-----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, A/kNowDJrYJjRP+G7Xn4vkSg3JeDFjNwFkYTSCloyuCQLYq8C3HIJuMiCis6Lwv3 txSUhCjPhETgXIB2KTHf7g== 0001005477-99-006014.txt : 19991224 0001005477-99-006014.hdr.sgml : 19991224 ACCESSION NUMBER: 0001005477-99-006014 CONFORMED SUBMISSION TYPE: 10SB12G/A PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19991223 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: 99779940 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 #1 TO FORM 10-SB UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20529 FORM 10-SB Amendment #1 TRIMFAST GROUP, INC. (Name of Small Business Issuer) NEVADA 88-0367136 ------ ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 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 ........18 Item 3. Description Of Property...........................................19 Item 4. Security Ownership Of Certain Beneficial Owners And Management ...19 Item 5. Directors, Executive Officers, Promoters And Control Persons .....20 Item 6. Executive Compensation............................................21 Item 7. Certain Relationships And Related Transactions....................22 Item 8. Description Of Securities.........................................23 Part II Item 1. Market For Common Equity And Related Stockholder Matters .........31 Item 2. Legal Proceedings.................................................32 Item 3. Changes In And Disagreements With Accountants.....................34 Item 4. Recent Sale Of Unregistered Securities............................34 Item 5. Indemnification Of Directors And Officers.........................37 Part III. Part F/S Financial Statements................................................ Index To Exhibits............................................................... Description Of Exhibits......................................................... 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. (a) 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. We rescinded these acquisitions effective November 1, 1999. 2 We initially believed that the acquisitions of these companies would enhance our product lines. However, once acquired, the product lines diod not prove complimentary to our business. 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 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 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 the assets of Ice Cold Water, Inc. (hereinafter "Ice Water"), a Florida corporation incorporated on August 7, 1997, for $120,000.00. 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, as we felt it would complement our existing line of nutritional supplements. (b) Principal Products and their Markets. NUTRITIONAL PRODUCTS. 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. 3 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 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. 4 PRINCIPAL 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. 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. 5 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 available data of the size of our competition. Accordingly, our competition is difficult to assess with any preciseness. 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. Through this Internet site, we intend to 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. Once the Internet site becomes fully operational, 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, 6 market and sell vitamins and nutritional products from such other manufacturers as Met-Rx, Prolabs and Nature's Way. In addition to offering a complete line of vitamins and supplements, the nutritioncafe.com web page plans to offer visitors and members 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 will be arranged in a simple, easy-to-use fashion intended to enhance product search and customer knowledge while encouraging membership and repeat business. There can be no assurance that our Internet site will become fully operational or 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. Anyone wishing to purchase products from the Nutrition Cafe will be required to purchase a membership at the price of $9.95 per month. Memberships will be sold on a pay-as-you-go basis in one month increments. Members will have the option to continue their membership each month and no long term agreements will be required. Members will have the option of having this fee automatically charged to a credit card or debited from their checking account. 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 plan to 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. We warehouse approximately 2,000 different products at our warehouse facility located in Clearwater, Florida. Our goal is to continue developing our distribution infrastructure to increase efficiency and support greater customer demand. Marketing And Promotion. 7 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 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; 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. BOTTLED WATER. 8 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 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 9 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. 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. 10 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. 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. Distribution Methods for our Dietary and Nutritional Supplements. 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. 11 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. 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 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 12 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 beautymerchant.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. 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 13 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 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 14 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 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 15 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") 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. In consideration of this license, we have agreed to pay WCW 6% of net sales as a royalty fee. Venture Direct Worldwide Inc. 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, 16 supplements and Sports Nutrition on the Microsoft Network. 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. 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. 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.). The significant decline in sales is primarily attributable to our decision to discontinue the sale of Revivarant, a muscle replenishment supplement. This decision was initiated by an industry wide investigation by the Food and Drug Administration into the active ingredient in Revivarant. Management had 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. 17 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. We anticipate shipping the bars in December and January with a national advertising campaign tentatively scheduled to begin in February. While there can 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 for the year ended December 31, 1998 total $221,773 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 $423,289 for the year ended December 31, 1998 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 income for the year ended December, 31 1998 was $43,063. We have generated a net loss of $2,731,172 for the nine months ended September 30, 1999 and a net loss of $0.77 per share. LIQUIDITY AND CAPITAL RESOURCES. December 31, 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, a decline of approximately 17%. Trade receivables declined from $357,889 to $318,407 and inventory increased from $188,737 to $377,270. 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 increased approximately 40%, increasing from $679,309 to $1,308,267. Property and equipment increased from $33,403 to $1,459,270. 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. 18 We also experienced a significant increase in liabilities. Accounts payable increased from $625,757 to $926,612, and we issued a convertible debt instrument in the amount of $1,000,000. 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. GENERAL. At the beginning of August of 1998, our assets were negligible, totaling $599.00. Liabilities at that time totaled $680,917.00 with no revenues being generated and no business plan in place. Accumulated losses totaled $1,122,218.00 with a stockholders deficiency of $680,318.00. 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. Trimfast, Inc. was organized as a Florida corporation in April of 1997 and, in its first year of operations generated revenues of $22,338.00. Start-up and operating costs totaled $164,559.00 that resulted in a net loss of $151,846.00. Trimfast, Inc.'s president, Michael Muzio, who, as of December 31, 1997, was owed a total of $150,200.00, 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. With the addition of our wholly owned subsidiary, Trimfast, Inc., revenues in 1998 were $1,925,332.00. Cost of sales was $567,472.00 resulting in a gross profit of $1,357,860.00. Operating expenses totaled $1,314,797.00 resulting in income from operations of $43,063.00. We recorded $503,839.00 in bad debt expense. 