors consisting of members of the Board who were not parties to the action cannot be obtained, by independent legal counsel in a written opinion. To the extent that a director or officer of a corporation is successful in defending against an action, suit or proceeding brought against that person as a result of their current or former status as an officer or director, the corporation must indemnify the person against all expenses actually and reasonably incurred by the person in connection with their defense. Nevada law also allows Nevada corporations to advance expenses of officers and directors incurred in defending a civil or criminal action as they are incurred, upon receipt of an undertaking by or on behalf of the director or officer to repay such expenses if it is ultimately determined by a court of competent jurisdiction that such officer or director is not entitled to be indemnified by the corporation because such officer or director did not act in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation. Section 78.751 of the NRS provides that any indemnification provided for by NRS 78.7502 (by court order or otherwise) shall not be deemed exclusive of any other rights to which the indemnified party may be entitled and that the scope of indemnification shall continue as to directors or officers who have ceased to hold such positions and to their heirs, executors and administrators. Section 78.752 of the NRS allows corporations to provide insurance, or other financial arrangements such as a program of self-insurance, for their directors or officers. Such insurance may provide coverage for any liability asserted against the person and liability and expenses incurred by the person in their capacity as a director or officer or arising out of their status as such, whether or not the corporation has the authority to indemnify the person against such liability and expenses. However, no financial arrangement made under Section 78.752 may provide protection for a person adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable for intentional misconduct, fraud or a knowing violation of law, except with respect to the advancement of expenses or indemnification ordered by a court. Our By-laws provide for the indemnification of its directors and officers to the maximum extent provided by law. It is the position of the Securities and Exchange Commission and certain state securities administrators that any attempt to limit the liability of persons controlling an issuer under the federal securities laws or state securities laws is contrary to public policy and therefore unenforceable. Our By-laws provide for the indemnification of its directors and officers to the maximum extent provided by law. It is the position of the Securities and Exchange Commission and certain state securities administrators that any attempt to limit the liability of persons controlling an issuer under 43 the federal securities laws or state securities laws is contrary to public policy and therefore unenforceable. 44 EXHIBIT INDEX - -------------------------------------------------------------------------------- Exhibit # Description Page Number - -------------------------------------------------------------------------------- 2.1 Kendrex and HLHK Merger (Incorporated by N/A reference as filed in Form 10-SB/A filed on 12/23/99 as Exhibit 2.1) - -------------------------------------------------------------------------------- 2.2 Trimfast, Inc. Acquisition (Incorporated by N/A reference as filed in Form 10-SB/A filed on 12/23/99 as Exhibit 2.2) - -------------------------------------------------------------------------------- 2.3 Rescission of IMMMU and IMMCEL Acquisitions N/A (Incorporated by reference as filed in Form 10-SB/A filed on 12/23/99 as Exhibit 2.3) - -------------------------------------------------------------------------------- 3.1 Articles of Incorporation (Incorporated by N/A reference as filed in Form 10-SB filed on 7/12/99 as Exhibit 3.1) - -------------------------------------------------------------------------------- 3.2 Bylaws (Incorporated by reference as filed in N/A Form 10-SB filed on 7/12/99 as Exhibit 3.2) - -------------------------------------------------------------------------------- 4.1 Specimen Share Certificate (Incorporated by N/A reference as filed in Form 10-SB/A filed on 12/23/99 as Exhibit 4.1) - -------------------------------------------------------------------------------- 4.2 Debenture Agreement (Incorporated by reference N/A as filed in Form 10-SB filed on 7/12/99 as Exhibit 4) - -------------------------------------------------------------------------------- 4.3 Warrant Agreement (Incorporated by reference N/A as filed in Form 10-SB/A filed on 12/23/99 as Exhibit 4.3) - -------------------------------------------------------------------------------- 4.4 Preferred Share Agreement (Incorporated by N/A reference as filed in Form 10-SB/A filed on 12/23/99 as Exhibit 4.4) - -------------------------------------------------------------------------------- 4.5 Series A Certificate of Designations, E-1 Preferences and Rights - -------------------------------------------------------------------------------- 10.1 Lease Option Agreement (Incorporated by N/A reference as filed in Form 10-SB filed on 7/12/99 as Exhibit 10) - -------------------------------------------------------------------------------- 10.2 WCW Agreement E-20 - -------------------------------------------------------------------------------- 10.3 Venture Direct Worldwide Agreement N/A (Incorporated by reference as filed in Form 10-SB/A filed on 12/23/99 as Exhibit 10.3) - -------------------------------------------------------------------------------- 10.4 Distribution Agreement (Incorporated by N/A reference as filed in Form 10-SB/A filed on 12/23/99 as Exhibit 10.4) - -------------------------------------------------------------------------------- 21 Subsidiaries of Registrant (Incorporated by N/A reference as filed in Form 10-SB/A filed on 12/23/99 as Exhibit 21) - -------------------------------------------------------------------------------- 27 Financial Data Schedule - -------------------------------------------------------------------------------- 45 PART F/S FINANCIAL STATEMENTS 46 TRIMFAST GROUP, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 (CONSOLIDATED) AND 1997 TRIMFAST GROUP, INC. AND SUBSIDIARIES CONTENTS PAGE 1 - INDEPENDENT AUDITORS' REPORT. PAGE 2 - CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 PAGE 3 - INTERIM CONSOLIDATED STATEMENT OF OPERATIONS FOR THE ONE YEAR ENDED DECEMBER 31, 1998 (Audited) AND THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,1999 (Unaudited) PAGE 4 - INTERIM CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY FOR THE ONE YEAR ENDED DECEMBER 31, 1998 (Audited) AND THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,1999 (Unaudited) PAGES 5 - 6 - INTERIM CONSOLIDATED STATEMENT FO CASH FLOWS FOR THE ONE YEAR ENDED DECEMBER 31, 1999 (Audited) AND THE NINE MONTHS ENDED SPTEMBER 30,1999 (Uanudited) PAGES 7 - 23 - NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 INDEPENDENT AUDITORS' REPORT To the Board of Directors of: Trimfast Group, Inc. We have audited the accompanying balance sheet of TrimFast Group, Inc. and Subsidiaries as of December 31, 1998 (consolidated) and the related statements of operations, changes in stockholders' equity and cash flows for the year ended December 31, 1998 (consolidated) and for the period from April 27, 1997 (inception) to December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. These standards require that we plan and perform the audits 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 TrimFast Group, Inc. and Subsidiaries as of December 31, 1998 (consolidated) and the results of their operations and their cash flows for the year ended December 31, 1998 (consolidated) and for the period from April 27, 1997 (inception) to December 31, 1997 in conformity with generally accepted accounting principles. /s/ WEINBERG & COMPANY, P.A. ---------------------------- Boca Raton, Florida June 10, 1999 (Except for Notes 13(G), 13(H), 13(D), 7(C), 13(B) and 13(A) as to which the dates are June 14, 1999, July 16, 1999, July 30, 1999, August 31, 1999, October 22, 1999 and October 23, 1999, respectively.) 1 TRIMFAST GROUP, INC. INTERIM CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
September 30, 1999 December 31, 1998 (Unaudited) ASSETS CURRENT ASSETS Cash 105,641 $ 59,092 Short-term investments 15,297 $ 41,220 Accounts Receivable- Trade 357,889 318,407 Accounts Receivable- Other 11,745 512,278 Inventory 188,737 377,270 Total Current Assets 679,309 1,308,267 PROPERTY AND EQUIPMENT - NET 33,403 1,459,270 OTHER ASSETS Prepaid expenses 0 50,000 Rent deposit 10,619 15,000 Cash surrender value of life insurance 8,107 12,646 Software development 0 228,705 Goodwill - Net 0 54,708 Total Other Assets 18,726 361,060 TOTAL ASSETS $ 731,438 $ 3,128,596 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 625,767 $ 926,612 Notes and loans payable 72,100 33,881 Income taxes payable 20,600 20,600 Convertible debentures 0 1,000,000 Total Current Liabilities 718,467 1,981,093 TOTAL LIABILITIES 718,467 1,981,093 STOCKHOLDERS' EQUITY Preferred Stock, Class A, $ 0.01 par value; 20,000,000 shares authorized; 0 and 15,000 shares issued and outstanding as of December 31, 1998 and September 30, 1999 respectively 0 150 Preferred Stock, Class B, $ 0.01 par value; 20,000,000 shares authorized; none issued and outstanding 0 0 Common Stock, $0.001 par value; 100,000,000 shares authorized, 2,260,775 and 4,540,978 shares issued and outstanding as of December 31, 1998 and September 30, 1999 respectively 2,260 4,541 Common Stock to be issued (77,881 shares) as of December 31, 1998 and (8,478 shares) as of September 30,1999 78 8 Additional Paid-in capital 163,987 6,174,610 Accumulated deficit (129,820) (3,608,622) Less cost of treasury stock (5,5000 as of December 31,1998 and 32,5000 as of September 30,1999) (23,534) (139,547) Less common stock shares advanced 0 (925,312) Less common stock subscriptions receivable 0 (358,325) Total Stockholders' Equity 12,971 1,147,503 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 731,438 $ 3,128,596
2 TRIMFAST GROUP, INC. INTERIM CONSOLIDATED STATEMENT OF OPERATIONS FOR THE ONE YEAR ENDED DECEMBER 31,1998 (Audited) AND THE THREE AND NONE MONTHS ENDED SEPTEMBER 30, 1999 (Unaudited)
For the Three For the Nine For the One Year Months Ended Months Ended Ended September 30, 1999 September 30, 1999 December 31, 1998 (Unaudited) (Unaudited) ------------------ ------------------ ------------------ NET SALES 1,925,332 207,201 581,337 COST OF SALES 567,472 89,925 408,495 ---------- ---------- ---------- GROSS PROFIT 1,357,860 117,276 172,842 ---------- ---------- ---------- OPERATING EXPENSES Salaries and other compensation 221,773 208,215 505,372 Commissions 41,700 14,302 18,117 Depreciation and amortization 10,498 54,202 54,202 Professional fees 49,511 505,576 1,467,900 Bad debt expense 503,839 102,723 102,723 Selling, general and administrative expenses 423,289 249,593 623,451 Travel and entertainment 64,187 54,240 132,249 ---------- ---------- ---------- Total Operating Expenses 1,314,797 1,188,851 2,904,014 ---------- ---------- ---------- INCOME FROM OPERATIONS 43,063 (1,071,575) (2,731,172) ---------- ---------- ---------- OTHER INCOME (EXPENSE) Realized gain on sale of trading securities - net 1,905 499 499 Unrealized gain on sale of trading securities - net 922 0 (18,549) Interest expense (3,264) (354,569) (354,569) ---------- ---------- ---------- Total Other Income (Expense) (437) (354,070) (372,619) ---------- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES 42,626 (1,425,645) (3,103,791) FEDERAL AND STATE INCOME TAXES 20,600 0 0 ---------- ---------- ---------- NET INCOME/ (LOSS) 22,026 (1,425,645) (3,103,791) ========== ========== ========== Dividend on Preferred Stock (375,011) NET INCOME/ (LOSS) APPLICABLE TO COMMOM STOCK 42,626 (1,425,645) (3,478,802) NET INCOME (LOSS) PER COMMON SHARE-BASIC AND DILUTED 0.02 (0.31) (0.87)
See accompanying notes to financial statements. 3 TRIMFAST GROUP, INC. INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY FOR THE ONE YEAR ENDED DECEMBER 31,1998 (Audited) AND THE NINE MONTHS ENDED SEPTEMBER 30,1999 (Unaudited)
COMMON STOCK AND COMMON STOCK TO ADDITIONAL Preferred Stock Issued Accumulated BE ISSUED PAID-IN Shares Amount Deficit --------- ----------- ---------- ------ ------ ------------ BALANCE JANUARY 1,1998 1,286,625 $ 1,287 (287) -- -- ($ 151,846) Issuance of common stock for cash 63,924 64 187,736 -- -- -- Issuance of common stock in exchange to related party in exchange for $40,000 debt 19,500 19 39,980 -- -- -- HLHK equity at August 12,1998 817,749 818 441,083 -- -- (1,122,218) Reclassification pursuant to recapitalization -- -- (1,122,218) -- -- 1,122,218 Common stock issued to employees 500 -- -- -- -- -- Common stock issued to attorney for services 5,00 5 (5) -- -- -- Common stock issued in exchange for debt of HLHK principal stockholder 75,000 75 491,123 -- -- -- Issuance of common stock in exchange for stockholder loans 70,358 70 126,574 -- -- -- Purchase of treasuty stock at cost -- -- -- -- -- -- Net income 1998 -- -- -- -- -- 22,026 --------- ----------- ----------- ------ ----------- ----------- BALANCE, DECEMBER 31, 1998 2,338,656 $ 2,338 $ 163,987 -- -- ($ 129,820) ========= =========== =========== ====== =========== =========== Equity financing-issuance of stock for cash 558,000 558 1,628,942 -- -- -- Issuance of common stock in exchange for consulting and other professional services 1,350,895 1,350 806,970 -- -- -- Issuance of common stock acquistion of Immmu and Imcel. To be returned per recission agreement 225,000 225 925,077 -- -- -- Issunace of common stock to employees 80,000 80 95,247 -- -- -- Issuance of convertible debentures -- -- 250,000 -- -- -- Return of common stock in repayment of debt (50,000) (50) (399,950) -- -- -- Issuance of common stock held in escrow to secure loan 23,000 23 199,790 -- -- -- Issuance of common stock for debt repayment 24,500 25 168,006 -- -- -- Repurchase of treasury stock at cost -- -- -- -- -- -- Issuance of Perferred Stock -- -- 1,874,901 15,000 150 (375,011) Valuation of warrants issued for services -- -- 461,640 -- -- -- Net Loss, year to date of September 30,1999 -- -- -- -- -- (3,103,791) --------- ----------- ----------- ------ ----------- ----------- Balance, September 30,1999 4,549,451 $ 4,549 $ 6,174,610 15,000 $ 150 ($3,608,622) ========= =========== =========== ====== =========== =========== Subscriptions Shares Treasury Receivable Advanced Stock Total ------------- -------- --------- ----- BALANCE JANUARY 1,1998 -- -- -- ($ 150,846) Issuance of common stock for cash -- -- -- $ 187,800 Issuance of common stock in exchange to related party in exchange for $40,000 debt -- -- -- $ 40,000 HLHK equity at August 12,1998 -- -- -- ($ 680,317) Reclassification pursuant to recapitalization -- -- -- $ 0 Common stock issued to employees -- -- -- $ 0 Common stock issued to attorney for services -- -- -- $ 0 Common stock issued in exchange for debt of HLHK principal stockholder -- -- -- $ 491,198 Issuance of common stock in exchange for stockholder loans -- -- -- $ 126,644 Purchase of treasuty stock at cost -- -- (23,534) ($ 23,534) Net income 1998 -- -- -- $ 22,026 ----------- ----------- ----------- ----------- BALANCE, DECEMBER 31, 1998 -- -- ($ 23,534) $ 12,971 =========== =========== =========== =========== Equity financing-issuance of stock for cash -- -- -- $ 1,629,50 Issuance of common stock in exchange for consulting and other professional services (358,325) -- -- $ 449,995 Issuance of common stock acquistion of Immmu and Imcel. To be returned per recission agreement -- (925,312) -- $ 10 Issunace of common stock to employees -- -- -- $ 95,327 Issuance of convertible debentures -- -- -- $ 250,000 Return of common stock in repayment of debt -- -- -- ($ 400,000) Issuance of common stock held in escrow to secure loan -- -- -- $ 199,813 Issuance of common stock for debt repayment -- -- -- $ 168,031 Repurchase of treasury stock at cost -- -- (116,013) ($ 116,013 Issuance of Perferred Stock -- -- -- $ 1,500,040 Valuation of warrants issued for services -- -- -- $ 461,640 Net Loss, year to date of September 30,1999 -- -- -- ($3,103,791) ----------- ----------- ----------- ----------- Balance, September 30,1999 ($ 358,325) ($ 925,312) ($ 139,547) $ 1,147,503 =========== =========== =========== ===========
See accompanying notes to financial statements. 4 TRIMFAST GROUP, INC. INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE ONE YEAR ENDED DECEMBER 31,1999 (Audited) AND THE NINE MONTHS ENDED SEPTEMBER 30,1999 (Unaudited)
For the One Year Ended December 31,1998 1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) 42,626 $(3,103,791) Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation and amortization 10,498 54,202 Bad debt expense 503,839 6,498 Unrealized gain on short-term investments (922) (18,459) Issuance of warrants for professional services 0 461,640 Issuance of common stock for professional services 0 760,207 Changes in operating assets and liabilities (Increase) decrease in: Accounts receivable (856,839) (472,796) Prepaid expenses 0 (50,000) Inventory (165,038) (188,533) Increase (decrease) in: Accounts payable and other liabilities 496,181 300,845 Total adjustments (12,281) 853,604 Net cash (used in) provided by operating activities 30,345 (2,250,187) CASH FLOWS FROM INVESTING ACTIVITIES: (Increase) decrease in: Short-term investments (14,375) (25,923) Due from employees (5,800) 5,800 Property and equipment (37,821) (1,748,024) Due from affilate (5,945) 5,945 Rent deposit (8,119) (4,381) Cash surrender value of life insurance (8,107) (4,529) Net cash(used in)provided by investing activities (80,167) (1,771,112) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 1,975 961,781 Purchase of treasury stock (23,534) (116,013) Proceeds from issuance of common stock 177,800 1,628,942 Proceeds from issuance of preferred stock 0 1,500,040 Due to stockholder/officer (18,436) 0 Net cash provided by(used in)financing activities 137,805 3,3974,750 CHANGE AND CASH EQUIVALENTS 87,983 (46,549) CHANGE IN CASH AND CASH EQUIVALENTS-BEINNING OF YEAR 17,658 105,641 --------- ---------- CASH AND CASH EQUIVALENTS-END OF YEAR 105,641 59,092
See accompanying notes to financial statements. 5 TrimFast Group, Inc. Notes to Interim Consolidated Financial Statements As of September 30, 1999 (Unaudited) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position and results of operation. It is management's opinion, however that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statements presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year. For further information, refer to the consolidated financial statements and footnotes included in the companys Form 10-SB, as amended for the year ended December 31, 1998. The financial statements are presented without comparable 1998 quarterly information. The Company was not publicly traded in 1998 and systems, though adequate to address annual audit needs, were not in place to allow for extracting reliable quarterly information. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (A) Revenue Recognition Nutrition Caf charges a monthly membership fee for access to order products at discounted prices. Memberships are sold on a pay-as-you-go basis in one month increments. Members choose whether or not to continue their membership each month; no long term agreements are required. The membership fees are recognized as revenue in the month they are paid. Revenue for products ordered is recognized when the product is shipped. Effective January, 2000, the monthly membership fees have been eliminated. Management believes the increased revenues from allowing everyone who visits the site to place orders will offset the decrease in revenue from membership fees. The Company offers a 100% money back guarantee on products purchased at Nutrition Cafe and Nutritioncafe.com. Because the products we sell are sold in quantities packaged for consumption in short time frames (usually 1 month supply or less), and many of our customers are knowledgeable of the supplements they buy, returns have been insignificant. As a result, the Company records any returns against current sales. 6 TrimFast Group, Inc. Notes to Interim Consolidated Financial Statements As of September 30, 1999 (Unaudited) Sales of our products offered through TrimFast, Inc. (weight loss bars, WCW bars, and Max Impact supplements) are sold utilizing food brokers, distributors and directly to vendors. We use brokers and distributors to identify new vendors, all sales are made directly to the vendor with the distributor or broker informed of any sales through their efforts. Because of this, we ship to, invoice and receive payments directly from the end user. Due to the nature of the products offered, and customers ordering product conservatively, we have experienced no material product returns. Based on this experience, our policy is to record any returns against current sales. With the introduction of our WCW ultra energy bars, we are aggressively attempting to place our products with larger retail networks. As a result of this, we will review this policy and modify it as necessary as orders are received. Revenue for the Cooler Group is earned through rental of water coolers and delivery of water. A contract is signed for cooler rental and/or water delivery service, and is invoiced monthly. Revenue is recognized for cooler rental each month when invoiced and for water service based on usage when delivered. (B) Accounts Receivable - Other Components of A/R - Other is as follows: Millennium - related party $259,558 Cash from recission of IMMMU purchase 50,000 Stock held in escrow securing loan 199,790 Other 2,930 $512,278 7 TrimFast Group, Inc. Notes to Interim Consolidated Financial Statements As of September 30, 1999 (Unaudited) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION - (Cont'd) (B) Accounts Receivable - Other (Cont'd) On May 26, 1999 the company placed in an escrow account 23,000 shares of its' common stock valued at $199,790 to secure the loan to acquire Ice Cold Water, Inc. (See note 7B) The shares will be returned to authorized when the loan is satisfied. The receivable from Millennium represents cash advances to an affiliated company during the year. The balance at December 31, 1999 is $156,212. (C) Inventory Components of inventory are as follows: Finished Goods $320,296 Product Components 56,974 Total $377,270 The Company performs periodic inspections of inventory to identify expired or obsolete items. Any merchandise, which has past its expiration date, or has been deemed obsolete by management, is removed from inventory and written off. (D) Advertising Costs Advertising costs are expensed as incurred unless a direct measurable response exists. All advertising related costs have been recognized as expense in these Interim Financial Statements. (E) Software Development The Company has contracted with an outside software development firm to develop software that runs the website for Nutrition Caf. All costs associated with the development of the software have been capitalized while any costs associated with content have been expensed. NOTE 3 - ACQUISITION OF BUILDING On July 30, 1999 the Company exercised its option to purchase the facility located at 2555 Blackburn Street, Clearwater, FL for $1,200,000. The property is used as the sales, storage and distribution facility for Nutrition Caf,Inc. The funds were raised through the sale of 15,000 shares of Class A Preferred Stock and 223,681 warrants to purchase common stock. (See Note 6) NOTE 4 - WCW LICENSE AGREEMENT On June 2, 1999 the Company signed a license agreement with World Championship Wrestling, Inc (WCW) to utilize certain names, likeness, characters, trademarks and/or copyrights in connection with the manufacture, distribution, advertising, promotion and sale of certain articles of merchandise. The license extends through December 2002. The agreement includes a non-refundable advance of $50,000 which, has been capitalized as prepaid expense and will be amortized over the life of the agreement. Terms of the agreement include a royalty payment of 6% of net sales with the following guarantees: $100,000 Due No Later Than 12-31-99 $100,000 Due No Later Than 6-30-00 $100,000 Due No Later Than 9-30-00 $100,000 Due No Later Than 12-31-00 $100,000 Due No Later Than 6-30-01 8 TrimFast Group, Inc. Notes to Interim Consolidated Financial Statements As of September 30, 1999 (Unaudited) NOTE 5 - CONVERTIBLE DEBENTURE On June 14, 1999 the Company issued $1,000,000 in Convertible Debentures in exchange for $1,000,000 in cash. The agreement, which contains a beneficial conversion feature, stipulates that the debentures may be converted as of the closing date at the lower of $8.50 or 80% of the fair market value of the common stock on the conversion date resulting in the recognition of $250,000 interest expense at closing. NOTE 6 - EQUITY TRANSACTIONS Sale of Preferred Stock and Warrants On July 16, 1999 (the issuance date) the Company issued 15,000 shares of convertible preferred stock and 223,881 warrants to purchase common stock in exchange for $1,500,040 cash. The preferred stock contains a beneficial conversion feature whereby it is convertible immediately at the lesser of $8.59 or 80% of the fair market value of the common stock on the conversion date. The warrants vest immediately, expire on July, 2000 and are exercisable at $10.31 per share. As a result of accounting for the beneficial conversion feature, the Company charged a $375,011 dividend to retained earnings on the issuance date. (See Note 3) On January 6, 1999 the company issued 303,100 shares of common stock for 6 consulting agreements. On January 18, 1999 the Company issued 82,950 shares of common stock for 3 consulting agreements. On February 9, 1999 the Company issued 50,000 shares of common stock for 3 consulting agreements. On February 19, 1999 the Company issued 220,000 shares of common stock for 1 consulting agreement. On March 15, 1999 the Company issued 150,000 shares of common stock for 2 consulting agreements. On April 22, 1999 the Company issued 20,000 shares of common stock for 1 consulting agreement. On April 30, 1999 the Company issued 20,000 shares of common stock for 1 consulting agreement. On May 19 the Company issued 150,000 shares of common stock for 1 consulting agreement. On May 26, 1999 the Company issued 3,750 shares of common stock for 1 consulting agreement. On June 1, 1999 the Company issued 47,500 shares of common stock for 1 consulting agreement. On June 17, 1999 the Company issued 15,000 shares of common stock for 1 consulting agreement. These contracts are reported at market value of the stocks issued on the date of issuance. The Company issued 96,500 shares of common stock to various individuals for services rendered. These services were valued at the market price of the stock on the day of issuance and reported in professional fees. On February 19, 1999 the company issued 8,000 shares of common stock to payoff an outstanding loan of $34,800. On April 21, 1999 the Company issued 16,500 shares of common stock to payoff 2 outstanding loans for $99,825. On June 1, 1999 the Company issued 12,000 shares of common stock to payoff an outstanding loan of $85,200. On July 19, 1999 the Company issued 30,000 shares of common stock to payoff an outstanding loan of $202,500. 9 TrimFast Group, Inc. Notes to Interim Consolidated Financial Statements As of September 30, 1999 (Unaudited) On May 12, 1999 the Company issued warrants to purchase 20,000 shares of common stock at $4.00 per share. On May 13, 1999 the Company issued warrants to purchase 20,000 shares of common stock at $7.00 per share. On July 26, 1999 the Company issued warrants to purchase 18,000 shares of common stock at $4.00 per share. On July 29, 1999 the Company issued warrants to purchase 50,000 shares of common stock at $4.00 per share. NOTE 7 - ACQUISITIONS (A) Acquisitions of Subsidiaries and Subsequent Recission On March 18, 1999 the Company acquired IMMMU, Inc. (IMMMU) and IMMCEL Pharmaceuticals, Inc. (IMMCEL), two companies related through common stockholders, in a transaction accounted for as a purchase. Under terms of the agreement, 235,000 shares of the Companys common stock, $50,000 in cash and an option agreement for shares of the Companys common stock exercisable based on stipulated Company performance criteria were exchanged for all of the issued and outstanding capital stock of IMMMU and IMMCEL. Subsequently, the Company entered into a recission agreement of the purchase. Activity from IMMMU and IMMCEL are not part of these consolidated statements. The common stock shares are recorded as Common Shares Advanced and deducted from stockholder equity and the $50,000 is recorded in Accounts Receivable - Other. The Company incurred a loss of $94,225 from operating the companies during 1999 which is recorded in Accounts Receivable - Other with a reserve for 100% recorded as bad debt. (B) Asset Accumulation On May 24, 1999 the Company acquired certain assets of Ice Cold Water Co., Inc. (ICW) including certain receivables, inventory, property and equipment, a customer list and the name Ice Cold Water and all other intellectual property rights associated with the name. Under terms of the agreement, the Company acquired the assets for $20,000 in cash and a $100,000 promissory note at 8.5% per annum which is due in four monthly installments of $25,000 plus accrued interest, commencing June 10, 1999. A balance of $30,406 remains outstanding at August 31, 1999. 10 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. /s/ Michael Muzio ---------------------------------- By: Michael Muzio, President Date: March 10, 2000 EX-4.5 2 SERIES A CERTIFICATE EXHIBIT 4.5 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK OF TRIMFAST GROUP, INC. TrimFast Group, Inc. (the "Company"), a corporation organized and existing under the General Corporation Law of the State of Nevada, does hereby certify that, pursuant to authority conferred upon the Board of Directors of the Company by the Articles of Incorporation, as amended, of the Company, and pursuant to Sections 78.195, 78.1955 and 78.196 of the General Corporation Law of the State of Nevada, the Board of Directors of the Company at a meeting duly held, adopted resolutions (i) authorizing a series of the Company's previously authorized preferred stock, par value $100 per share, and (ii) providing for the designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of fifteen thousand (15,000) shares of Series A Preferred Stock of the Company, as follows: RESOLVED, that the Company is authorized to issue 15,000 shares of Series A Preferred Stock (the "Preferred Shares"), par value $.01 per share, which shall have the following powers, designations, preferences and other special rights: (1) Dividends. (a) Regular Dividends. Each holder (a "Holder" and, collectively, the "Holders") of the Preferred Shares shall be entitled to receive on each July 1 and January 1, or if such date is not a Business Day, the immediately subsequent Business Day, commencing January 1, 2000 (each, a Dividend Payment Date), dividends at a rate of eight percent (8%) per annum, computed on the basis of $100.00 per Preferred Share. Such dividends shall be cumulative from (and including) such Preferred Share's Issuance Date (as defined below) and shall accrue daily, whether or not earned or declared, thereafter until paid and be calculated on the basis of a 360 day year. Dividends shall be payable in cash; provided, however that in lieu of paying such dividends in cash, the Company may, at its option, pay any or all of such dividends by delivery of a number of shares of Company common stock equal to the quotient of (x) the dollar amount of the Regular Dividends to be paid on such Dividend Payment Date, divided by (y) the Conversion Price determined on the day which is the third (3rd) Business Day prior to the Dividend Payment Date. In the event the Company pays Regular Dividends in shares of Company common stock, such common shares shall also have the registration rights set forth in the Registration Rights Agreement (defined below) and shall be considered Registrable Securities for purposes of the Registration Rights Agreement. (a) Participating Dividends. In the event any dividend or other distribution payable in cash or other property is declared on the Common Stock (defined below), each Holder on the record date for such dividend or distribution shall be entitled to receive per Preferred Share on the date of payment or distribution of such dividend or other distribution the amount of cash or property equal to the cash or property which would be received by the Holders of the number of shares of Common Stock into which such Preferred Share would be converted pursuant to Section 2 hereof immediately prior to such record date. (1) Conversion of Preferred Shares. Preferred Shares shall be convertible into shares of the Company's common stock, par value $.001 per share (the "Common Stock"), on the terms and conditions set forth in this Section 2. (a) Certain Defined Terms. For purposes of this Certificate of Designations, the following terms shall have the following meanings: (i) "Business Day" means any day in which the Principal Market is open for business. (i) "Closing Date" has the same meaning as the term is defined in the Securities Purchase Agreement, entered into by and between the Company and certain investors, dated July 16, 1999. (i) "Conversion Price" means, as of any Conversion Date (as defined below) or other date of determination, the lower of (A) the Fixed Conversion Price and (B) the Floating Conversion Price, each in effect as of such date and subject to adjustment as provided herein. (i) "Fixed Conversion Price" means $8.5938 subject to adjustment as provided herein. (i) "Floating Conversion Price" means, as of any date of determination, the amount obtained by multiplying (A) the Conversion Percentage in effect as of such date by (B) the Market Price for the Common Stock, subject to adjustment as provided herein. (i) "Conversion Percentage" means eighty percent (80%), subject to adjustment as provided herein. (i) "Market Price" means, with respect to any security for any period, that price which shall be computed as the equally-weighted arithmetic average of the three (3) lowest Closing Bid Prices (as defined below) for such security during the period of the thirty (30) consecutive trading days immediately preceding such date of determination. (All such determinations to be appropriately adjusted for any stock dividend, stock split or other similar transaction during such period). (i) "Closing Bid Price" means, for any security as of any date, the last closing bid price for such security on the Principal Market (as defined below) as reported by Bloomberg Financial Markets ("Bloomberg"), or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price is reported for such security by Bloomberg, the last closing trade price of such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holders of Preferred Shares. If the Company and the Holders of Preferred Shares are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved pursuant to Section 2(e)(iii) below with the term "Closing Bid Price" being substituted for the term "Market Price." (All such determinations to be appropriately adjusted for any stock dividend, stock split or other similar transaction during such period). (i) "Closing Sale Price" means, for any security as of any date, the last closing trade price for such security on the Principal Market (as defined below) as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing trade price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the last closing ask price of such security as reported by Bloomberg, or, if no last closing ask price is reported for such security by Bloomberg, the average of the ask prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Sale Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holders of Preferred Shares. If the Company and the Holders of Preferred Shares are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved pursuant to Section 2(e)(iii) below with the term "Closing Sale Price" being substituted for the term "Market Price." (All such determinations to be appropriately adjusted for any stock dividend, stock split or other similar transaction during such period). (i) "Issuance Date" means, with respect to each Preferred Share, the date of issuance of the applicable Preferred Share. (i) "Person" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof. (i) "Principal Market" means the Nasdaq National Market [or the Nasdaq Small Cap Market]. (i) "Registration Rights Agreement" means that certain Registration Rights Agreement entered into by and between the Company and certain investors, dated as of July 16, 1999. (i) "Stated Value" means $100.00. (a) Holder's Conversion Right. Subject to the provisions of Section 2(d) below, at any time or times on or after the Issuance Date (as defined below), any Holder of Preferred Shares shall be entitled to convert any whole number of Preferred Shares into fully paid and nonassessable shares of Common Stock in accordance with Section 2(e), at the Conversion Rate (as defined below). The Company shall not issue any fraction of a share of Common Stock upon any conversion. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one Preferred Share by a Holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of a fraction of a share of Common Stock. If, after the aforementioned aggregation, the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. (a) Conversion Rate. The number of shares of Common Stock issuable upon conversion of each Preferred Share pursuant to Section 2(b) shall be determined according to the following formula (the "Conversion Rate"): Stated Value Conversion Price (a) Limitations on Conversion. Without the prior consent of the Company, a Holder shall not be entitled to convert any Preferred Shares during the period beginning on and including the Issuance Date and ending on and including the date that is 120 days after the Issuance Date. Without the prior consent of the Company, a Holder shall not be entitled to convert an aggregate number of Preferred Shares during the period beginning on and including the date which is 121 days after the Issuance Date and ending on and including the date which is 150 days after the Issuance Date in excess of thirty-four percent (34%) of the number of Preferred Shares purchased by such Holder on such Issuance Date. Without the prior consent of the Company, a Holder shall not be entitled to convert an aggregate number of Preferred Shares during the period beginning on and including the date which is 151 days after the Issuance Date and ending on and including the date which is 180 days after the Issuance Date in excess of sixty-seven percent (67%) of the number of Preferred Shares purchased by such Holder on such Issuance Date. Beginning on and including the date which is 181 days after the Issuance Date, a Holder shall be entitled to convert an aggregate number of Preferred Shares which is one hundred percent (100%) of the number of Preferred Shares purchased by such Holder on the Issuance Date. Notwithstanding the foregoing, the conversion restriction set forth in this Section 2(d) shall not apply (A) at any time on and after the occurrence of a Material Adverse Change (as defined below) or (B) at any time on and after the date of the issuance by the Company of any Convertible Securities (as defined in Section 2(g)(i)(F) other than the Preferred Shares. For purposes of this Section 2(d), "Material Adverse Change" means any change, event, result or happening involving, directly or indirectly, the Company or any of its subsidiaries resulting in a material adverse effect on the business, prospects, financial condition or results or operations of the Company and its subsidiaries, taken as a whole, including, without limitation, an event constituting a Triggering Event or Major Transaction. (a) Mechanics of Conversion. The conversion of Preferred Shares shall be conducted in the following manner: (i) Holder's Delivery Requirements. To convert Preferred Shares into shares of Common Stock on any date (the "Conversion Date"), the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., Central Time on such date, a copy of a fully executed notice of conversion in the form attached hereto as Exhibit I (the "Conversion Notice") to the Company's designated transfer agent (the "Transfer Agent") with a copy thereof to the Company and (B) surrender to a common carrier for delivery to the Transfer Agent as soon as practicable following such date the original certificates representing the Preferred Shares being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the "Preferred Stock Certificates"). (i) Company's Response. Upon receipt by the Company of a copy of a Conversion Notice, the Company shall immediately send, via facsimile, a confirmation of receipt of such Conversion Notice to such Holder and the Transfer Agent, which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms herein. Upon receipt by the Transfer Agent of the Preferred Stock Certificates to be converted pursuant to a Conversion Notice, the Transfer Agent shall, on the next business day following the date of receipt (or the second business day following the date of receipt if received after 11:00 a.m. local time of the Transfer Agent), (A) issue and surrender to a common carrier for overnight delivery to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled, or (B) provided the Transfer Agent is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder shall be entitled to the Holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system. If the number of Preferred Shares represented by the Preferred Stock Certificate(s) submitted for conversion is greater than the number of Preferred Shares being converted, then the Transfer Agent shall, as soon as practicable and in no event later than three (3) Business Days after receipt of the Preferred Stock Certificate(s) and at its own expense, issue and deliver to the Holder a new Preferred Stock Certificate representing the number of Preferred Shares not converted. (i) Dispute Resolution. In the case of a dispute as to the determination of the Market Price or the arithmetic calculation of the Conversion Rate, the Company shall instruct the Transfer Agent to issue to the Holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the Holder via facsimile within one (1) Business Day of receipt of such Holder's Conversion Notice. If such Holder and the Company are unable to agree upon the determination of the Market Price or arithmetic calculation of the Conversion Rate within one (1) Business Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall within one (1) Business Day submit via facsimile (A) the disputed determination of the Market Price to an independent, reputable investment bank selected by the affected Holders and approved by the Company or (B) the disputed arithmetic calculation of the Conversion Rate to the Company's independent, outside accountant. The Company shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than forty-eight (48) hours from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shal l be binding upon all parties absent manifest error. (i) Record Holder. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of Preferred Shares shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date. (i) Company's Failure to Timely Convert. (A) Cash Damages. If within five (5) Business Days after the Transfer Agent's receipt of the Preferred Stock Certificates to be converted and a copy of the Conversion Notice (the "Share Delivery Period") the Transfer Agent shall fail to issue a certificate to a Holder or credit such Holder's balance account with The Depository Trust Company for the number of shares of Common Stock to which such Holder is entitled upon such Holder's conversion of Preferred Shares or to issue a new Preferred Stock Certificate representing the number of Preferred Shares to which such Holder is entitled pursuant to Section 2(e)(ii) (a "Conversion Failure"), in addition to all other available remedies which such Holder may pursue hereunder and under the Securities Purchase Agreement between the Company and the initial Holders of the Preferred Shares (the "Securities Purchase Agreement") (including indemnification pursuant to the provisions thereof), the Company shall pay additional damages to such Holder on each date after such fifth (5th) Business Day such conversion is not timely effected and/or such Preferred Stock Certificate is not delivered in an amount equal to 1.0% of the product of (I) the sum of the number of shares of Common Stock not issued to the Holder on a timely basis pursuant to Section 2(e)(ii) and to which such Holder is entitled and, in the event the Company has failed to deliver a Preferred Stock Certificate to the Holder on a timely basis pursuant to Section 2(e)(ii), the number of shares of Common Stock issuable upon conversion of the Preferred Shares represented by such Preferred Stock Certificate, as of the last possible date which the Company could have issued such Preferred Stock Certificate to such Holder without violating Section 2(e)(ii) and (II) the Closing Sale Price of the Common Stock on the last possible date which the Company could have issued such Common Stock or such Preferred Stock Certificate, as the case may be, to such Holder without violating Section 2(e)(ii). If the Company fails to pay the additional damages set forth in this Section 2(e)(v) within five (5) Business Days of the date incurred, then the Holder entitled to such payments shall have the right at any time, so long as the Company continues to fail to make such payments, to require the Company, upon written notice, to immediately issue, in lieu of such cash damages, the number of shares of Common Stock equal to the quotient of (X) the aggregate amount of the damages payments described herein divided by (Y) the Conversion Price in effect on such Conversion Date as specified by the Holder in the Conversion Notice and such shares of Common Stock shall be considered Registrable Securities pursuant to the Registration Rights Agreements and shall have the respective registration rights thereunder. (B) Void Conversion Notice; Adjustment to Conversion Price. If for any reason a Holder has not received all of the shares of Common Stock prior to the tenth (10th) Business Day after the expiration of the Share Delivery Period with respect to a conversion of Preferred Shares, then the Holder, upon written notice to the Transfer Agent, with a copy to the Company, may void its Conversion Notice with respect to, and retain or have returned, as the case may be, any Preferred Shares that have not been converted pursuant to such Holder's Conversion Notice; provided that the voiding of a Holder's Conversion Notice shall not effect the Company's obligations to make any payments which have accrued prior to the date of such notice pursuant to Section 2(e)(v)(A) or otherwise. Thereafter, the Fixed Conversion Price of any Preferred Shares returned or retained by the Holder for failure to timely convert shall be adjusted to the lesser of (I) the Fixed Conversion Price in effect as on the date on which the Holder voided the Conversion Notice and (II) the lowest Closing Bid Price during the period beginning on the Conversion Date and ending on the date such Holder voided the Conversion Notice. (i) Pro Rata Conversion and Redemption. In the event the Company receives a Conversion Notice from more than one Holder of Preferred Shares for the same Conversion Date and the Company can convert some, but not all, of such Preferred Shares, the Company shall convert from each Holder of Preferred Shares electing to have Preferred Shares converted at such time a pro rata amount of such Holder's Preferred Shares submitted for conversion based on the number of Preferred Shares submitted for conversion on such date by such Holder relative to the number of Preferred Shares submitted for conversion on such date. (i) [Reserved.] (a) Taxes. The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Common Stock upon the conversion of Preferred Shares. (a) Adjustments to Conversion Price. The Conversion Price will be subject to adjustment from time to time as provided in this Section 2(g). (i) Adjustment of Fixed Conversion Price upon Issuance of Common Stock. If and whenever on or after the date of issuance of the Preferred Shares, the Company issues or sells, or in accordance with this Section 2(g) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued by the Company in connection with an Approved Stock Plan (as defined below) or upon conversion of the Preferred Shares) for a consideration per share less than the lesser of (A) the Market Price of the Common Stock on the date of such issuance or sale and (B) the Fixed Conversion Price in effect immediately prior to such time (the "Applicable Price"), then immediately after such issue or sale, the Fixed Conversion Price then in effect shall be reduced to an amount equal to the product of (x) the Fixed Conversion Price in effect immediately prior to such issue or sale and (y) the quotient of (1) the sum of (I) the product of the Applicable Price and the number of shares of Common Stock Deemed Outstanding (as defined below) immediately prior to such issue or sale and (II) the consideration, if any, received by the Company upon such issue or sale, divided by (2) the product of (I) the Applicable Price multiplied by (II) the number of shares of Common Stock Deemed Outstanding immediately after such issue or sale. For purposes of determining the adjusted Fixed Conversion Price under this Section 2(g)(i), the following shall be applicable: (A) Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange of any Convertible Securities issuable upon exercise of such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 2(g)(i)(A), the "lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange of any Convertible Securities issuable upon exercise of such Option" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon granting or sale of the Option, upon exercise of the Option and upon conversion or exchange of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Fixed Conversion Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 2(g)(i)(A) to the extent that such adjustment is based solely on the fact that the Convertible Securities issuable upon exercise of such Option are convertible into or exchangeable for Common Stock at a price which varies with the market price of the Common Stock. (B) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance of sale of such Convertible Securities for such price per share. For the purposes of this Section 2(g)(i)(B), the "price per share for which one share of Common Stock is issuable upon such conversion or exchange" shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion or exchange of such Convertible Security. No further adjustment of the Fixed Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Fixed Conversion Price had been or are to be made pursuant to other provisions of this Section 2(g)(i), no further adjustment of the Fixed Conversion Price shall be made by reason of such issue or sale. Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 2(g)(i)(B) to the extent that such adjustment is based solely on the fact that such Convertible Securities are convertible into or exchangeable for Common Stock at a price which varies with the market price of the Common Stock. (C) Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock changes at any time, the Fixed Conversion Price in effect at the time of such change shall be adjusted to the Fixed Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 2(g)(i)(C), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of the Preferred Shares are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Fixed Conversion Price then in effect. (i) Treatment of Expired Options and Unexercised Convertible Securities. If, in any case, the total number of shares of Common Stock issuable upon the exercise of any Option or upon exercise, conversion or exchange of any Convertible Security is not, in fact, issued and the rights to exercise or terminated, the Fixed Conversion Price then in effect will be readjusted to the Fixed Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination (other than in respect of the actual number of shares of Common Stock issued upon exercise or conversion thereof) never been issued. (D) Calculation of Consideration Received. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $.01. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the fair market value of such securities on the date of receipt. If any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the Holders of a majority of the Preferred Shares then outstanding. If such parties are unable to reach agreement within 10 days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within five business days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holders of a majority of the Preferred Shares then outstanding. The determination of such appraiser shall be deemed binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company. (E) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (2) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (F) Certain Definitions. For purposes of this Section 2(g)(i), the following terms have the respective meanings set forth below: (I) "Approved Stock Plan" shall mean any employee benefit plan which has been approved by the Board of Directors of the Company, pursuant to which the Company's securities may be issued to any employee, officer, director, consultant or other service provider for services provided to the Company. (II) "Common Stock Deemed Outstanding" means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to Sections 2(g)(i)(A) and 2(g)(i)(B) hereof regardless of whether the Options or Convertible Securities are actually exercisable at such time, but excluding any shares of Common Stock owned or held by or for the account of the Company or issuable upon conversion of the Preferred Shares. (III) "Options" means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. (IV) "Convertible Securities" means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable for Common Stock. (ii) Adjustment of Fixed Conversion Price upon Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Fixed Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Fixed Conversion Price in effect immediately prior to such combination will be proportionately increased. (iii) [Reserved]. (iv) Holder's Right of Alternative Floating Conversion Price Following Issuance of Convertible Securities. If after the Closing Date the Company in any manner issues or sells Convertible Securities that are convertible into or exchangeable for Common Stock at a price which varies with the market price of the Common Stock (the formulation for such variable price being herein referred to as, the "Variable Price") and such Variable Price is not calculated using the same formula used to calculate the Floating Conversion Price in effect immediately prior to the time of such issue or sale, the Company shall provide written notice thereof via facsimile and overnight courier to each Holder of the Preferred Shares ("Variable Notice") on the date of issuance of such Convertible Securities. From and after the date the Company issues any such Convertible Securities with a Variable Price, a Holder of Preferred Shares shall have the right, but not the obligation, in its sole discretion to substitute the Variable Price for the Floating Conversion Price upon conversion of any Preferred Shares by designating in the Conversion Notice delivered upon conversion of such Preferred Shares that solely for purposes of such conversion the Holder is relying on the Variable Price rather than the Floating Conversion Price then in effect. A Holder's election to rely on a Variable Price for a particular conversion of Preferred Shares shall not obligate the Holder to rely on a Variable Price for any future conversions of Preferred Shares. (v) Other Events. If any event occurs of the type contemplated by the provisions of this Section 2(e) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company's Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holders of the Preferred Shares; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 2(e). (vi) Notices. (A) Immediately upon any adjustment of the Conversion Price, the Company will give written notice thereof to each Holder of Preferred Shares, setting forth in reasonable detail, and certifying, the calculation of such adjustment. (B) The Company will give written notice to each Holder of Preferred Shares at least twenty (20) days prior to the date on which the Company closes its books or takes a record (I) with respect to any dividend or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to holders of Common Stock or (III) for determining rights to vote with respect to any Organic Change (as defined below), dissolution or liquidation, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such Holder. (C) The Company will also give written notice to each Holder of Preferred Shares at least twenty (20) days prior to the date on which any Organic Change, dissolution or liquidation will take place, provided that such information shall be made known to the public prior to or in conjunction with such notice being provided to such Holder. (1) Redemption at Option of Holders. (a) Redemption Option Upon Major Transaction. In addition to all other rights of the Holders of Preferred Shares contained herein, upon the consummation of a Major Transaction (as defined below), each Holder of Preferred Shares shall have the right, at such Holder's option, to require the Company to redeem all or a portion of such Holder's Preferred Shares at a price per Preferred Share equal to the greater of (i) 125% of the Stated Value of such Preferred Share and (ii) the product of (A) the Conversion Rate in effect at such time as such Holder delivers a Notice of Redemption at Option of Buyer Upon Major Transaction (as defined below) and (B) the Closing Sale Price of the Common Stock on the date immediately preceding such Major Transaction on which the Principal Market, or the market or exchange where the Common Stock is then traded, is open for trading ("Major Transaction Redemption Price"). (a) Redemption Option Upon Triggering Event. In addition to all other rights of the Holders of Preferred Shares contained herein, after a Triggering Event (as defined below), each Holder of Preferred Shares shall have the right, at such Holder's option, to require the Company to redeem all or a portion of such Holder's Preferred Shares at a price per Preferred Share equal to the greater of (i) 125% of the Stated Value and (ii) the product of (A) the Conversion Rate in effect at such time as such Holder delivers a Notice of Redemption at Option of Buyer Upon a Triggering Event (as defined below) and (B) the Closing Sale Price of the Common Stock on the date immediately preceding such Triggering Event on which the Principal Market, or the market or exchange where the Common Stock is then traded, is open for trading ("Triggering Event Redemption Price" and, collectively with "Major Transaction Redemption Price," the "Redemption Price"). (a) "Major Transaction". A "Major Transaction" shall be deemed to have occurred at such time as any of the following events: (i) the consolidation, merger or other business combination of the Company with or into another Person (other than pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company) involving the issuance, exchange or sale of more than 30% of the shares of Common Stock then outstanding; (i) the sale or transfer of all or substantially all of the Company's assets; or (i) a purchase, tender or exchange offer made to the holders of more than 30% of the outstanding shares of Common Stock. (a) "Triggering Event". A "Triggering Event" shall be deemed to have occurred at such time as any of the following events: (i) the failure of the Registration Statement to be declared effective by the SEC on or prior to the date that is 120 days after the Issuance Date; (i) while the Registration Statement is required to be maintained effective pursuant to the terms of the Registration Rights Agreement, the effectiveness of the Registration Statement lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to the Holder of the Preferred Shares for sale of all of the Registrable Securities (as defined in the Registration Rights Agreement) in accordance with the terms of the Registration Rights Agreement, and such lapse or unavailability continues for a period of five (5) consecutive trading days, provided that the cause of such lapse or unavailability is not due to factors solely within the control of such Holder of Preferred Shares; (i) the suspension from trading or failure of the Common Stock to be listed on the Nasdaq National Market, The New York Stock Exchange, Inc. or The American Stock Exchange, Inc. for a period of five (5) consecutive trading days or for more than an aggregate of ten (10) trading days in any 365-day period (provided that such failure shall not constitute a Triggering Event if caused by Holders of Preferred Shares pursuant to Section 4(c) below); (i) the Company's or the Transfer Agent's notice to any Holder of Preferred Shares, including by way of public announcement, at any time, of its intention not to comply with a request for conversion of any Preferred Shares into shares of Common Stock that is tendered in accordance with the provisions of this Certificate of Designations, or the failure of the Transfer Agent to comply with a Conversion Notice tendered in accordance with the provisions of this Certificate of Designations within ten (10) Business Days after the receipt by the Transfer Agent of the Conversion Notice; (i) upon the Company's receipt of a Conversion Notice, the Company shall not be obligated to issue the Conversion Shares due to the provisions of Section 12; or (i) the Company breaches any representation, warranty, covenant or other term or condition of the Securities Purchase Agreement, the Registration Rights Agreement, this Certificate of Designations or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated thereby and hereby, except to the extent that such breach would not have a Material Adverse Effect (as defined in Section 3(a) of the Securities Purchase Agreement) and except, in the case of a breach of a covenant which is curable, only if such breach continues for a period of at least ten (10) days. (a) Mechanics of Redemption at Option of Buyer Upon Major Transaction. No sooner than 15 days nor later than 10 days prior to the consummation of a Major Transaction, the Company shall deliver written notice thereof via facsimile and overnight courier ("Notice of Major Transaction") to each Holder of Preferred Shares, which notice shall include the date by which a Holder receiving a Notice of Major Transaction must provide the Company with notice of its intent to exercise its redemption rights hereunder (which date shall not be sooner than five business days after the date of the Notice of Major Transaction (the "Major Transaction Response Date")). The Company shall publicly disclose the material facts of such Major Transaction prior to or concurrently with providing the Notice of Major Transaction, such public disclosure to be made not later than 10 days prior to the consummation of such Major Transaction. At any time after receipt of a Notice of Major Transaction and prior to the Major Transaction Response Date (or, in the event a Notice of Major Transaction is not delivered at least 10 days prior to a Major Transaction, at any time prior to the consummation of a Major Transaction) any Holder of Preferred Shares then outstanding may require the Company to redeem all of the Holder's Preferred Shares then outstanding by delivering written notice thereof via facsimile and overnight courier ("Notice of Redemption at Option of Buyer Upon Major Transaction") to the Company, which Notice of Redemption at Option of Buyer Upon Major Transaction shall indicate (i) the number of Preferred Shares that such Holder is electing to redeem and (ii) the applicable Major Transaction Redemption Price, as calculated pursuant to Section 3(a). (a) Mechanics of Redemption at Option of Buyer Upon Triggering Event. Within one (1) day after the occurrence of a Triggering Event, the Company shall deliver written notice thereof via facsimile and overnight courier ("Notice of Triggering Event") to each Holder of Preferred Shares. At any time after the earlier of a Holder's receipt of a Notice of Triggering Event and such Holder becoming aware of a Triggering Event, any Holder of Preferred Shares then outstanding may require the Company to redeem all of the Preferred Shares by delivering written notice thereof via facsimile and overnight courier ("Notice of Redemption at Option of Buyer Upon Triggering Event") to the Company, which Notice of Redemption at Option of Buyer Upon Triggering Event shall indicate (i) the number of Preferred Shares that such Holder is electing to redeem and (ii) the applicable Triggering Event Redemption Price, as calculated pursuant to Section 3(b) above. (a) Payment of Redemption Price. Upon the Company's receipt of a Notice(s) of Redemption at Option of Buyer Upon Major Transaction or a Notice(s) of Redemption at Option of Buyer Upon Triggering Event, as the case may be, from any Holder of Preferred Shares, the Company shall immediately notify each Holder of Preferred Shares by facsimile of the Company's receipt of such notices and each Holder which has sent such a notice shall promptly submit to the Transfer Agent such Holder's Preferred Stock Certificates which such Holder has elected to have redeemed. The Company shall deliver the applicable Redemption Price to such Holder within five (5) Business Days after the Company's receipt of a Notice of Redemption at Option of Buyer Upon Triggering Event or Notice of Redemption at Option of Buyer Upon Major Transaction; provided that a Holder's Preferred Stock Certificates shall have been so delivered to the Transfer Agent. If the Company is unable to redeem all of the Preferred Shares submitted for redemption, the Company shall (i) redeem a pro rata amount from each Holder of Preferred Shares based on the number of Preferred Shares submitted for redemption by such Holder relative to the total number of Preferred Shares submitted for redemption by all Holders of Preferred Shares and (ii) in addition to any remedy such Holder of Preferred Shares may have under this Certificate of Designations and the Securities Purchase Agreement, pay to each Holder interest at the rate of 2.0% per month (prorated for partial months) in respect of each unredeemed Preferred Share until paid in full. (a) Void Redemption. In the event that the Company does not pay the Redemption Price within the time period set forth in Section 3(g), at any time thereafter and until the Company pays such unpaid applicable Redemption Price in full, a Holder of Preferred Shares shall have the option (the "Void Optional Redemption Option") to, in lieu of redemption, require the Company to promptly return to such Holder any or all of the Preferred Shares that were submitted for redemption by such Holder under this Section 3 and for which the applicable Redemption Price (together with any interest thereon) has not been paid, by sending written notice thereof to the Company via facsimile (the "Void Optional Redemption Notice"). Upon the Company's receipt of such Void Optional Redemption Notice, (i) the Notice of Redemption at Option of Buyer Upon Triggering Event or the Notice of Redemption at Option of Buyer Upon Major Transaction, as the case may be, shall be null and void with respect to those Preferred Shares subject to the Void Optional Redemption Notice, (ii) the Company shall immediately return any Preferred Shares subject to the Void Optional Redemption Notice, (iii) the Fixed Conversion Price of such returned Preferred Shares shall be adjusted to the lesser of (A) the Fixed Conversion Price as in effect on the date on which the Void Optional Redemption Notice is delivered to the Company and (B) the lowest Closing Bid Price during the period beginning on the date on which the Notice of Redemption at Option of Buyer Upon Major Transaction or the Notice of Redemption at Option of Buyer Upon Triggering event, as the case may be, is delivered to the Company and ending on the date on which the Void Optional Redemption Notice is delivered to the Company, and (iv) the Conversion Percentage in effect at such time shall be reduced by a number of percentage points equal to the product of (A) .25 and (B) the number of days in the period beginning on the date which is five business days after the date on which the Notice of Redemption at Option of Buyer Upon Major Transaction or the Notice of Redemption at Option of Buyer Upon Triggering Event, as the case may be, is delivered to the Company and ending on the date on which the Void Optional Redemption Notice is delivered to the Company. (a) Disputes; Miscellaneous. In the event of a dispute as to the determination of the Closing Bid Price, the Closing Sale Price or the arithmetic calculation of the Redemption Price, such dispute shall be resolved pursuant to Section 2(e)(iii) above with the term "Closing Bid Price" and/or "Closing Sale Price", as the case may be, being substituted for the term "Market Price" and the term "Redemption Price" being substituted for the term "Conversion Rate". A Holder's delivery of a Void Optional Redemption Notice and exercise of its rights following such notice shall not effect the Company's obligations to make any payments which have accrued prior to the date of such notice. Payments provided for in this Section 3 shall have priority to payments to other stockholders in connection with a Major Transaction. In the event of a redemption pursuant to this Section 3 of less than all of the Preferred Shares represented by a particular Preferred Stock Certificate, the Company shall promptly cause to be issued and delivered to the Holder of such Preferred Shares a preferred stock certificate representing the remaining Preferred Shares which have not been redeemed. (1) Other Rights of Holders. (a) Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company's assets to another Person or other transaction which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as "Organic Change". Prior to the consummation of any (i) sale of all or substantially all of the Company's assets to an acquiring Person or (ii) other Organic Change following which the Company is not a surviving entity, the Company will secure from the Person purchasing such assets or the successor resulting from such Organic Change (in each case, the "Acquiring Entity") a written agreement (in form and substance satisfactory to the Holders of a majority of the Preferred Shares then outstanding) to deliver to each Holder of Preferred Shares in exchange for such shares, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to the Preferred Shares, including, without limitation, having a stated value and liquidation preference equal to the Stated Value and the Liquidation Preference of the Preferred Shares held by such Holder, and satisfactory to the Holders of a majority of the Preferred Shares then outstanding. Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the Holders of a majority of the Preferred Shares then outstanding) to insure that each of the Holders of the Preferred Shares will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the conversion of such Holder's Preferred Shares such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock which would have been acquirable and receivable upon the conversion of such Holder's Preferred Shares as of the date of such Organic Change (without taking into account any limitations or restrictions on the convertibility of the Preferred Shares). (b) Purchase Rights. If at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the "Purchase Rights"), then the Holders of Preferred Shares will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of the Preferred Shares (without taking into account any limitations or restrictions on the convertibility of the Preferred Shares) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record Holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. (c) Forced Delisting. If a redemption voided pursuant to Section 3(h) was caused by a Triggering Event involving the Company's inability to issue Conversion Shares because of the Primary Exchange Cap (as defined in Section 12), and if so directed by the Holders of at least two-thirds (2/3) of the Preferred Shares then outstanding, including shares of Preferred Shares submitted for redemption pursuant to Section 3 with respect to which the applicable Redemption Price has not been paid, in a Void Mandatory Redemption Notice, the Company shall immediately delist the Common Stock from exchange or automated quotation system on which the Common Stock is traded and have the Common Stock, at such Holders' option, traded on the electronic bulletin board or the "pink sheets". (1) [Reserved.] (1) Reservation of Shares. (a) Authorized and Reserved Amount. The Company shall, at all times so long as any of the Preferred Shares are outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, such number of shares (the Reserved Amount) of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Preferred Shares then outstanding; provided that the number of shares of Common Stock so reserved shall at no time be less than two hundred percent (200%) of the number of shares of Common Stock for which the Preferred Shares are at any time convertible (including but not limited to any accrued but unpaid Regular Dividends, assuming any such accrued but unpaid Regular Dividends are paid on such date by delivery of shares of Common Stock if the Company elected to pay such Regular Dividends in Common Stock) (the Minimum Amount). The initial number of shares of Common Stock reserved for conversions of the Preferred Shares and each increase in the number of shares so reserved shall be allocated pro rata among the Holders of the Preferred Shares based on the number of Preferred Shares held by each Holder at the time of issuance of the Preferred Shares or increase in the number of reserved shares, as the case may be. In the event a Holder shall sell or otherwise transfer any of such Holder's Preferred Shares, each transferee shall be allocated a pro rata portion of the number of reserved shares of Common Stock reserved for such transferor. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Preferred Shares shall be allocated to the remaining Holders of Preferred Shares, pro rata based on the number of Preferred Shares then held by such Holders. (b) Increases to Reserved Amount. Without limiting any other provision of this Section 6, if the Reserved Amount for any three (3) consecutive trading days (the last of such three (3) trading days being the Reservation Trigger Date) shall be less than two hundred percent (200%) of the number of shares of Common Stock issuable upon conversion of the Preferred Shares on such trading days (a Share Authorization Failure), the Company shall immediately notify all Holders of such occurrence and shall take action as soon as possible, but in any event within thirty (30) days after a Reservation Trigger Date (including, if necessary, seeking shareholder approval to authorize the issuance of additional shares of Common Stock) to increase the Reserved Amount to two hundred fifty percent (250%) of the number of shares of Common Stock then issuable upon conversion of the Preferred Shares. (1) Voting Rights. Holders of Preferred Shares shall have no voting rights, except as required by law, including but not limited to the General Corporation Law of the State of Nevada, and as expressly provided in this Certificate of Designations. (1) Liquidation, Dissolution, Winding-Up. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the Holders of the Preferred Shares shall be entitled to receive in cash out of the assets of the Company, whether from capital or from earnings available for distribution to its stockholders (the "Liquidation Funds"), before any amount shall be paid to the holders of any of the capital stock of the Company of any class junior in rank to the Preferred Shares in respect of the preferences as to the distributions and payments on the liquidation, dissolution and winding up of the Company, an amount per Preferred Share equal to $100 and any accrued but unpaid Regular Dividends and Participating Dividends (such sum being referred to as the "Liquidation Preference"); provided that, if the Liquidation Funds are insufficient to pay the full amount due to the Holders of Preferred Shares and holders of shares of other classes or series of preferred stock of the Company that are of equal rank with the Preferred Shares as to payments of Liquidation Funds (the "Pari Passu Shares"), then each Holder of Preferred Shares and Pari Passu Shares shall receive a percentage of the Liquidation Funds equal to the full amount of Liquidation Funds payable to such Holder as a liquidation preference, in accordance with their respective Certificate of Designations, Preferences and Rights, as a percentage of the full amount of Liquidation Funds payable to all Holders of Preferred Shares and holders of Pari Passu Shares. In addition to the receipt of the Liquidation Preference, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the Holders of the Preferred Shares shall be entitled to receive Liquidation Funds distributed to holders of Common Stock, after the Liquidation Preference has been paid, to the same extent as if such Holders of Preferred Shares had converted the Preferred Shares into Common Stock (without regard to any limitations on conversions herein or elsewhere) and had held such shares of Common Stock on the record date for such distribution of the remaining Liquidation Funds. The purchase or redemption by the Company of stock of any class, in any manner permitted by law, shall not, for the purposes hereof, be regarded as a liquidation, dissolution or winding up of the Company. Neither the consolidation or merger of the Company with or into any other Person, nor the sale or transfer by the Company of less than substantially all of its assets, shall, for the purposes hereof, be deemed to be a liquidation, dissolution or winding up of the Company. No Holder of Preferred Shares shall be entitled to receive any amounts with respect thereto upon any liquidation, dissolution or winding up of the Company other than the amounts provided for herein; provided that a Holder of Preferred Shares shall be entitled to all amounts previously accrued with respect to amounts owed hereunder. (1) Preferred Rank. All shares of Common Stock shall be of junior rank to all Preferred Shares in respect to the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Company. The rights of the shares of Common Stock shall be subject to the preferences and relative rights of the Preferred Shares. Without the prior express written consent of the Holders of not less than two-thirds (2/3) of the then outstanding Preferred Shares, the Company shall not hereafter authorize or issue additional or other capital stock that is of senior or equal rank to the Preferred Shares in respect of the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Company. Without the prior express written consent of the Holders of not less than two-thirds (2/3) of the then outstanding Preferred Shares, the Company shall not hereafter authorize or make any amendment to the Company's Articles of Incorporation or bylaws, or file any resolution of the board of directors of the Company with the Nevada Secretary of State or enter into any agreement containing any provisions, which would adversely affect or otherwise impair the rights or relative priority of the Holders of the Preferred Shares relative to the holders of the Common Stock or the holders of any other class of capital stock. In the event of the merger or consolidation of the Company with or into another corporation, the Preferred Shares shall maintain their relative powers, designations and preferences provided for herein and no merger shall result inconsistent therewith. (1) Participation. Subject to the rights of the Holders, if any, of the Pari Passu Shares, the Holders of the Preferred Shares shall, as Holders of Preferred Stock, be entitled to such dividends paid and distributions made to the holders of Common Stock to the same extent as if such Holders of Preferred Shares had converted the Preferred Shares into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock. (1) Restriction on Redemption and Cash Dividends. Until all of the Preferred Shares have been converted or redeemed as provided herein, the Company shall not, directly or indirectly, redeem, or declare or pay any cash dividend or distribution on, its Common Stock without the prior express written consent of the Holders of not less than two-thirds (2/3) of the then outstanding Preferred Shares. (1) Limitation on Number of Conversion Shares. The Company shall not be obligated to issue any shares of Common Stock upon conversion of the Preferred Shares if the issuance of such shares of Common Stock would exceed that number of shares of Common Stock which the Company may issue upon Conversion of the Preferred Shares (the "Exchange Cap") without breaching the Company's obligations under the rules or regulations of the Principal Market, or the market or exchange where the Common Stock is then traded, except that such limitation shall not apply in the event that the Company (a) obtains the approval of its stockholders as required by the applicable rules of the Principal Market, or the market or exchange where the Common Stock is then traded, (or any successor rule or regulation) for issuances of Common Stock in excess of such amount or (b) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the Holders of a majority of the Preferred Shares then outstanding. Until such approval or written opinion is obtained, no purchaser of Preferred Shares pursuant to the Securities Purchase Agreement (the "Purchasers") shall be issued, upon conversion of Preferred Shares, shares of Common Stock in an amount greater than the product of (i) the Exchange Cap amount multiplied by (ii) a fraction, the numerator of which is the number of Preferred Shares issued to such Purchaser pursuant to the Securities Purchase Agreement and the denominator of which is the aggregate amount of all the Preferred Shares issued to the Purchasers pursuant to the Securities Purchase Agreement (the "Cap Allocation Amount"). In the event that any Purchaser shall sell or otherwise transfer any of such Purchaser's Preferred Shares, the transferee shall be allocated a pro rata portion of such Purchaser's Cap Allocation Amount. In the event that any Holder of Preferred Shares shall convert all of such Holder's Preferred Shares into a number of shares of Common Stock which, in the aggregate, is less than such Holder's Cap Allocation Amount, then the difference between such Holder's Cap Allocation Amount and the number of shares of Common Stock actually issued to such Holder shall be allocated to the respective Cap Allocation Amounts of the remaining Holders of Preferred Shares on a pro rata basis in proportion to the number of Preferred Shares then held by each such Holder. (1) Vote to Change the Terms of Preferred Shares. The affirmative vote at a meeting duly called for such purpose or the written consent without a meeting, of the Holders of not less than two-thirds (2/3) of the then outstanding Preferred Shares, shall be required for any change to this Certificate of Designations or the Company's Articles of Incorporation which would amend, alter, change or repeal any of the powers, designations, preferences and rights of the Preferred Shares. (1) Lost or Stolen Certificates. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing the Preferred Shares, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date; provided, however, the Company shall not be obligated to re-issue preferred stock certificates if the Holder contemporaneously requests the Company to convert such Preferred Shares into Common Stock. (1) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Certificate of Designations shall be cumulative and in addition to all other remedies available under this Certificate of Designations, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a Holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designations. The Company covenants to each Holder of Preferred Shares that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holders of the Preferred Shares and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holders of the Preferred Shares shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required. (1) Specific Shall Not Limit General; Construction. No specific provision contained in this Certificate of Designations shall limit or modify any more general provision contained herein. This Certificate of Designations shall be deemed to be jointly drafted by the Company and all Buyers and shall not be construed against any person as the drafter hereof. (1) Failure or Indulgence Not Waiver. No failure or delay on the part of a Holder of Preferred Shares in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. [Signature Page Follows] IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to be signed by Michael Muzio, its President, and Gregg Vosler, its Secretary, as of the 16th day of July, 1999. TRIMFAST GROUP, INC. By: /s/ Michael Muzio Name: Michael Muzio Title: President By: /s/ Greg Vosler Name: Greg Vosler Title: Secretary State of ______________ ) ) ss County of ____________ ) I, ___________________________________, a Notary Public, do hereby affirm that the signatures of ____________________, and ___________________ are true and correct. I hereto affix my notary seal this _____ day of ____________, 199__. ___________________________________ [Name] My Commission Expires: ___________________________________ EXHIBIT I CONVERSION NOTICE Reference is made to the Certificate of Designations, Preferences and Rights of TrimFast Group, Inc. (the "Certificate of Designations"). In accordance with and pursuant to the Certificate of Designations, the undersigned hereby elects to convert the number of shares of Series [A] Preferred Stock, par value $100 per share (the "Preferred Shares"), of TrimFast Group, Inc., a Nevada corporation (the "Company"), indicated below into shares of Common Stock, par value $____ per share (the "Common Stock"), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below. Date of Conversion: Number of Preferred Shares to be converted: Stock certificate no(s). of Preferred Shares to be converted: Please confirm the following information: Conversion Price: Number of shares of Common Stock to be issued: Is the alternative Floating Conversion Price being relied on pursuant to Section 2(g)(iv) of the Certificate of Designations? (check one) YES ____ No ____ Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address: Issue to: Facsimile Number: Authorization: By: Title: Dated: Account Number: (if electronic book entry transfer): Transaction Code Number (if electronic book entry transfer): EX-10.2 3 WCW AGREEMENT MERCHANDISING LICENSE AGREEMENT Date: as of June 2, 1999 Property: World Championship Wrestling License No.: D993287 WCW LICENSEE WORLD CHAMPIONSHIP WRESTLING, INC. TRIMFAST GROUP, INC. One CNN Center 777 South Harbour Island Blvd., #260 l2th Floor, South Tower Tampa, FL 33602 Atlanta, Georgia 30348-5366 Contact: Michael J. Muzio Tel: 8l3-275-0050 Fax: 813-275-0051 This Agreement is made as of the date specified above between WCW on behalf of itself and its parent, subsidiaries and affiliates (the foregoing collectively, "Related Entities") and Licensee, whereby WCW grants Licensee a license to utilize certain names, likenesses, characters, trademarks and/or copyrights in connection with the manufacture, distribution, advertising, promotion and sale of certain articles of merchandise on the following terms and conditions: 1. Licensed Elements: See Schedule "1" attached below. 2. Authorized Articles: Trimfast Energy Bars (WCW Bars) in 3 flavors: chocolate, chocolate chip; chocolate peanut butter; and Passion fruit Licensee is limited to the foregoing Authorized Articles as currently manufactured by Licensee with the ingredients set out in Exhibit A*. Licensee has provided WCW with a complete list of its entire current product line. Licensee shall from time to time provide WCW with an updated list of its current product line. In the event WCW objects to any products being produced or sold by Licensee, Licensee shall discontinue production and sale of such products within sixty (60) days of notice by WCW or WCW may terminate this Licensee agreement immediately without recourse. *(Exhibit A) Ingredients: High fructose, corn syrup, chocolate coating (contains turbinado sugar, fractionated vegetable oils, non-fat dry mild, cocoa, soy lecithin, and salt), cocoa powder, chocolate chips, calcium, etc. 3. Licensed Territory: U.S., its territories and possessions & U.S. Military Installations The Authorized Articles may only be distributed in the Licensed Territory. Licensee shall impose the obligation on its customers to sell the Authorized Articles only within the Licensed Territory and shall not knowingly sell Authorized Articles to persons or entities whom Licensee knows, or reasonably should know, intend to resell or 7. Advance/Guarantee: Advance: $50,000 (already received) Balance of Guarantee: $500,000 Total of Guarantee: $550,000 (includes advance) The non-refundable Advance of $50,000 is payable in full concurrently with WCW's receipt of copies of this Agreement (without amendments or modifications) signed by Licensee, which in any event will be not later than the date fourteen (14) days after Licensee receives copies of this Agreement for signature. The balance of the Guarantee is payable in installments as follows: $100,000 due no later than 12/31/99 $100,000 due no later than 6/30/00 $100,000 due no later than 9/30/00 $100,000 due no later than 12/31/00 $100,000 due no later than 6/30/01 (All references to "Dollar(s)" and/or "$" anywhere in this Agreement will refer to United States Dollars.) 8. Marketing Date: Marketing of each of the Authorized Articles will begin no later than October 1, 1999. 9. Shipping Date: Shipment to retailers of each of the Authorized Articles will begin no later than November 1, 1999. 