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. 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. Our cash balance as of December 31, 1998 was $105,641.00. We also had approximately $358,000.00 in accounts receivable and $188,000.00 in inventory. Our total assets as of December 31, 1998 were $731,438.00. Liabilities totaled $697,897.00 that was comprised of approximately $626,000.00 in accounts payable and $72,000.00 in notes. 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. 19 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. We have also signed a lease option agreement to acquire a 17,000 square foot warehouse facility in Clearwater, Florida. The total purchase price for the property is $1.2 million. The agreement required us to make a $100,000.00 non-refundable deposit to the seller of the property with the remaining balance of $1.1 million due on or before June 30, 2000. Until such time as we pay the full purchase price, we have agreed to pay a monthly lease rent of $8,000 per month. ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 20 The following tables set forth the ownership, as of June 1, 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 1,183,845 Direct 25.70% 4957 Bayshore Blvd. Tampa, Florida 33611 Common Mark Sansom 344,000 Direct 07.25% 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 1,183,845 Direct 25.70% 4957 Bayshore Blvd. Tampa, Florida 33611 Common Gregg Vosler 0 Direct 00.0% 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 10,000 Direct Less than 1% 4014 W Waters Avenue #1508 Tampa, Florida 33614 - ------------------------------------------------------------------------------ All Officers and Directors as a Group (3 Individuals) 1,185,435 26% (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. 21 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. Both Mr. Muzio and Mr. Vosler are parties to an oral employment agreement with the Company that pays each an annual salary of $150,000 and $50,000 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. Further, there are oral provisions for year-end bonuses based on performance of each individual and the Company as a whole. 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. 22 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. Dr. Hee opened and operated four medical clinics in Tampin, Malaysia. After gaining admission to practice medicine in the United States, Dr. Hee became the Chief Medical Officer of the Tampa Military Processing Station for the United States Department of Defense. 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. 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 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 two (2) officers for the last two (2) fiscal years: SUMMARY COMPENSATION TABLE(1)
Name & Annual Compensation Long-Term Compensation Other Position Year Salary Bonus Other Stock SARs LTIP Comp - --------------------------------------------------------------------------------------------------------------- Michael Muzio President & 1998 $150,000 $0 $0 $240,000 $0 $0 $0 Treasurer 1997 $0 $0 $0 $0 $0 $0 $0 Gregg Vosler Vice President 1998 $50,000 $0 $0 $96,000 $0 $0 $0 & Secretary 1997 $31,000 $0 $0 $0 $0 $0 $0
(1) The amount used in this table were calculated using the market close price for TRIM common stock on December 31, 1998. ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 23 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 13,705,488 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 $126,664.00 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 65,000 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. 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 2000. 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 2000. 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 August 24, 1999, there were 4,605,978 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 such act or action, except as otherwise provided by law. 24 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 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. 25 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 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 into approximately 11.63 shares of our common stock subject to adjustment as provided in the Certificate of Designations, Preferences and Rights for such preferred shares which is included as an exhibit to the Registration Statement of which this Prospectus is a part. 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. 26 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, 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, 1999. These warrants carry no other rights or provisions. JULY 1999 WARRANTS. In General. 27 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 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. Consequently, this Registration Statement, of which this Prospectus is a part, included registration of such shares of our common stock, which may be issued for these purposes. 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. 28 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 warrants are exercisable on any date until July 29, 1999. 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. Consequently, this Registration Statement, of which this Prospectus is a part, includes registration of such shares of our common stock, which may be issued for interest purposes. 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. 29 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 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. Consequently, this Registration Statement, which may be issued for these purposes. 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 30 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. Upon completion of the offer and sale of the maximum number of shares offered hereby, we will have outstanding approximately 5,637,826 shares of common stock. The 1,553,706 shares of common stock sold in this offering will be freely tradable without restrictions under the Securities Act, except for any shares held by our "affiliate", which will be subject to the resale limitations of Rule 144 under the Securities Act. A significant portion of the shares of our common stock currently outstanding are "restricted 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. As a result of the provisions of Rule 144, all of the restricted securities could be available for sale in the public market beginning 90 days after the date of this Prospectus. The availability for sale of substantial amounts of common stock under Rule 144 could adversely affect prevailing market prices for our securities. 31 TRANSFER AGENT. Interwest Stock Transfer, Inc., located in Salt Lake City, Utah, has been appointed the transfer agent of our common stock and preferred stock. 32 PART II. ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) 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." 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 9.187 7.062 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. (b) Holders As of June 1, 1999 there were approximately 159 holders of record of our common stock. 33 (c) 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 from the consumption of Revivarant. In each case the consumer seeks compensatory and punitive damages totaling millions of dollars in damages in aggregate. We have retained counsel to represent our interests in these claims. We 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 no product liability insurance. We have since obtained a policy with an effective date of May 27, 1999. Our 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 product liability insurance only became effective on May 27, 1999, we have no insurance coverage 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. We are presently engaged in various legal actions, 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 34 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 (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 $35,000.00. Currently, management is trying to resolve this dispute by making payments over time. Should a judgment be granted against us, the amount should not exceed the damages claimed. Other. In 1999, we initiated a legal proceeding against a former major customer (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, 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. 