10. Authorized Channels of Distribution: Mass Markets, Chain Stores, Specialty Stores The Authorized Articles may only be distributed through the Authorized Channels of Distribution within the Licensed Territory. Licensee shall impose the obligation on its customers to sell the Authorized Articles only through the Authorized Channels of Distribution and shall not knowingly sell Authorized Articles to persons or entities whom Licensee knows, or reasonably should know, intend to resell or are likely to resell the Authorized Articles outside of the Authorized Channels of Distribution. Authorized Articles may not be sold within 500 feet of any WCW event. The Authorized Articles may only be distributed through the Authorized Channels of Distribution within the Licensed Territory. In the event the Authorized Articles are permitted for distribution to retail outlets located at or within 500 feet of a WCW event venue, Licensee shall impose the obligation on the retail outlets not to sell any of the Authorized Articles on the day of any WCW sponsored events at such venue. Licensee shall impose the obligation on its customers to sell the Authorized Articles only through the Authorized Channels of Distribution and shall not knowingly sell Authorized Articles to persons or entities whom Licensee knows, or reasonably should know, intend to resell or are likely to resell the Authorized Articles outside of the Authorized Channels of Distribution. 11. Sell-off Period: 90 days 12. Form of Copyright and Trademark Notice: Each Authorized Article shall bear copyright and trademark notices in the following form (or in such other form as WCW may hereafter designate, for prospective implementation, by notice to Licensee): 19XX & WCW,Inc. The packaging containing the Authorized Articles described in Paragraph 2 hereir shall bear trhe following copyright and trademark notices. Copyright: 19XX World Championship Wrestling,Inc. A Time Warner Company. All Rights Reserved. Trademark: WCW(tm) and NWO(c) are trademarks of World Championship Wrestling, Inc. All characters depicted, are trademarks of or used under License to World Championship Wrestling Inc. 13. Notices: Payments and statements to WCW shall be made or given to agent, Leisure Concepts Inc. (WCW's Agent) at 1414 Avenue of the Americas, New York, NY 10014 attn: Accounting Department. All other notices to WCW shall be sent to WCW at the Atlanta address specified on the first page of this Agreement, with a copy to the same address, Attention: Legal Department. 14. Standard Terms: The attached "Exhibit `A' (Standard Terms and Conditions) are incorporated by this reference into the terms of this Merchandising License Agreement (collectively referred to herein as "Agreement"). If any provision set forth above in this Agreement conflicts (or is construed to conflict) with any provision of the Standard Terms and Conditions, the provisions hereinabove set forth will control. 15. Credit Terms: Execution of this Agreement by WCW is contingent upon WCW's satisfaction with Licensee's financial ability to fulfill the Guarantee stated herein. To this end, Licensee agrees to furnish any financial information requested by WCW to confirm Licensee's credit status. If deemed necessary by WCW, Licensee shall furnish a first priority lien and security interest, a letter of credit, or any other such acceptable form of security to cover the Guarantee. Licensee agrees to comply with WCW's request(s) pursuant to this Paragraph before and during the entire term of this Agreement. 16. Special Terms: If Authorized Articles are not marketed within 90 days of the Shipping Date, WCW may remove the rights of those items. If the forgoing proposal meets with the approval of Licensee, please sign and return this proposal to WCW. Upon execution by WCW, this document will be a binding agreement between Licensee and WCW as of the date first above written. WORLD CHAMPIONSHIP WRESTLING, INC. TRIMFAST GROUP, INC. ("WCW" ) ("Licensee") By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE] ------------------------- -------------------- Title: Director of Licensing Title: C.E.O. ---------------------- ------------------ SCHEDULE "1" 1. "Licensed Elements" means only the names and static visual likenesses of the following specific fictional characters, only as depicted in the entertainment properties defined below as the "Program(s)" (excluding dialogue, storylines and plot elements from the Pictures, except as specifically agreed in writing and in advance by WCW). It is specifically understood and agreed that the character names, likenesses and other elements referred to above (including, if applicable, the names of actors, voice-over artists, and/or other elements listed in this Schedule "1") are included within the definition of "Licensed Elements" (i) only to the extent of WCW's ownership or control thereof, and (ii) only as specifically depicted in and as part of the Program(s). Licensee understands and acknowledges that nothing herein grants Licensee the right to use sound bites, voices, music, or other audio effects from the Program(s). If Licensee wishes to use any such elements, Licensee must separately' procure the necessary rights, and any rights, clearance or related fees arising from same shall be at Licensee's sole expense. WCW reserves the right to amend the list of Licensed Elements from time to time to keep the list current with WCW licensing rights. PROGRAM(S) LICENSED ELEMENTS WORLD CHAMPIONSHIP WRESTLING All WCW & NWO Logos All WCW & NWO Slogans Adams, Brian Adams, Chris Anderson, Arn Armstrong, Brad Armstrong, Scott Armstrong, Steve Asya Bagwell, Marcus Barbarian Benoit, Chris Bam Bam Bigelow Bischoff, Eric Blaze, Bobby Blitzkrieg Burke, Leo Chastity Ciclope Damien Darsow, Barry Dillon, JJ Disciple Disco Inferno Disorderly Conduct (Tom) Disorderly Conduct (Mike) DJ Ran (DJ) Duncum, Jr., Bobby Eaton, Bobby El Dandy Elizabeth, Miss El Vampiro Enos, Mike Finlay, Fit Flair, David FLair, Ric Flores, Art Flynn, Jerry Fortune, Chad Fuller, Rick Gambler Garza, Hector Goldberg, Bill Gorgeous George Guerrera, Juventud Guerrero, Chavo Jr. Guerrero, Eddie Hacksaw Jim Duggan Hale, Emory Hak Hall, Scott Hanmer, Bret Hankton, Kirt Harlem Heat - Booker T Harlem Heat - Stevie Ray Hart, Bret "The Hitman" Hart, Jimmy Helms, Shane Heenan, Bobby (Announcer) Hennie, Curt High Voltage -Rage High Voltage - Kaos Hogan, Hollywood Horace Horowitz, Barry Hudson, Scott (Announcer) Ice Train Jakes Johnson, Mark (NWO Referee) Kanyon Kaz Kellum, Rob Kidman, Billy Knobs Konnan Karagias, Evan Lane, Lenny La Parka LaRue, Lash Lex Luger Lizmark, Jr. Lodi Madusa Malenko, Dean Master P Meng Miller, Ernest Mitchell, James Moore, Shannon Morris, Hugh Mysterio Jr.,Rey Nash,Kevin Nitro Girls-Kimberly Nitro Girls-Chae Nitro Girls-Spice Nitro Gilrs-Tygress Nitro Girls -- Fyre Nitro Girls -- AC Jazz Nitro Girls -- Storm Norris, Harrison - Trainee Norton, Scott NWO Sting Okerlund, Mean Gene (Announcer) Onoo, Sonny Page, Diamond Dallas Patrick, Nick (Referee) Piper, Roddy Poffo, Lanny Prince Iaukea Psychosis Public Enemy (Rocco Rock) Public Enemy (Johnny Grunge) Putski, Scott Rachtman, Riki (Announcer) Raven Regal, Steven Reese, Ron Riggs, Scotty Saturn Savage, Randy Schiavone, Tony (Announcer) Sick Boy Silver King Smiley, Norman Steiner, Rick Steiner, Scott Sting Sullivan, Kevin Swinger, Johnny Swoll Tatum, Chase Tenay, Mike (Announcer) Torborg, Dale Ultimo Dragon Van Hammer Vicious, Sid Villano IV Villano V Vincent Walker, Bobby Wallstreet, Michael Watts, Erik Wilson, Luther Windham, Kendall Windham. Barry Wrath Wright, Alex Whipwreck, Mikey Zbyszko,Larry (Announcer) EXHIBIT "A" MERCHANDISING LICENSE AGREEMENT STANDARD TERMS AND CONDITIONS These Standard Terms and Conditions shall be deemed fully incorporated in the License Agreement ("Underlying Agreement") to which this Exhibit "A" is attached, and these Standard Terms and Conditions and the Underlying Agreement shall hereinafter be collectively referred to as the "Agreement." All terms shall, unless expressly provided to the contrary herein, have the same respective meanings as set forth in the Underlying Agreement. Unless expressly provided to the contrary herein, to the extent that any provision of these Standard Terms and Conditions conflicts with any provision of the Underlying Agreement, the Underlying Agreement shall control. A-l LICENSE WCW hereby grants to Licensee, and Licensee hereby accepts, a license to utilize the Licensed Elements upon or in connection with the Authorized Articles, for the purpose of the manufacture, distribution, advertising, promotion and sale of the Authorized Articles in the Licensed Territory during the License Period, upon and subject to all of the terms and conditions of this Agreement. Any and all rights not expressly granted to Licensee hereunder are expressly reserved by WCW and may be exercised and exploited freely by WCW at any time, and Licensee covenants and agrees that it shall not exercise, or authorize or permit others to exercise, any rights with respect to the Licensed Elements other than the limited and specific rights licensed hereunder. It is understood that the license granted hereunder relates to the sale of Authorized Articles and does not grant Licensee any rights with respect to the use of the Licensed Elements in connection with premium promotions or other giveaways. A-2 PAYMENT AND ACCOUNTINGS (a) Royalty. Licensee shall pay to WCW's Agent a royalty as specified in the Underlying Agreement with respect to all Net Sales of Authorized Articles. "Net Sales" shall mean gross sales by Licensee or any of its affiliated, associated or subsidiary companies, without any deductions whatsoever (including, without limitation, freight, taxes, uncollectible accounts, manufacturing, distribution, advertising, marketing or promotion costs with the exception of trade quantity discounts only), except for actual returns. Credit against sales shall be allowed only for actual returns and shall not be allowed on the basis of an accrual or reserve system. Net Sales for each Authorized Article shall be computed on no less than Licensee's regular, full, "top-of-the-line" gross wholesale invoice price calculated at source in the Licensed Territory, based upon the usual billing price for items sold in the normal course of business ("Royalty Base Price"). The foregoing royalty shall be payable on all Authorized Articles distributed by Licensee, including Authorized Articles not billed, except for a reasonable number of samples which may be given away to the trade in the normal course of business. (b) Advance and Guarantee. Licensee shall pay to WCW's Agent the Advance and Guarantee in accordance with the payment schedule specified in the Underlying Agreement. The Advance and installments of the balance of the Guarantee constitute a non-refundable advance against royalties to be earned as provided above. The total Guarantee shall be deemed accrued to WCW's account as of the date of this Agreement. (c) Monthly Statements. Not later than thirty (30) days after the initial shipment of the Authorized Articles and promptly on the 15th day of every month thereafter during the License Period, Licensee shall furnish to WCW's Agent complete and accurate statements (certified to be accurate by Licensee) showing the product and style number, description, unit sales, Royalty Base Price, gross sales and Net Sales of each and every Authorized Article covered by this Agreement. All statements shall be prepared by Licensee utilizing the form attached as Exhibit "B" hereto and incorporated by reference, as said form may be revised from time to time by WCW. Royalty reports shall be prepared separately for each country within the Licensed Territory, and shall include a product sales breakdown by style number, which indicates clearly which of the Licensed Elements were utilized in connection with each Authorized Article, including a breakdown for each Licensed Element, by character. Reporting will be completed in such a manner, and in sufficient detail, to enable WCW to separate royalties by the respective elements used; including, without limitation, the contract number present in the upper left-hand corner of the first page of this contract. (d) Royalty Payments. Royalty payments due hereunder shall be paid not later than thirty (30) days after the end of each calendar month and such payments shall accompany the statements required above. Licensee shall also include the contract number, present in the upper left-hand corner of the first page of this contract, on the face of the royalty check. If the License Period is extended beyond the term specified in Paragraph 4 of the Underlying Agreement, royalty payments which exceed the total Guarantee shall not be credited toward any similar guarantee which is payable with respect to the extension period. All payments shall be in U.S. funds. Licensee shall pay, and hold WCW forever harmless from, all taxes, customs, duties, levies, imposts or any other charges now or hereafter imposed or based upon the manufacture, delivery, license, sale, possession or use hereunder to or by Licensee of the Authorized Articles or the Licensed Elements (including but not limited to sales, use, inventory, income and value added taxes on sales of Authorized Articles), which charges shall not be deducted from WCW's royalties. All monies payable to or received by Licensee from the exploitation of the rights granted herein shall be held by Licensee in trust for WCW`s account to the extent of WCW`s entidement to such monies as set forth in this Agreement. (e) Timeliness. All payments hereunder shall be made to WCW`s Agent at the address set forth in the Underlying Agreement within the time and in the manner specified herein, it being intended and agreed that the time within which Licensee is required to make payment in accordance with the terms hereof is of the essence of this Agreement and any failure so to do on the part of Licensee shall constitute an event of default hereunder in accordance with Paragraph A-13 below. In addition to any other rights WCW may have in the event of such a default,Lincensee agrees to pay interest to WCW on any sums which have not beem by WCW`s Agent within thirty (30) days following the due date. Such interest shall accrue from said date and shall be payable at the rate of two (2%) over the prime rate as published in the Wall Street Journal on the dare the payment is due or the maximum rate allowed by law. A-3 BOOKS AND RECORDS Licensee shall keep accurate books of account and records in a form meeting the generally accepted standards of the profession of certified public accountants covering all transactions relating to the license hereby granted, and WCW and its authorized representatives shall have the right at all reasonable business hours, and upon reasonable notice, to examine and audit said books of account and records and all other documents and materials in the possession or under the control of Licensee with respect to the subject matter and terms of this Agreement, and shall have free and full access thereto for said purposes and for the purpose of taking extracts therefrom. Upon demand of WCW, but not more than twice per calendar year. Licensee shall at its own expense furnish to WCW a detailed statement prepared by an independent certified public accountant, or certified to be accurate by a duly authorized official of Licensee, showing the product and style number, description, Net Sales, itemized deductions from Net Sales and Royalty Base Price of the Authorized Articles distributed and/or sold by Licensee to the date of WCW's demand. If an audit reveals that Licensee has misrepresented or underreported any item bearing upon the royalties or other compensation due or payable to WCW, then, in addition to recomputing and making immediate payment of the sums due based on the true items together with interest thereon at the rate at which WCW is entitled to borrow from its principal lending institution (after giving effect to compensating balance requirements and any commitment fees), Licensee shall pay costs and expenses incurred by WCW for the audit and checking and attorney's fees incurred by WCW in connection therewith or in connection with enforcing the collection thereof if the difference between the actual sums due hereunder is in excess of three percent (3%) of the sums previously paid. All books of account and records shall be kept available for at least three (3) years after the termination of this license in Licensee's principle place of business. A-4 EXCLUSIVITY (a)(i) If, and only if, the Underlying Agreement specifies that Licensee's license hereunder is exclusive, WCW shall not, except as otherwise provided herein, grant any other licenses effective during the License Period for the use of the Licensed Elements in connection with the manufacture, distribution and sale, in the Licensed Territory, of the Authorized Articles as expressly described in the Underlying Agreement. Notwithstanding the foregoing, nothing in this Agreement shall be construed to prevent WCW from granting any licenses for the use of the Licensed Elements other than as provided herein, or from utilizing the Licensed Elements in any manner whatsoever other than as provided herein, regardless of the extent to which such use or utilization may be competitive with the license granted hereunder. (ii) Licensee shall not during the License Period enter into or renew any license agreements for the manufacture, distribution and/or sale of any of the Authorized Articles and or manufacture, distribute or sell any of the Authorized Articles for or in conjunction with or containing the elements of any other professional wrestlers or professional wrestling organizations, and will not in any event during the License Period directly or indirectly manufacture, distribute or sell any Authorized Articles for or in conjunction with the World Wrestlinig Federation (WWF). (iii) If the Underlying Agreement specifies that Licensee's license hereunder is non-exclusive, then WCW shall be free to utilize, or to grant any licenses to third parties to utilize, the Licensed Elements in any manner for any purposes whatsoever. (b) In all cases, WCW expressly reserves all rights whatsoever relating to the promotion, sale and other exploitation of Authorized Articles at (i) the MGM Grand Hotel/Casino complex in Las Vegas, Nevada, and (ii) concert halls, arena shows, circuses, stadiums, theaters, theme parks and all other public performance venues at which television programs or motion pictures containing elements included in the Licensed Elements or derivative works (e.g.. concerts, musicals and other stage plays, motion picture sequels, audio-visual performances, etc.) based thereon are exhibited or performed, and (iii) retail outlets or any other facilities owned, operated