35 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 On November 18, 1996, we issued 625,000 shares of our common stock to then existing shareholders of World Group in reliance upon the exemption from registration contained in Section 4(2) Securities Act of 1933, as amended (the "Act") in our acquisition of World Group. On December 13, 1996, pursuant to various agreements for general consulting services, we issued 120,000 shares of common stock in reliance upon the exemption from registration contained in Section 4(2) of the Act. On March 27, 1997, pursuant to various consulting agreements, we issued 7,500 shares of common stock in reliance upon the exemption from registration contained in Section 4(2) of the Act. On August 12, 1998, we issued 1,370,049 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 conducted, an offering pursuant to Rule 504 of Regulation D of the Securities Act of 1933, as amended, raising a total cash proceeds of $930,000 and resulting in the issuance of 1,253,350 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 August 19, 1998 through April 5, 1999. Each shareholder in this offering received subscription documents stating that the securities had not been registered under the 36 Securities Act of 1933, and subsequently made representations that they were purchasing for investment purposes only and not with a view toward distribution of the securities. The following shares were issued in consideration other than cash: On January 18, 1999, we issued 2,950 shares of our common stock in consideration of Business Consulting Services rendered to the Company. On February 19, 1999, we issued 95,000 shares of our common stock in consideration of Business Consulting Services rendered to the Company and 8,000 share of our common stock for cancellation of a bridge loan due by the Company. On March 10, 1999, we issued 300,000 shares of our common stock in consideration of Business Consulting Services rendered to the Company. Pursuant to various agreements we issued the following shares of our restricted common stock: On October 16, 1998, we issued 195,000 shares of our common stock in repayment of a loan due by the Company and 5,000 shares of our common stock as Employee Bonuses for 1998. On January 6, 1999, we issued 477,100 shares of our common stock in consideration of various Consulting Services rendered to the Company. On February 9, 1999, we issued 20,000 shares of our common stock in consideration of Nutrition Consulting Services rendered to the Company. On April 5, 1999, we issued 40,000 shares of our common stock in consideration of Business & Legal Consulting Services rendered to the Company. On April 21, 1999, we issued 16,500 shares of our common stock in consideration of cancellation of a Bridge Loan due by the Company. 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. 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 share of our common stock in consideration of Business Consulting Services rendered to the Company. On June 1, 1999, we issued 5,000 shares of our common stock in consideration of Construction Services rendered to the Company, 12,000 share of our common stock for payoff on a loan that was due by the Company and 47,500 share of our common stock for Nutritional Consulting Services rendered to the Company. On June 2, 1999, we issued 20,000 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. On July 1, 1999, we issued 70,358 shares of our common stock for repayment of a loan due to Mr. Muzio by the Company. On July 7, 1999, we issued 10,000 shares of our common stock in exchange 37 for Legal Services rendered for the Company. On July 19, 1999, we issued 30,000 shares of our common stock in repayment of a loan due by the Company. On August 3, 1999, we issued 10,000 share 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. 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. On March 18, 1999, we issued 235,000 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. April 5, 1999, we issued 50,000 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. In May of 1999, we issued warrants to purchase 40,000 shares of our common stock in exchange for placement services. Of these, 20,000 are exercisable on any date until May 12, 2000 at a price of $4.00 per share. The remaining 20,000 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. 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) 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 in reliance upon the exemption from registration contained in 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. In July 1999, we issued 15,000 convertible preferred shares 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. 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. Such warrants are exercisable at any time until July 16, 2002. 38 The Company relied upon the exemption from registration provided in Section 4(2) of the Act. 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 are exercisable on any date until July 26, 2000 at a price of $4.00 per share. The remaining 50,000 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 Securities Act. 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 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 39 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 the federal securities laws or state securities laws is contrary to public policy and therefore unenforceable. 40 PART F/S FINANCIAL STATEMENTS 41 TRIMFAST GROUP, INC. INTERIM CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 ASSETS
CURRENT ASSETS September 30, 1999 December 31, 1998 (Unaudited) ----------------- ------------------ 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 Convertible debentures 0 1,000,000 ----------- ----------- Total Current Liabilities 697,867 1,960,493 ----------- ----------- TOTAL LIABILITIES 697,867 1,960,493 ----------- ----------- 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, 2,193,059 and 4,540,978 shares issued and outstanding as of December 31, 1998 and September 30, 1999 respectively 2,192 4,541 Common Stock to be issued (145,598 shares) as of December 31, 1998 146 Additional Paid-in capital 163,987 6,174,618 Accumulated deficit (109,220) (3,588,022) Less cost of treasury stock (32,500 shares) (23,534) (139,547) Less common stock shares advanced 0 (925,312) Less common stock subscriptions receivable 0 (358,325) ----------- ----------- Total Stockholders' Equity 33,571 1,168,103 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 731,438 $ 3,128,596 =========== ===========
See Accompanying Notes to Consolidated Financial Statements Page 3 TRIMFAST GROUP, INC. 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)
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) ---------- ---------- ---------- ---------- ---------- ---------- NET INCOME/ (LOSS) 42,626 (1,425,645) (3,103,791) ========== ========== ========== NET INCOME/ (LOSS) PER COMMON SHARE - BASIC 0.02 (0.31) (0.77) WEIGHTED AVERAGE COMMON 1,723,134 4,574,887 4,029,906 SHARES OUTSTANDING - BASIC NET INCOME/ (LOSS) PER COMMON SHARE - DILUTED N/A (0.29) (0.75) FULLY DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -DILUTED N/A 4,835,900 4,113,569
See Accompanying Notes to Consolidated Financial Statements Page 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 Nine Months For the One Year Ended Ended September 30, 1999 December 31, 1998 (Unaudited) ----------------- ------------------- 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 affiliate (5,945) 5,945 Rent deposit (8,119) (4,381) Cash surrender value of life insurance (8,107) (4,529) Purchase of treasury stock (23,534) (116,013) ---------- ---------- Net cash (used in) provided by investing activities (103,701) (1,887,125) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 1,975 961,781 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 161,339 4,090,763 ---------- ---------- CHANGE IN CASH AND CASH EQUIVALENTS 87,983 (46,549) CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 17,658 105,641 ---------- ========== ========== CASH AND CASH EQUIVALENTS - END OF YEAR 105,641 59,092 ========== ==========
See Accompanying Notes to Consolidated Financial Statements Page 5 TRIMFAST GROUP, INC. INTERIM CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE ONE YEAR ENDED DECEMBER 31, 1999 (Audited) AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (Unaudited)
Common Stock and Common Additional Stock to be Issued Paid-In Preferred Stock Issued Shares Amount Capital Shares Amount ----------- ----------- ----------- ----------- ----------- BALANCE JANUARY 1, 1998 3,000,000 $ 1,000 -- -- -- Issuance of common stock in exchange for shares of TrimFast Holdings, Inc. 278,080 227,800 -- -- -- Effect of recapitalization 19,404,907 (206,117) 37,413 -- -- Issuance of common stock in exchange for stockholder loans 703,577 70 126,574 -- -- Reverse one-for-ten split (21,047,908) (20,415) -- -- -- Repurchase of treasury stock at cost -- -- -- -- -- Net income 1998 -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1998 2,338,656 $ 2,338 $ 163,987 -- -- ----------- ----------- ----------- ----------- ----------- Equity financing - issuance of common stock for cash 558,000 558 1,628,942 -- -- Issuance of common stock in exchange for consulting and other professional services 1,219,464 1,220 447,395 -- -- Issuance of common stock acquisition of Immmu and Imcel. To be returned per recission agreement. 235,000 235 925,077 -- -- Issuance of common stock to employees 150,358 150 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 -- -- -- -- -- Settlement of outstanding liabilities 42,000 42 359,583 -- -- Issuance of Preferred Stock -- -- 1,874,901 15,000 150 Valuation of warrants issued for services -- -- 461,640 -- -- Net Loss, year to date as of September 30, 1999 -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Balance, September 30, 1999 4,540,978 $ 4,541 $ 6,174,618 15,000 $ 150 =========== =========== =========== =========== =========== Accumulated Subscriptions Shares Treasury Deficit Receivable Advanced Stock Total ----------- ------------ ----------- ----------- ----------- BALANCE JANUARY 1, 1998 ($151,846) -- -- -- ($150,846) Issuance of common stock in exchange for shares of TrimFast Holdings, Inc. -- -- -- -- $ 227,800 Effect of recapitalization -- -- -- -- ($168,704) Issuance of common stock in exchange for stockholder loans -- -- -- -- $ 126,644 Reverse one-for-ten split -- -- -- -- ($20,415) Repurchase of treasury stock at cost -- -- -- (23,534) ($23,534) Net income 1998 42,626 -- -- -- $ 42,626 ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1998 ($109,220) -- -- ($23,534) $ 33,571 ----------- ----------- ----------- ----------- ----------- Equity financing - issuance of common stock for cash -- -- -- -- $ 1,629,500 Issuance of common stock in exchange for consulting and other professional services -- (358,325) -- -- $ 90,290 Issuance of common stock acquisition of Immmu and Imcel. To be returned per recission agreement. -- -- (925,312) -- $ 0 Issuance of common stock to employees -- -- -- -- $ 95,397 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) Settlement of outstanding liabilities -- -- -- -- $ 359,625 Issuance of Preferred Stock (375,011) -- -- -- $ 1,500,040 Valuation of warrants issued for services -- -- -- -- $ 461,640 Net Loss, year to date as of September 30, 1999 (3,103,791) -- -- -- ($3,103,791) =========== =========== =========== =========== =========== Balance, September 30, 1999 ($3,588,022) ($358,325) ($925,312) ($139,547) $ 1,168,103 =========== =========== =========== =========== ===========
See Accompanying Notes to Consolidated Financial Statements Page 6 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 company's Form 10-SB, as amended for the year ended December 31, 1998. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (A) Revenue Recognition Nutrition Cafe 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. 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 ======== Page 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. (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 Cafe. 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 Cafe, 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) Page 8 TrimFast Group, Inc. Notes to Interim Consolidated Financial Statements As of September 30, 1999 (Unaudited) 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 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) Page 9 TrimFast Group, Inc. Notes to Interim Consolidated Financial Statements As of September 30, 1999 (Unaudited) 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 Company's common stock, $50,000 in cash and an option agreement for shares of the Company's 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. Page 10 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 - STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 (CONSOLIDATED) AND FOR THE PERIOD FROM APRIL 27, 1997 (INCEPTION) TO DECEMBER 31, 1997. PAGE 4 - STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1998 (CONSOLIDATED) AND FOR THE PERIOD FROM APRIL 27, 1997 (INCEPTION) TO DECEMBER 31, 1997. PAGES 5 - 6 - STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 (CONSOLIDATED) AND FOR THE PERIOD FROM APRIL 27, 1997 (INCEPTION) TO DECEMBER 31, 1997. 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.) TRIMFAST GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 1998 ASSETS CURRENT ASSETS Cash $ 105,641 Short-term investments 15,297 Accounts receivable 357,889 Due from employees 5,800 Inventory 188,737 --------- Total Current Assets 673,364 --------- PROPERTY AND EQUIPMENT - NET 33,403 OTHER ASSETS Due from affiliate 5,945 Rent deposit 10,619 Cash surrender value of life insurance 8,107 --------- Total Other Assets 24,671 --------- TOTAL ASSETS $ 731,438 ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 625,767 Notes and loans payable 72,100 --------- Total Current Liabilities 697,867 --------- TOTAL LIABILITIES 697,867 --------- STOCKHOLDERS' EQUITY Preferred Stock, Class A, $0.01 par value; 20,000,000 shares authorized; none issued and outstanding -- Preferred Stock, Class B, $0.01 par value; 20,000,000 shares authorized; none issued and outstanding -- Common stock, $0.001 par value; 100,000,000 shares authorized; 2,260,775 shares issued and outstanding 2,260 Common stock to be issued (77,881 shares) 78 Additional paid-in capital 163,987 Accumulated deficit (109,220) Less cost of treasury stock (5,500 shares) (23,534) --------- Total Stockholders' Equity 33,571 --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 731,438 ========= See accompanying notes to financial statements. 2 TRIMFAST GROUP, INC. AND SUBSIDIARIES STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 AND FOR THE PERIOD FROM APRIL 27, 1997 (INCEPTION) THROUGH DECEMBER 31, 1997 (CONSOLIDATED) 1998 1997 ----------- ----------- NET SALES $ 1,925,332 $ 22,338 COST OF SALES 567,472 9,625 ----------- ----------- GROSS PROFIT 1,357,860 12,713 ----------- ----------- OPERATING EXPENSES Executive compensation 201,077 31,633 Salaries 20,696 -- Commissions 41,700 -- Depreciation expense 10,498 230 Professional fees 49,511 9,245 Bad debt expense 503,839 11,226 Selling, general and administrative expenses 423,289 92,565 Travel and entertainment 64,187 19,660 ----------- ----------- Total Operating Expenses 1,314,797 164,559 ----------- ----------- INCOME (LOSS) FROM OPERATIONS 43,063 (151,846) ----------- ----------- OTHER INCOME (EXPENSE) Realized gain on sale of trading securities - net 1,905 -- Unrealized gain on trading securities - net 922 -- Interest expense (3,264) -- ----------- ----------- Total Other Income (Expense) (437) -- ----------- ----------- NET INCOME (LOSS) $ 42,626 $ (151,846) =========== =========== NET INCOME (LOSS) PER COMMON SHARE: BASIC AND DILUTED $ 0.02 $ (0.11) =========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: BASIC AND DILUTED 1,710,860 1,350,549 =========== =========== See accompanying notes to financial statements. 3 TRIMFAST GROUP, INC. AND SUBSIDIARIES STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1998 (CONSOLIDATED) AND FOR THE PERIOD FROM APRIL 27, 1997 (INCEPTION) TO DECEMBER 31, 1997
COMMON STOCK AND COMMON STOCK TO ADDITIONAL BE ISSUED PAID-IN ACCUMULATED TREASURY SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL ----------- ----------- ----------- ----------- ----------- ----------- Issuance of common stock 1,350,549 $ 1,351 $ 187,449 $ -- $ -- $ 188,800 Net loss 1997 -- -- -- (151,846) -- (151,846) ----------- ----------- ----------- ----------- ----------- ----------- Balance, December 31, 1997 1,350,549 1,351 187,449 (151,846) -- 36,954 Issuance of common stock to related party in exchange for $40,000 debt 19,500 20 39,980 -- -- 40,000 Trimfast, Inc. shares outstanding acquired by HLHK (1,370,049) (1,371) 1,371 -- -- -- HLHK equity at August 12, 1998 817,749 818 441,083 (1,122,218) -- (680,317) Reclassification pursuant to recapitalization -- -- (1,122,218) 1,122,218 -- -- Common stock issued to 1,370,049 1,370 (1,370) -- -- -- Trimfast, Inc. stockholders Common stock issued to employees 500 -- -- -- -- -- Common stock issued to attorney for services 5,000 5 (5) -- -- -- Common stock issued in exchange for debt of HLHK principal stockholder 75,000 75 491,123 -- -- 491,198 Issuance of common stock in exchange for stockholder loans 70,358 70 126,574 -- -- 126,644 Purchase of treasury stock at cost -- -- -- -- (23,534) (23,534) Net income 1998 -- -- -- 42,626 -- 42,626 ----------- ----------- ----------- ----------- ----------- ----------- BALANCE, DECEMBER 31, 1998 2,338,656 $ 2,338 $ 163,987 $ (109,220) $ (23,534) $ 33,571 =========== =========== =========== =========== =========== ===========
See accompanying notes to financial statements. 4 TRIMFAST GROUP, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 AND FOR THE PERIOD FROM APRIL 27, 1997 (INCEPTION)TO DECEMBER 31, 1997 (CONSOLIDATED) 1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 42,626 $(151,846) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 10,498 230 Bad debt expense 503,839 11,226 Unrealized gain on short-term investments (922) -- Changes in operating assets and liabilities (Increase) decrease in: Accounts receivable (856,839) (16,115) Inventory (165,038) (23,699) Increase (decrease) in: Accounts payable and accrued expenses 496,181 14,873 --------- --------- Total adjustments (12,281) (13,485) --------- --------- Net cash provided by (used in) operating activities 30,345 (165,331) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Short-term investments (14,375) -- Advances to employees (5,800) -- Purchases of property and equipment (37,821) (5,711) Advances to affiliate (5,945) -- Rent deposit (8,119) (2,500) Cash surrender value of life insurance (8,107) -- --------- --------- Net cash used in investing activities (80,167) (8,211) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Due to stockholder/officer (18,436) 150,200 Due to related party -- 40,000 Proceeds from borrowings 1,975 -- Proceeds from issuance of common stock 177,800 1,000 Purchase of treasury stock (23,534) -- --------- --------- Net cash provided by financing activities 137,805 191,200 --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS 87,983 17,658 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 17,658 -- --------- --------- CASH AND CASH EQUIVALENTS - END OF YEAR $ 105,641 $ 17,658 ========= ========= See accompanying notes to financial statements. 