or controlled by WCW (or its parent, subsidiaries or affiliates), and (iv) catalogs or similar direct mail sales publications featuring WCW products published by WCW (or its parent, subsidiaries, or affiliates). The foregoing venues, retail outlets, other facilities, and catalogs are collectively referred to herein as "WCW Venues". Licensee acknowledges that WCW Venues are expressly excluded from the Licensed Territory and that Licensee has not been granted any rights with respect to the exploitation of Authorized Articles at WCW Venues, it being understood that WCW may itself exercise such rights or grant others licenses for the manufacture and distribution of Authorized Articles for sale or other exploitation at WCW Venues. (c) WCW reserves the right to permit distribution of stock on hand or in process as of termination or expiration of prior licenses, even if the exercise of said rights may conflict with those rights granted Licensee hereunder. A-5 QUALITY OF MERCHANDISE (a) The Authorized Articles shall be of high standard and of such style, appearance and quality as to be adequate and suited to their exploitation to the best advantage and to the protection and enhancement of the Licensed Elements and the good will pertaining thereto. The Authorized Articles shall be manufactured, sold, distributed, promoted and advertised in accordance with all applicable governmental, regulatory, professional and industry-wide codes, statutes, rules and regulations. (b) Licensee shall submit to WCW and WCW shall have absolute approval of the Authorized Articles, and the cartons, containers, and advertising, promotional, packaging and wrapping materials bearing any Licensed Elements ("Collateral Materials") at all stages of the development and application thereof. Licensee may not manufacture, use, sell, advertise, promote, or distribute any Authorized Articles or Collateral Materials until and unless Licensee has received WCW's prior written approval. Any and all items submitted by Licensee to WCW pursuant to this Paragraph A-5 shall be at Licensee`s expense and shall clearly indicate the contract number associated with each suchsubmission. After each Authorized Article of Collateral Material has been finally approved pursuant to this Paragraph, Licensee shall not depart therefrom in any material respect without first submotting to WCW a prototype, layout or sample of the modified article or material and obtaining WCW`s prior written consent to such modification. Any such approval by WCW shall not constitute waiver of WCW`s rights or Licensee`s duties under any provision of this Agreement. (c) Any item submitted to WCW shall not be deemed approved unless and until WCW has approved it in writting. (d) At the time of first distribution of each Authorized Article, Licensee shall submit to WCW twelve (12) samples of each such item to WCW and a royalty shall not be payable on such samples. Upon WCW's annual written request thereafter, Licensee shall furnish without cost to WCW twelve (12) additional random samples of each Authorized Article being distributed by Licensee hereunder, together with any cartons, containers and packing and wrapping material used in connection with such distribution for quality control by WCW. It being agreed that WCW shall have the right, if quality problems are encountered as a result of the examination of samples, to take such additional samples as frequently as WCW in its sole discretion deems desirable in an effort to assure that proper quality control has been established. Moreover, WCW shall have the right to have its representatives visit the plant or plants where the Authorized Articles are produced and where the Collateral Materials and the like are printed or produced in order to determine whether or not proper quality controls are being exercised. (e) In the event Licensee is not the manufacturer of the Authorized Articles, Licensee shall, subject to WCW's prior written consent, be entitled to engage a third party manufacturer to make and produce the Authorized Articles exclusively for Licensee, provided that Licensee will obtain from such manufacturer and deliver to WCW a duly executed letter in the form contained in Exhibit "C" hereto. The use by Licensee of any such manufacturer shall not affect Licensee's obligations hereunder and Licensee shall be responsible for ensuring that such manufacturer complies with the provisions of this Agreement. A-6 LABELING (a) As a condition to WCW's authorization of the public distribution of items bearing reproductions of the Licensed Elements, including, without limitation, Authorized Articles sold under this license and advertising, promotional and display material therefor, all such items shall bear copyright and trademark notices as set forth in Paragraph 11 of the Underlying Agreement as well as any other legal notices which WCW may from time to time reasonably direct. (b) In the event that any Authorized Article is marketed in a carton, container and/or packing or wrapping material employing the Licensed Elements, such notice shall also appear upon the said carton, container and or packing or wrapping material. Each and every tag, label, imprint or other device containing any such notice and all advertising, promotional or display material bearing the Licensed Elements shall be submitted by Licensee to WCW for its written approval prior to use by Licensee in accordance with Paragraph A-5 above. Any such approval by WCW shall not constitute waiver of WCW's rights or Licensee's duties under any provision of this Agreement. A-7 TECHNICAL AND PROMOTIONAL MATERIAL WCW reserves the right to require Licensee to pay for film footage or other technical materials which Licensee may requests for which WCW from time to time might charge. All technical materials involving the Licensed Elements or any reproduction thereof, notwithstanding their invention, creation or use by Licensee, shall be and remain the property of WCW, and WCW shall be entitled to use same and to license the use of same by others provided such use does not conflict with the terms of this Agreement. "Technical materials" shall mean all artwork and designs, pictures. separations, textual material, screens, films, proofs and any and all materials used in the creation, production and/or reproduction of the Authorized Articles. A-8 DISTRIBUTION (a) Commencing not later than the Marketing Date specified in the Underlying Agreement, and thereafter during the License Period (including any extensions thereof), Licensee shall diligently and continuously manufacture, sell, distribute and promote Authorized Articles in interstate commerce throughout the Licensed Territory and Licensee shall make and maintain adequate arrangements for the distribution of the Authorized Articles. Licensee's failure (except as otherwise provided herein) to commence in good faith to manufacture and distribute in substantial commercial quantities any of the Authorized Articles on or before the Marketing Date and to continue during the License Period diligently and continuously to manufacture, sell, distribute and promote each such Authorized Article throughout the Licensed Territory will result in immediate damage to WCW. In such a case, in addition to all other remedies available to it hereunder, WCW may remove from this Agreement any Licensed Elements listed in the Underlying Agreement or any article or class or category of articles included within the definition of Authorized Articles which is not so diligently and continuously used by Licensee for a period of three (3) consecutive months, by giving thirty (30) days' written notice to Licensee. (b) Unless expressly provided herein otherwise, Licensee shall not, without the express prior written consent of WCW, permit the distribution or other marketing of any Authorized Articles on an F.O.B. or L.C. basis (as those terms are commonly understood in the international merchandising business). All Authorized Articles distributed or marketed (as subject to WCW's prior written approval) on an F.O.B. or L.C. basis will be subject to a Royalty Rate in the amount of one and one-half (1 1/2%) percent over the Royalty Rate indicated in the Underlying Agreement. (c) Licensee shall sell to WCW such quantities of the Authorized Articles as WCW shall request at as low rate and on as favorable terms as Licensee sells similar quantities of the Authorized Articles to the general trade. A-9 GOODWILL AND PUBLICITY (a) Licensee acknowledges that particular and substantial good will values are associated with the Licensed Elements and that said Licensed Elements and names and all rights therein and good will pertaining thereto belong exclusively to WCW. Licensee further acknowledges that said Licensed Elements and names have secondary meanings in the mind of the public and that the value therof cannot readily be fixed in amounts or sums of money. Licensee shall not be any act or omission jeopardize such good will, and any good will develped hereunder shall accrue to the benefit of WCW. Licensee acknowledges the neccessity of protecting WCW`s name, copyrights and trademarks generally and specifically to conserve the good will and good name of WCW and the Licensed Elements, and the right of WCW to wupevise or intervene in the activities of Licensee in sonnection therewith. (b) WCW shall have the right, but shall not be under any obligation, to use the Licensed Elements and/or the name of Licensee so as to give the Licensed Elements, Licensee, WCW and/or WCW's television programs and/or motion pictures full and favorable prominence and publicity. WCW shall not be under any obligation whatsoever to broadcast or exhibit, or to continue broadcasting or exhibiting, any television program or motion picture or use the Licensed Elements or any person, character, symbol, design or likeness or visual representation thereof in any medium, nor shall WCW be restricted in any way whatsoever from producing and distributing derivative works which contain or are derived from the Licensed Elements or any element or component part thereof. A-10 WARRANTIES AND REPRESENTATIONS (a) By WCW. WCW has the right and power to enter into and perform this Agreement, and has taken all steps necessary and appropriate to authorize the execution and performance hereof. WCW owns or controls all rights necessary to grant Licensee the rights granted to it hereunder. (b) By Licensee. Licensee has the right and power to enter into and perform this Agreement, and has taken all steps necessary and appropriate to authorize the execution and performance hereof. Licensee will not act in any manner that is inconsistent with the provisions hereof. A-11 INDEMNIFICATION AND INSURANCE Subject to the full performance by Licensee of all of its obligations hereunder, WCW hereby indemnifies Licensee and undertakes to defend Licensee against and hold Licensee harmless from all claims, suits, liabilities, losses, damages, penalties, costs and expenses (including reasonable attorneys fees, which may be suffered by or obtained against Licensee arising solely out of the use by Licensee of the Licensed Elements in strict accordance with this Agreement. Licensee hereby indemnifies WCW and undertakes to defend WCW against and hold WCW harmless from any and all claims, suits, liabilities, losses, damages, penalties, costs and expenses (including reasonable attorneys fees, which may include, without limitation, an allocation for in-house counsel) of any nature which may be suffered by or obtained against WCW arising from (i) any allegedly unauthorized use of any patent, design, mark, process, idea, method or device by Licensee (none of the same being included in the Licensed Elements) in connection with the Authorized Articles or any other alleged action or omission by Licensee constituting a breach by Licensee of any term or provision of, or representation, warranty, covenant or agreement made by Licensee under, this Agreement, and (ii) alleged defects in the Authorized Articles, any alleged inadequacy or failure to perform any agreement or render any service, or personal damages or injury resulting from the use of the Authorized Articles. Licensee shall obtain, at its own expense, a comprehensive general liability insurance policy for the entire License Period (including any extensions thereof) including coverage for contractual liability (applying to the terms and conditions of this Agreement), product liability, personal injury liability and advertiser's liability, and including a vendor's liability endorsement in favor of WCW. Said policy shall be written by a recognized insurance company which has qualified to do business in the State of California, the State of New York and the State of Georgia, or which has an A. M. Best Company rating of "B" or better in the latest edition of Best's Insurance Guide and Key Ratings, and shall provide for minimum combined single limit of liability coverage of not less than $1,000,000 for each occurrence. As proof of such insurance, fully paid certificates of insurance naming WCW as an insured party, will be submitted by Licensee for WCW's prior approval before any Authorized Articles are distributed, advertised or sold, and at the latest within thirty (30) days after the commencement of the License Period: World Championship Wrestling, Inc., One CNN Center, Box 105366, Atlanta, GA 30345-5366, Attn: Director of Risk Management. Any proposed change in such certificates of insurance shall be submitted to WCW for its prior approval, and Licensee shall furnish WCW with a copy of the then prevailing certificate of insurance. For purposes of Licensee's indemnity and insurance policy coverage under this Paragraph, WCW shall also include the officers, directors, shareholders, agents and employees of WCW and its Related Entities, as well as any person(s) the use of whose name or likeness may be licensed hereunder. A-12 PROTECTION OF WCW'S RIGHTS (a) Licensee acknowledges that WCW owns or controls the copyrighted works which underlie this license and Licensee shall not during the term hereof or thereafter attack the rights of WCW in the Licensed Elements or any trademarks based thereon, regardless of the basis of such attack and regardless of whether the same relates to title or validity. Licensee shall at no time use or authorize the use of any trademark, trade name or other designation identical with or confusingly or colorably similar to the Licensed Elements. (b) Licensee shall cooperate fully and in good faith with WCW for the purpose of securing and preserving rights of WCW (or any grantor of WCW) in and to the Licensed Elements. WCW may commence or prosecute any claims or suits in its own name or in the name of Licensee or join Licensee as a party thereto. Licensee shall immediately notify WCW in writing of any infringements or imitations by others of the Licensed Elements on articles similar to those covered by this Agreement, and WCW shall have the sole right to determine whether or not any action shall be taken on account of any such infringements or imitations. Licensee shall not institute any suit or take any actions on account of any such infringements or imitations without first obtaining the written consent of WCW so to do. (c) Licensee shall utilize all necessary and adequate security measures to prevent the loss, theft, destruction or unauthorized exploitation of the technical materials and/or Licensed Elements delivered to Licensee, and Licensee shall immediately report to WCW any such loss, theft, Agreement. If any materials bearing the Licensed Elements (or any element or component part thereof) utilized by Licensee hereunder on or in connection with the Authorized Articles were not created or owned by WCW, it is an essential condition of this Agreement that Licensee shall do all that is necessary to ensure that such materials achieve copyright protection and that valid title to such copyright is, at the earliest possible moment, transferred to WCW. To this end, Licensee shall, among other things, enter into a contract with anyone not directly in its employ who creates such materials bearing the Licensed Elements, or any element or component part thereof, which states that such materials are created as works made for hire, as such term is defined in the U.S. Copyright Act, 17 U.S.C. ss. 101 et seq. or otherwise contractually bind such person to execute all such documents as may be necessary to transfer valid title in the copyright in such materials to WCW and shall arrange for the execution of such documents and their transmittal to WCW at the earliest possible moment. (e) No later than thirty (30) days following the date of the first interstate shipment by Licensee of each Authorized Article, Licensee shall provide WCW, free of cost, with sufficient evidence of the date of first shipment of the Authorized Article in interstate commerce and a description of the use of the Licensed Elements in relation to the Authorized Article along with identical samples of each such Authorized Article including packaging. Such evidence and sample shall be sent to WCW at its address at World Championship Wrestling. Inc., c/o Legal Department - Domestic Trademarks, One CNN Center, Atlanta, Georgia 30303. (f) Licensee shall fully cooperate with WCW in undertaking the registration of any copyright, trademark, service mark or other intellectual property registration or filing with respect to the Licensed Elements and/or Authorized Articles as requested by WCW in writing, and all such registrations shall be in WCW's name (or such other name as WCW designates). Such registration shall be handled by attorneys selected or approved by WCW. In the event of any registration relating to the Licensed Elements by Licensee in its own name or that of any third party, such registration shall be (i) deemed to be for WCW's benefit and (ii) held in trust for WCW by Licensee, and (iii) Licensee shall bear all costs, expenses, damages and loss occasioned by such unauthorized registration and/or WCW's correction of same. (g) Licensee shall execute and deliver to WCW, in such form as WCW shall reasonably request, any and all documents which may be necessary or desirable to assist WCW in recording Licensee as a registered user of the Licensed Elements (as trademark and/or servicemark) in the Licensed Territory, if appropriate. Upon