5 TRIMFAST GROUP, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1998 AND FOR THE PERIOD FROM APRIL 27, 1997 (INCEPTION)TO DECEMBEER 31, 1997 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: On August 12, 1998 HLHK World Group, Inc. acquired one hundred percent of the issued and outstanding common stock of Trimfast, Inc. in a transaction accounted for as a recapitalization of Trimfast, Inc. HLHK subsequently changed its name to Trimfast Group, Inc. (See Note 12) On August 12, 1998, concurrent with the HLHK stock exchange discussed above, the prior principal stockholder of HLHK received 75,000 shares of common stock in exchange for $491,198 of amounts owed to him by HLHK. Effective December 1998, the principal stockholder of the Company exchanged $126,644 of loans due to him and his wholly-owned affiliates for 70,357 shares of common stock of the Company valued at a market price of $1.80 per share based upon the trading price of the common stock at the exchange date. During July 1998 the Company issued 19,500 shares of common stock to an individual related party in exchange for a loan payable of $40,000 resulting in a price paid per share of $2.05 at the exchange date. See accompanying notes to financial statements. 6 TRIMFAST GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION (A) Description of Business Trimfast Group, Inc. (the Company) formerly known as HLHK World Group, Inc.(HLHK) is a Nevada corporation that through its subsidiaries, develops, markets and sells dietary supplements. The Company's subsidiaries Trimfast, Inc. and Body Life Sciences, Inc. were incorporated in the State of Florida on April 28, 1997 and September 4, 1998, respectively. Trimfast, Inc. is considered a predecessor pursuant to the acquisition discussed below. On August 12, 1998 HLHK World Group, Inc. acquired one hundred percent of the issued and outstanding common stock of Trimfast, Inc. in a transaction accounted for as a recapitalization of Trimfast, Inc. HLHK subsequently changed its name to Trimfast Group, Inc. (See Note 12). (B) Basis of Presentation and Principles of Consolidation The 1998 consolidated financial statements include the accounts of Trimfast Group, Inc. and its subsidiaries Trimfast, Inc. and Body Life Sciences, Inc. All significant intercompany balances and transactions have been eliminated in consolidation. The 1997 financial statements include the accounts of Trimfast, Inc., the predecessor company. (C) Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. (D) Cash and Cash Equivalents For purposes of the cash flow statement, the Company considers all highly liquid investments with original maturities of three months or less at time of purchase to be cash equivalents. 7 TRIMFAST GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION - (CONT'D) (E) Short-Term Investments The Company's policy is to invest in various equity or debt instruments. The Company accounts for such investments in accordance with Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities." ("SFAS 115") Management determines the appropriate classification of its investments at the time of acquisition and reevaluates such determination at each balance sheet date. Trading securities are carried at fair value, with unrealized trading gains and losses included in earnings. Available-for-sale securities are carried at fair value, with unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. Investments classified as held-to-maturity are carried at amortized cost. In determining realized gains and losses, the cost of the securities sold is based on the specific identification method. (F) Inventories Inventories consist principally of consumable finished goods and raw materials and are stated at lower of cost or market determined on the first-in, first-out method. The Company performs an inventory review on an annual basis and disposes of any inventory that is past its expiration date. The related inventory value is written down accordingly. (G) Property and Equipment Property and equipment are stated at cost, less accumulated depreciation. Expenditures from maintenance and repairs are charged to expense as incurred. Depreciation is provided using the double-declining balance method over the estimated useful life of the assets from five to seven years. (H) Revenue Recognition The Company recognizes income from sale of products at the time of delivery. 8 TRIMFAST GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION - (CONT'D) (I) Income taxes The Company accounts for income taxes under the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109. "Accounting for Income Taxes" ("Statement No. 109"). Under Statement No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (J) Earnings Per Share Data Net income (loss) per common share for the year ended December 31, 1998 and 1997 is required to be computed based on the weighted average common shares and dilutive common stock equivalents outstanding during the year as defined by Statement of Financial Accounting Standards, No. 128, "Earnings Per Share". For 1998, under Generally Accepted Accounting Principles, the shares outstanding for the period from January 1, 1998 through the acquisition date of August 12, 1998 (Note 12), are deemed to be that amount issued and to be issued to the shareholders of Trimfast, Inc. on the acquisition date. For the period from the acquisition date through December 31, 1998, the shares used in the weighted average computation are the actual shares outstanding for that period. For 1997, the weighted average shares have been retroactively restated to reflect the quantity of shares of Trimfast Group, Inc., issued to the Company's stockholders at the date of the reorganization. There were no dilutive common stock equivalents outstanding at December 31, 1998 and 1997. (K) Advertising Costs In accordance with the Accounting Standards Executive Committee Statement of Position 93-7, ("SOP 93-7") costs incurred for producing and communicating advertising are expensed when incurred. 9 TRIMFAST GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION - (CONT'D) (L) New Accounting Pronouncements The Financial Accounting Standards Board has recently issued several new accounting pronouncements. Statement No. 133 as amended by Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities" establishes accounting and reporting standards for derivative instruments and related contracts and hedging activities. This statement is effective for all fiscal quarters and fiscal years beginning after June 15, 2000. The Company believes that its future adoption of these pronouncements will not have a material effect on the Company's financial position or results of operations. NOTE 2 - SHORT-TERM INVESTMENTS The Company's short-term investments, purchased principally for the purpose of selling them in the near future, as defined under SFAS 115, are comprised of equity securities, all classified as trading securities, which are carried at their fair value are based upon the quoted market prices of those investments at December 31, 1998. Accordingly, net realized and unrealized gains and losses on trading securities are included in net earnings. The composition of short-term investments at December 31, 1998 is as follows: Fair Cost Value ---- ----- Common stock $14,375 $15,297 ------- ------- Short-term investments $14,375 $15,297 ======= ======= Investment income for the year ended December 31, 1998 consisted of the following: Net realized gains on the sale of trading securities $ 1,905 Net unrealized holding gains 922 ------- $ 2,827 ======= 10 TRIMFAST GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 NOTE 3 - ACCOUNTS RECEIVABLE AND BAD DEBT EXPENSE During 1998 the Company wrote off 100% accounts receivable totaling $202,112 from a customer who filed for bankruptcy and 50% of the receivable or $267,240 from another customer relating to a voluntary recall of a Company product. These two customers accounted for approximately 60% and 12% of revenues in 1998 (See Note 7(D)). The remaining accounts receivable consists of another $267,240 due from the one customer discussed above, and $90,649 due from various other customers, none of which are considered individually significant. NOTE 4 - PROPERTY AND EQUIPMENT Property and equipment at December 31, 1998 consisted of the following: Automobiles $ 33,475 Furniture and fixtures 7,900 Equipment 2,756 -------- $ 44,131 Less accumulated depreciation (10,728) -------- $ 33,403 ======== Depreciation expense for the years ended December 31, 1998 and 1997 was $10,498 and $230, respectively. NOTE 5 - INCOME TAXES There was no income tax expense for 1998 due to the utilization of net operating loss carryforwards. The actual tax expense differs from the "expected" tax expense for the year ended December 31, 1998 (computed by applying the U.S. Federal Corporate tax rate of 34 percent to income before income taxes), as follows: Computed "expected" tax expense $ 14,493 State income tax, net of federal benefit 1,547 Meals and entertainment 10,911 Benefit of net operating loss carry forwards (26,951) -------- Actual tax expense $ -- ======== At December 31, 1998, the unused pre-acquisition net operating loss carryforwards available to offset the separate future net income of Trimfast, Inc. and its subsidiary, Body Life Sciences, Inc., and 11 TRIMFAST GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 NOTE 5 - INCOME TAXES - (CONT'D) Trimfast Group, Inc., the holding company (f.k.a. HLHK World Group, Inc.) were $94,105 and $1,105,240, respectively. The deferred tax assets of $51,628 and $381,554, respectively, resulting from these net operating loss carryforwards were fully offset by valuation allowances at December 31, 1998. In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the historical taxable earnings patterns, reversal of deferred tax liabilities, and projected future taxable income in making this assessment. The $94,105 net operating loss carryforward may be used to offset future net income of Trimfast, Inc. and its subsidiary through the year 2012. Usage of the $1,105,240 net operating loss carryforward of Trimfast Group, Inc., the holding company, is subject to a separate return limitation year rule, which allows it to be applied only to future net income of Trimfast Group, Inc., the holding company. There was no post-acquisition net operating loss carryforward for the consolidated group. The valuation allowance for the deferred tax asset resulting from the net operating loss of Trimfast, Inc. as of January 1, 1998 was $51,628. The net change in the pre-acquisition valuation allowance for Trimfast, Inc. was a decrease of $19,633. The valuation allowance for the deferred tax asset resulting from the net operating losses of Trimfast Group, Inc., the holding company, as of January 1, 1998 was $381,554. The net change in the pre-acquisition valuation allowance for Trimfast Group, Inc., the holding company, was a decrease of $5,772. NOTE 6 - NOTES AND LOANS PAYABLE At December 31, 1998, the Company has three notes payable with individual lenders in the amounts of $20,000, $25,125 and $25,000. The following schedule reflects notes and loans payable to non-related parties at December 31, 1998: 12 TRIMFAST GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 NOTE 6 - NOTES AND LOANS PAYABLE - (CONT'D) Notes payable to individual lenders in the amounts of $20,000, $25,000 and $25,125, currently due, interest at 12% per annum $70,125 Other loans payable, currently due 1,975 ------- $72,100 ======= Accrued interest of $15,923 on the notes and loans payable has been included in accrued expenses at December 31, 1998. All principal and accrued interest for $50,125 of the notes were exchanged for an aggregate 40,000 shares of common stock in 1999 resulting in a price per share of $1.25. NOTE 7 - COMMITMENTS AND CONTINGENCIES (A) Year 2000 Issues The Company is aware of the issues associated with the programming code in existing computer systems as the millennium (Year 2000) approaches. The "Year 2000" problem is pervasive and complex as virtually every computer operation will be affected in some way by the rollover of the two-digit year to 00. The issue is whether computer systems will properly recognize date-sensitive information when the year changes to 2000. Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. The Company uses a standard off the shelf accounting software package for all of its accounting requirements. Management has contacted the software vendor and confirmed that the accounting software is Year 2000 compliant. Management has contacted its primary vendors has not identified any Year 2000 compliance issues with those vendors. Costs of investigating Year 2000 compliance issues have not been material to date. As a result, management believes that the effect of investigating and resolving Year 2000 compliance issues will not have a material effect on the Company's future financial position or results of operations. 13 TRIMFAST GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 NOTE 7 - COMMITMENTS AND CONTINGENCIES - (CONT'D) (B) Lease Agreements The Company leases a corporate office facility in Tampa, office equipment, and two automobiles under operating leases. The leases have remaining terms varying from the years 1999 through 2002. Future minimum lease payments for the operating leases are as follows at December 31, 1998: Years Ending Amount ------ ------ 1999 $ 39,393 2000 40,407 2001 26,708 2002 8,302 --------- $ 114,810 ========= Rent expense for 1998 and 1997 aggregated $31,885 and $9,263, respectively. (C) Consulting Agreements and Stock Issued To Vendors On October 9, 1998 the Company entered into a consulting agreement with an individual whereby the Company will be provided with advice with regard to corporate strategy and business development and such other matters as agreed upon between the parties from time to time. As consideration for the consulting services provided, the Company shall issue 20,000 shares of common stock to the consultant (See Note 8(B)). On December 14, 1998 the Company entered into a two year consulting agreement with an individual whereby the Company will be provided with advice with regard to corporate strategy and business development including targeting of acquisitions. As consideration for the services provided the Company shall issue 50,000 free trading common shares pursuant to Regulation D, Rule 504 and 250,000 common shares restricted under Rule 144 (See Note 8(B)). In addition, the Company shall provide the consultant with a $1,000 per month expense account. On June 30, 1999 this consulting agreement was rescinded and the Company offered the consultant 300,000 restricted shares of its common stock at a price of $0.25 per share. 14 TRIMFAST GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 NOTE 7 - COMMITMENTS AND CONTINGENCIES - (CONT'D) (C) Consulting Agreements - (CONT'D) On December 18, 1998 the Company entered into a two year consulting agreement with a consulting organization whereby the Company will be provided with advice with regard to corporate strategy and business development including targeting of acquisitions. As consideration for the services provided the Company shall issue 100,000 free trading common shares pursuant to Regulation D, Rule 504 and 350,000 common shares restricted under Rule 144 (See Note 8B). In addition, the Company should make monthly payments of $2,500 to the consulting organization. On June 30, 1999 this consulting agreement was rescinded and the Company offered the consultant 275,000 restricted shares of its common stock at a price of $0.25. Subsequent to year end, the Company entered into various additional consulting agreements whereby common stock will be issued as consideration. Services under the consulting agreements entered into in both 1998 and 1999 are being performed generally for two year periods and accordingly, consulting expense is being recognized in 1999 and in any subsequent service period based upon the fair market value of the common stock issued in accordance with SFAS 123 since that value is more reliably measurable (See Note 13 (F)). The Company also periodically issues common stock as payment to vendors and records such issues at the fair market value of the common stock. For the period from January 1, to August 31, 1999 (unaudited) the Company issued approximately 1,063,000 shares of common stock for consulting services and as payment to vendors valued at approximately $2,624,000 based upon the discounted trading price of the stock. (D) Litigation In 1999 the Company initiated a legal proceeding against a former major customer to collect amounts receivable from that customer aggregating approximately $535,000 at December 31, 1998. Such receivable related to products sold to that customer during 1998 that were voluntarily recalled by the Company, but never returned by the customer. It is management's assertion and the opinion of the Company's outside legal counsel with regard to this matter that since the product was never returned to the Company, and is believed to have been resold by the customer, a successful outcome in favor of the Company is possible. The Company has written off $267,240 or fifty percent of the total receivable (See Note 3). In early 1999, pursuant to a voluntary arrangement with the Food and Drug Administration, the Company's product, Revivarant, was 15 TRIMFAST GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 NOTE 7 - COMMITMENTS AND CONTINGENCIES - (CONT'D) (D) Litigation - (CONT'D) recalled and removed from sale. Since the time of the recall, the Company has been subject to six known lawsuits and claims relating to consumer use of the product. As of the date of this report, only one lawsuit has specified a dollar amount, that being, $400,000 of compensatory damages and $350,000 of punitive damages. The Company is covered for product liability of $1,000,000 per occurrence and up to $2,000,000 in the aggregate under the policy of its third party manufacturer. All lawsuits are being referred by management to the insurance carrier. With regard to any punitive damage claims, the Company intends to vigorously oppose any factual basis for imposition of punitive damages based upon research and efforts made prior to the distribution of the Revivarant product to determine its safety. Since the lawsuits and claims have been made fairly recently, the Company's management and outside legal counsel are unable to evaluate and determine the likely outcome of each cause of action. However, management believes that the Company will be fully covered by the liability insurance, and therefore the outcome of such cases will not materially effect the Company's consolidated financial position of future results of operations. Accordingly, pursuant to the Financial Accounting Standards Board, Statement of Financial Accounting Standards No. 5, no liabilities have been accrued as of December 31, 1998 relating to the above matters. The Company is subject to various lawsuits, investigations and claims which, in the opinion of management, arise in the normal course of conducting Company business. Several cases have been settled during 1999 and appropriate amounts have been accrued at December 31, 1998. In the opinion of the Company's management after consultation with outside legal counsel, the ultimate disposition of such remaining proceedings will not have a materially adverse effect on the Company's consolidated financial position or future results of operations. NOTE 8 - STOCKHOLDERS' EQUITY (A) Authorized Shares The Company has authorized 100,000,000 shares of common stock, $0.001 par value; 20,000,000 shares of Class A Preferred Stock, $0.01 par value; and 20,000,000 shares of Class B Preferred Stock, $0.01 par value. The preferred stock shall have such rights and preferences as determined by the Board of Directors. 