or after the expiration or termination of this Agreement. Licensee shall execute and deliver to WCW, in such form as WCW shall reasonably request, any and all documents which may be necessary or desirable to cancel the recordation of Licensee as a registered user of the Licensed Elements in the Licensed Territory provided, however, that if WCW elects first to complete the recordation of Licensee as a registered user, Licensee shall also provide any and all documents which may be necessary or desirable to achieve this purpose. (h) Licensee shall not commingle on Authorized Articles manufactured hereunder (or in the advertising and promotion thereof) names, characters and/or likenesses from any individual motion picture or other television program which are included in the Licensed Elements with those associated with any other motion picture or television program (whether or not containing elements included in the Licensed Elements) without WCW's prior written consent. (i) WCW may, in its absolute discretion, withdraw any element of the Licensed Elements, or any component part thereof, from the terms of this Agreement if WCW determines that the exploitation thereof hereunder would or might violate or infringe or reasonably tend to violate or infringe the copyright, trademark or other rights of third parties, or subject WCW to any liability, or violate any law, court order, government regulation or other ruling of any governmental agency, or if, on account of the expiration or sooner termination of an agreement between WCW and a third party from whom WCW has obtained certain underlying rights relating to the exploitation of the Licensed Elements hereunder or otherwise, WCW shall no longer have the right to act in the capacity herein contemplated on behalf of any third party or parties, or if WCW determines that it cannot adequately protect its rights in the Licensed Elements under the copyright, trademark or other laws of the Licensed Territory; provided, however, that in the event of any such withdrawal, WCW shall reimburse Licensee its actual, out-of-pocket cost of any Authorized Articles (bearing such withdrawn Licensed Element) which were produced, but not sold, prior to Licensee's receipt of notice of such withdrawal. Any such withdrawal shall not constitute grounds for termination of this Agreement unless all elements and component parts of the Licensed Elements are simultaneously withdrawn by WCW. A-13 DEFAULT The following shall be events of default hereunder: if Licensee (i) becomes the subject of any bankruptcy proceeding, becomes insolvent, makes an assignment for the benefit of its creditors, or a receiver, liquidator or trustee is appointed for its affairs, (ii) breaches any other agreement with WCW, (iii) fails to make payment of royalties, Guarantee(s) and or any other sums payable to WCW pursuant to this Agreement when due or fails to perform any of its other material obligations hereunder or otherwise breaches any representation, warranty, covenant or agreement referred to or contained in this Agreement, and does not fully cure such failure or breach within ten (10) business days after receipt of written notice thereof from WCW, in the case of failure to make payments, or within fifteen (15) business days in the case of other failure or breach, (iv) discontinues its business or loses any license or authorization required to permit Licensee to perform fully its obligations hereunder pursuant to an action of any duly constituted governmental, judicial or legislative authority. Upon any default, WCW may, in addition and without prejudice to any other rights it may have, terminate this Agreement, in which event the entire unpaid balance of all royalties and Guarantees accrued to WCW's account hereunder shall immediately become due and payable. In the event this Agreement is so terminated, Licensee, its receivers, representatives, trustees, agents, administrators, successors, and or assigns shall not have the right to sell, exploit or in any way deal with or in any Authorized Articles or any carton, container, packing or wrapping material, advertising, promotional or display materials pertaining thereto, except with and under the special consent and instructions of WCW in writing, which they shall be obligated to A-14 FORCE MATEURE This license shall terminate in the event that any act of God, fire, flood, public disaster, or any action, rule, regulation, requirement or order of any governmental authority or any other cause or reason beyond the control of the parties renders performance impossible and one party so informs the other in writing of such causes and its desire to be so releasedd. In such event, all royalties on sales theretofore made shell become immediatley due and payable and neither the Guarantee nor portion thereof shall be repayable. A-15 EFFECT OF TERMINATION OR EXPIRATION Upon and after the expiration or sooner termination of this license, (a) all rights licensed to Licensee hereunder shall forthwith revert to WCW, (b) if the Underlying Agreement specifies that the license granted hereunder is an exclusive license, WCW shall be free to license others to use the Licensed Elements in connection with the manufacture, sale, distribution and promotion of the Authorized Articles in the Licensed Territory (it being acknowledged that WCW has the full and complete right so to do during the License Period if the license granted hereunder is a non-exclusive license), and (c) Licensee shall refrain from further use of the Licensed Elements or any further reference, direct or indirect, thereto or to anything deemed by WCW to be similar to the Licensed Elements, in connection with the manufacture, sale, distribution or promotion of Licensee's products, except as permitted in Paragraph A-17 below. It shall not be a violation of any right of Licensee if WCW should at any time during the License Period enter into negotiations with another to license use of the Licensed Elements in respect of the Authorized Articles within the Licensed Territory provided that, in the event that the license granted to Licensee hereunder is an exclusive license, it is contemplated that such prospective license shall commence after termination of this Agreement. In the event of any termination hereunder, no monies or other consideration which WCW may receive in respect of any licenses of the Licensed Elements within or outside the Licensed Territory shall be deemed in mitigation of, or be otherwise offset, credited or applied against, any sums payable to WCW pursuant to this Agreement. A-16 FINAL STATEMENT Ninety (90) days before the expiration of the License Period, and, in the event of its sooner termination, ten (10) business days after receipt of notice of termination, a statement showing the number and description of Authorized Articles which are or will be fully manufactured, packaged and ready for distribution as of the expiration or termination of the Agreement shall be furnished by Licensee to WCW. WCW shall have the right to take a physical inventory to ascertain or verify such inventory and statement. Refusal by Licensee to submit to such physical inventory by WCW and/or failure by Licensee to render the final statement as and when required by this provision, shall result in a forfeiture by Licensee of Licensee's right to dispose of its inventory (as provided by the next paragraph hereof), WCW retaining all other legal and equitable rights may have in the circumstances. A-17 DISPOSAL OF INVENTORY (a) Licensee shall not at any time manufacture Authorized Articles in excess of those reasonably anticipated to meet normal customer requirements. Provided that Licensee is in compliance with the foregoing, after termination or expiration of the license under the provisions hereof, Licensee, except as otherwise provided in this Agreement, may distribute and sell Authorized Articles which are fully manufactured, packaged and ready for immediate distribution at the time notice of termination is received or upon the expiration date, whatever the case may be, during the sell off period indicated in the Underlying Agreement, on a non exclusive basis, provided Guarantee and royalty payments are up-to-date for the current period and payments and statements are made and furnished for that period in accordance with Paragraph A-2 above. As of the commencement of such sell-off period, Licensee may no longer manufacture or promote any Authorized Articles. Licensee shall not be authorized to sell and distribute such excess inventory to the extent that it exceeds ten percent (10%) of the total number of Authorized Articles sold during the License Period, without WCW's prior written consent. Upon the conclusion of the sell-off period, Licensee shall cease all sale and distribution of Authorized Articles, and any Authorized Articles which have not been sold as of the expiration of the sell-off period shall, at WCW's election, be delivered to WCW or destroyed. Notwithstanding anything to the contrary herein, Licensee shall not manufacture, sell or dispose of any Authorized Articles after any expiration or termination of this license based on the failure of Licensee to affix notice of copyright, trademark or servicemark registration or any other notice to the Authorized Articles, canons, containers or packing or wrapping material or advertising, promotional or display material or because of the departure by Licensee from the quality and style approved by WCW pursuant to Paragraph A-5 above. All applicable royalties shall be paid on Authorized Articles sold during the sell-off period within fifteen (15) days following the expiration of said sell-off period. (b) Licensee acknowledges that its failure to cease the manufacture, sale, distribution or promotion of the Authorized Articles or any class or category thereof after the termination or expiration of this Agreement (or any applicable sell-off period) will result in immediate and irremediable damage to WCW and to the rights of any subsequent licensee. Licensee acknowledges and admits that there is no adequate remedy at law for such failure to cease manufacture, sale, distribution or promotion, and Licensee agrees that in the event of such failure, WCW shall be entitled to equitable relief by way of temporary and permanent injunctions and such other and further relief as any court with jurisdiction may deem just and proper, other provisions to the contrary elsewhere herein notwithstanding. A-18 ASSIGNMENT WCW reserves the right to assign this Agreement to any third party and to hypothecate or pledge this Agreement as collateral for any purpose. In the event of any such assignment, Licensee shall pay the royalties and Guarantees due hereunder as directed by WCW. This Agreement shall be binding upon and shall inure to the benefit of the successors and assigns of WCW. The license herein granted is personal to Licensee and this Agreement may not be assigned, transferred, sublicensed, pledged, mortgaged or otherwise encumbered, in whole or in part, by Licensee either voluntarily or by operation of law or as part of a merger, consolidation or otherwise without WCW's prior written consent, which shall not be unreasonably withheld have been sent by facsimile transmission or personally delivered to the recipient. The date of said facsimile transmission or personal delivery, or the date which is three (3) business days following the date of said mailing, shall be deemed to be the date of the giving of such notice, except statements and payments to WCW hereunder and notice of change of address, which shall be deemed effective only upon actual receipt thereof. A-19 NOTICES All notices, statements, accountings and other documents required to be given or delivered hereunder shall be given in writing either by personal delivery (including Federal Express & Airborne Express), by certified mail which delivery is evidenced by a signed receipt, or by facsimile transmission unless otherwise specified. Licensee`s and WCW`s respective addresses for notice purposes shall be as set forth in the Underlying Agreement unless either party notifies the other as provided herein that notices to such party should be sent to a different address. All such notices shall be sufficiently given when the same shall be deposited, so addressed, postage prepaid in the mail, or when the same shall have been sent by facsimile transmission or personally delivered to the recipient. The date of said facsimile transmission or personal delivery, or the date which is three (3) business days following the date of said mailing, shall be deemed to be the date of the giving of such notice, except statements and payments to WCW hereunder and notice of change of address, which shall be deemed effective only upon actual receipt therof. A-20 FURTHER DOCUMENTS Licensee shall execute, verify, acknowledge, deliver and file any formal assignments, recordations and any and all other documents which WCW may prepare and reasonably call for to give effect to any of the provisions of this Agreement. If Licensee fails so to do within ten (10) days after WCW requests such execution, verification. acknowledgment, delivery or filing, Licensee hereby irrevocably appoints WCW its attorney-in-fact (which appointment shall be deemed a power coupled with an interest), with full powers of substitution and delegation, to execute, verify, acknowledge and deliver any such assignments, recordations and/or such other documents. A-21 MISCELLANEOUS PROVISIONS In the event any provision of this Agreement shall be found to be contrary to any law or regulation of any federal, state or municipal administrative agency or body, the other provisions of this Agreement shall not be affected thereby but shall notwithstanding continue in full force and effect. If any legal action or other proceeding is brought for the enforcement of this Agreement or as a result of a breach, default or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs incurred in such action or proceeding, in addition to any other relief to which such party may be entitled. No waiver by either party hereto of any breach or default by the other party shall be construed to be a waiver of any other breach or default by such other party. Resort to any remedies referred to herein shall not be construed as a waiver of any other rights and remedies to which either party is entitled under this Agreement or otherwise, nor shall an election to terminate be deemed an election of remedies or a waiver of any claim for damages or otherwise. This Agreement may not be altered or modified except in writing signed by the party to be charged with such alteration or modification. This Agreement constitutes the entire understanding between the parties with respect to the subject matter hereof and all prior understandings, whether oral or written, have been merged herein. Irrespective of the place of execution or performance, this Agreement shall be governed, construed and enforced in accordance with the laws of the State of Georgia applicable to agreements entered into and to be wholly performed therein, and Licensee hereby consents to the exclusive jurisdiction of the courts of the State of Georgia and United States courts located in the State of Georgia in connection with any suit, action or proceeding brought by Licensee arising out of or related in any manner to this Agreement. Licensee agrees that the service of process by mail shall be effective service of same and that such service shall have the same effect as personal service within the State of Georgia and result in jurisdiction over Licensee in the appropriate forum in the State of Georgia. Nothing herein contained shall constitute a partnership between, or joint venture by, the parties hereto or constitute either party the employee or agent of the other, and Licensee shall have no right or power to obligate or bind WCW in any manner whatsoever. This Agreement is not for the benefit of any third party and shall not be deemed to give any right or remedy to any third party whether referred to herein or not. Paragraph headings as used in this Agreement are for convenience only and are not a part hereof, and shall not be used in any manner to interpret or otherwise modify any provision of this Agreement. As used herein, the word "person" means any individual, firm, partnership, association, corporation or other entity. END OF STANDARD TERMS AND CONDITIONS EXHIBIT "C" Attn: Licensing Manager World Championship Wrestling. Inc. One CNN Center, Box 105366 Atlanta, GA 30348 Re: Trimfast Group, Inc. Dear Sirs, This letter will serve as notice to you that pursuant to Paragraph A-5(a) of the Merchandising Licensee Agreement (the "Agreement") dated May 6, 1999 between World Championship Wrestling, Inc. ("WCW") and the Licensee (as defined therein), we have been engaged as the manufacturer for the manufacture of the Articles as defined in the Agreement. We hereby acknowledge that we have received and read copy of Exhibit "A" to that License Agreement containing the Standard Terms and Conditions and understand the terms and conditions set forth in the said Agreement and hereby agree to be bound by those provisions of the said Agreement which are applicable to us as manufactures of the Articles, including but not limited to your right, pursuant to Paragraphs A-3 and A-5 of the Agreement, to examine our books of account and records and manufacturing facility with respect to the manufacture of the Articles. We further agree that we will abide by all relevant instructions from WCW and/or Licensee with respect to the inclusion of markings and notices on the Authorized Articles and the packaging and wrapping materials or cartons or containers therefor. We understand that our engagement as the manufacture for the Authorized Articles is subject to your written approval. We request, therefore, that you sign the space below, thereby showing your acceptance of our engagement as aforesaid. For and on behalf of: /s/ [ILLEGIBLE] - ------------------- Agreed and accepted EX-27 4 FDS
5 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 105,641 15,297 357,889 0 188,737 673,364 44,131 10,728 731,438 697,867 0 0 0 2,338 31,233 731,438 1,925,332 1,928,159 567,472 1,882,269 3,264 503,839 3,264 42,626 0 42,626 0 0 0 42,626 0.02 0.02
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