16 TRIMFAST GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 NOTE 8 - STOCKHOLDERS' EQUITY - (CONT'D) (B) Reverse Stock Split and Retroactive Restatement of Per Share Data On December 8, 1998, effective for stockholders of record on December 20, 1998, the Company's Board of Directors approved a one-for-ten reverse split of its shares of issued and outstanding common stock. All share quantities and per share data in these financial statements for the years ended December 31, 1998 and 1997 have been retroactively restated to reflect the reverse stock split as well as the recapitalization discussed in Note 12. (C) Repurchase of Outstanding Common Stock By Principal Stockholder On December 8, 1998 the Company's Chairman, CEO and principal stockholder, purchased all 508,313 shares of the Company's outstanding common stock held beneficially by the prior principal stockholder of HLHK (See Note 12). In accordance with SFAS 123, the transaction is considered a secondary market transaction and accordingly, had no effect on the Company's financial position or results of operations. (D) Acquisition and Stock Exchange In August 1998, prior to the acquisition of Trimfast, Inc. by HLHK World Group, Inc., Trimfast, Inc. acquired all of the issued and outstanding common stock of Trimfast Holdings, Inc., affiliated through common control, by issuing eleven shares of Trimfast, Inc. for every ten shares of Trimfast Holdings, Inc. Trimfast Holdings, Inc. was an inactive company whose only asset at that time was $177,800 in cash and whose only expense was a $10,000 consulting expense for which common stock was issued. The acquisition was recorded under the pooling method of accounting and accordingly the financial statements for the period presented have been restated to include the accounts of Trimfast Holdings, Inc. (E) Conversion of Debt to Equity During July 1998, the Company issued 19,500 shares of common stock to an individual related party in exchange for a loan payable of $40,000, resulting in a price paid per share of $2.05 at the exchange date. 17 TRIMFAST GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 NOTE 8 - STOCKHOLDERS' EQUITY - (CONT'D) (F) Conversion of Principal Stockholder's Debt to Equity In December 1998, $126,644 of amounts due to the principal stockholder were converted to common stock at the fair value of the stock on December 1, 1998, which was $1.80 per share (See Note 10). (G) Common Stock to be Issued The Company underissued 7,524 fully paid shares of common stock of the Company to certain stockholders of Trimfast, Inc. as a result of the August 12, 1998 reorganization and has not yet issued 70,357 shares of common stock to its principal stockholder in exchange for $126,644 of amounts due to that stockholder. The total shares to be issued of 77,881 are shown as common stock to be issued at December 31, 1998. NOTE 9 - CONCENTRATIONS (A) Supplier Concentration The Company procures raw materials from various suppliers but contracts the production of finished products to one primary third party manufacturing company. Since December 31, 1998 the Company has contracted with other production facilities for several of its products and believes that many alternative third party production facilities are available should the need arise. (B) Customer Concentration During 1998, approximately 60% of consolidated revenues was derived from one customer and 13% was derived from two other customers (See Note 3). NOTE 10 - RELATED PARTIES The Company periodically advances funds to the principal stockholder and affiliates of the principal stockholder, pays certain expenses of the principal stockholder, and borrows from the principal stockholder. The advances to affiliates are shown as due from affiliate at December 31, 1998 and the net effect of transactions with the principal stockholder are shown as due to stockholder/officer at December 31, 1997. All net amounts due to the principal stockholder were converted to common stock in 18 TRIMFAST GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 NOTE 10 - RELATED PARTIES - (CONT'D) December 1998. (See supplemental disclosure of non-cash investing and financing activities in cash flow statement.) The Company received an advance of $40,000 from an individual during 1997 which was recorded as due to related party at December 31, 1997 (see Note 8(E)). During 1998 the Company issued 19,500 shares of common stock to that same individual in exchange for the $40,000 payable. NOTE 11 - OPERATING AGREEMENTS The Company enters into wholesaler and broker agreements whereby the wholesalers and brokers are appointed the Company's sole and exclusive wholesaler and broker within a specified geographic territory for certain stipulated products. In general, under the agreements, the wholesalers and brokers have the right to purchase, sell, promote, advertise and deliver the stipulated products. Broker agreements allow for broker commissions while wholesaler agreements allow for the purchase of product by distributors at a discount. The agreements generally may be terminated by either party with 60 days notice to the other party. NOTE 12 - ACQUISITION AND RECAPITALIZATION Under a Stock Exchange Agreement (the "Agreement") consummated on August 12, 1998, HLHK World Group, Inc., a non-reporting public shell, acquired one hundred percent of the issued and outstanding common stock of Trimfast, Inc. in exchange for 1,370,049 shares of the $0.001 par value common stock of HLHK. Under the terms of the Agreement, the Trimfast, Inc., shares were exchanged at a ratio of 3 shares of HLHK common stock for each share of Trimfast, Inc. common stock. As a result of the exchange, the Company became a wholly-owned subsidiary of HLHK and the stockholders of Trimfast, Inc. became stockholders of approximately 60.42% of HLHK which represented 1,370,049 shares of the total 2,268,298 issued and outstanding just subsequent to the exchange (Approximately 82% after repurchase agreement discussed in Note 8(C)). Generally Accepted Accounting Principles require that the Company whose 19 TRIMFAST GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 NOTE 12 - ACQUISITION AND RECAPITALIZATION - (CONT'D) shareholders retain a majority interest in a combined business be treated as the acquiror for accounting purposes. As a result, the exchange was treated as an acquisition of HLHK by Trimfast, Inc. and a recapitalization of Trimfast, Inc. The Company's consolidated financial statements immediately following the acquisition were as follows: (1) The Balance Sheet consists of Trimfast, Inc.'s net assets at historical cost and HLHK's net assets at historical cost and (2) the Statement of Operations includes Trimfast, Inc.'s operations for the period presented and HLHK's operations from the date of acquisition. On September 4, 1998 the Company filed an amendment to its articles of incorporation to (i) change its name from HLHK to Trimfast Group, Inc. and (ii) authorize 20,000,000 shares each of Class A and Class B Preferred Stock, $0.01 par value. NOTE 13 - SUBSEQUENT EVENTS (A) Acquisitions On March 18, 1999 the Company acquired IMMMU, Inc. ("IMMMU") and IMMCEL Pharmaceuticals, Inc. ("IMMCEL"), two companies unrelated to the Company but related to each other through common stockholders, in a transaction accounted for as a purchase. Under terms of the agreement, 235,000 shares of the Company's common stock, $50,000 in cash and an option agreement for shares of the Company's common stock exercisable based on stipulated Company performance criteria were exchanged for all of the issued and outstanding capital stock of IMMMU and IMMCEL. The 235,000 common shares issued were valued at the trading price on the consummation date resulting together with the other consideration in a purchase price of $975,312. IMMMU and IMMCEL are manufacturers of nutritional supplements primarily marketed to pharmacies, supermarkets and discount stores. In connection with the acquisitions, the Company entered into a five year employment agreement, renewable in one year increments, with a former stockholder of IMMMU and IMMCEL whereby the former stockholder will be employed as the Chief Executive Officer of IMMMU and IMMCEL and serve on the Board of Directors of the Company. The former stockholder will receive an annual salary of $75,000 and a bonus based on stipulated performance criteria. The employment agreement may be terminated by the Company if IMMMU and IMMCEL have two consecutive non-profitable fiscal quarters as defined in the agreement. On October 23, 1999, effective October 31, 1999, the Company and former stockholders of IMMMU and IMMCEL executed a rescission agreement for the above acquisitions to make the parties whole. 20 TRIMFAST GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 NOTE 13 - SUBSEQUENT EVENTS - (CONT'D) (A) Acquisitions - (CONT'D) 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. (B) Agreement with Investment Group On March 18, 1999 the Company entered into an agreement (the "Agreement") with a third party investment group (the "investment group") whereby the investment group will purchase (i) common shares of the Company in the open market having an aggregate value of no less than $300,000, and (ii) 300,000 common shares from the Company at a price of $4.00 per share according to a stipulated schedule based on the average market price of the outstanding shares. The Agreement was contingent upon the consummation of the acquisition of IMMMU and IMMCEL, discussed above. As of October 1999 the investment group had purchased 155,000 shares of common stock from the Company at $4.00 per share. On October 22, 1999 the Company executed an agreement with the investment group to repurchase the 155,000 shares at a price of $8.25 per share on a scheduled basis through December 15, 1999 as stipulated in the agreement. Any of the 155,000 shares purchased after December 15, 1999 shall be at $8.50 per share. (C) Formation of New Division On April 21, 1999 the Company formed a new division of Trimfast Group, Inc. doing business as NutritionCafe.com. NutritionCafe.com is an internet web site business established to (i) provide nutrition information, (ii) provide portal links to other information sites and (iii) market and sell at a discount the Company's products and products of other nutrition product companies for which the Company acts as a distributor. (D) Lease and Purchase Option of Facility In connection with the formation of its new division, NutritionCafe.com, on April 8, 1999 the Company entered into a lease/purchase option agreement for a facility which will be used for the operations of NutrionCafe.com. The lease calls for rental 21 TRIMFAST GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 NOTE 13 - SUBSEQUENT EVENTS - (CONT'D) (D) Lease and Purchase Option of Facility- - (CONT'D) payments of $8,000 per month and is effective for the period from May 15, 1999 through June 30, 2000. In addition, the Company paid $100,000 in cash as non-refundable consideration for a purchase option on the premises. The purchase price shall be for the sum of $1,200,000 with full credit for the $100,000 option monies paid. The option must be exercised by June 30, 2000. On July 30, 1999 the Company exercised its purchase option. (E) Issuance of Warrants In May 1999 the Company issued 40,000 warrants to purchase common stock to two unrelated parties in exchange for services performed relating to raising debenture capital. The exercise prices and expiration dates for exercise of the warrants are as follows: Quantity Exercise Price Expiration Date -------- -------------- --------------- 10,000 $4.00 May 12, 2000 10,000 $4.00 May 12, 2000 10,000 $7.00 May 13, 2000 10,000 $7.00 May 13, 2000 Pursuant to Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation" ("SFAS 123"), the fair market value of the warrants will be charged to expense in the period the services are performed. (F) Private Placement From January through April 5, 1999 the Company issued common stock pursuant to Regulation D, Rule 504 of the Securities Act of 1933, as amended. The Company issued 663,000 shares for aggregate cash proceeds of approximately $980,000 and 5,450 shares for services valued for financial accounting purposes at approximately $11,000 based upon the trading price of the common stock. (See Note 7 (C)). (G) Convertible Debentures On June 14, 1999 the Company issued $1,000,000 of convertible debentures due on June 14, 2002. The debentures contain a beneficial conversion feature whereby the holder is entitled to convert the face amount of the debenture, plus accrued interest, as of the closing date into common stock of the Company at the lesser 22 TRIMFAST GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997 NOTE 13 - SUBSEQUENT EVENTS - (CONT'D) (G) Convertible Debentures of (a) 80% of the 5 day average closing bid price for the 5 consecutive trading days prior to the conversion date or (b) $8.50. The debentures also contain a mandatory 36 month conversion feature at the end of which all debentures outstanding will be automatically converted. The Company accounts for the debentures in accordance with EITF 98-5 "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios." Accordingly, the Company has allocated a portion of the proceeds to additional paid-in capital equal to the intrinsic value of the features as computed on the commitment date, resulting in recognition on the closing date of $250,000 interest expense. (H) Convertible Preferred Stock and Common Stock Warrants On July 16, 1999, pursuant to a securities purchase agreement (the "Agreement") the Company issued 15,000 shares of Series A Convertible Preferred Stock and 223,881 warrants to purchase common stock to four investors for a total aggregate selling price of $1,500,040. The debentures contain a beneficial conversion feature whereby the stock is convertible any time after the issuance date at the lesser of (a) $8.5938 or (b) 80% of the market price of the common stock as defined in the Agreement. The preferred stock entitles the holder to receive on each July 1, and January 1, commencing January 1, 2000 cumulative dividends at 8% per annum computed on the basis of $100 per preferred stock. At the Company's option, the dividends may be paid in cash or the Company's common stock. The warrants are exercisable at $10.31 per share, vest immediately and expire on July 16, 2002. As a result of accounting for the beneficial conversion feature, the Company charged a $375,011 dividend to retained earnings on the issuance date. A total of 750,000 shares of the Company's authorized common stock have been reserved for issuance upon conversion of the preferred stock and exercise of the warrants. 23 - -------------------------------------------------------------------------------- Exhibit # Description Page Number - -------------------------------------------------------------------------------- 2.1 Kendrex and HLHK Merger E- 1 - -------------------------------------------------------------------------------- 2.2 Trimfast, Inc. Acquisition - -------------------------------------------------------------------------------- 2.3 Rescission of IMMMU and IMMCEL Acquisitions - -------------------------------------------------------------------------------- 3.1 Articles of Incorporation, as amended - -------------------------------------------------------------------------------- 3.2 Bylaws - -------------------------------------------------------------------------------- 4.1 Specimen Share Certificate - -------------------------------------------------------------------------------- 4.2 Debenture Agreement - -------------------------------------------------------------------------------- 4.3 Warrant Agreement - -------------------------------------------------------------------------------- 4.4 Preferred Share Agreement - -------------------------------------------------------------------------------- 10.1 Lease Option Agreement - -------------------------------------------------------------------------------- 10.2 WCW Agreement - -------------------------------------------------------------------------------- 10.3 MSN Agreement - -------------------------------------------------------------------------------- 10.4 Distribution Agreement - -------------------------------------------------------------------------------- 21 Subsidiaries of Registrant - -------------------------------------------------------------------------------- 27 Financial Data Schedule - -------------------------------------------------------------------------------- 1 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: December 22, 1999 42
EX-2.1 2 KENDREX AND HLHK MERGER AGREEMENT AGREEMENT AND PLAN OF REORGANIZATION This Agreement and Plan of Reorganization ("the Agreement"), dated as of the 18th day of November, 1996, by and between Kendrex Systems, Inc., a Nevada corporation ("Kendrex") and HLHK World Group, Inc., a Nevada corporation ("HLHK") and the shareholders of HLHK ("Shareholders"), with reference to the following: A. Kendrex is a Nevada corporation organized on February 23, 1987. Kendrex has authorized capital stock of 100,000,000 shares, $.001 par value, of which 31,850,000 shares are issued and outstanding. The common shares of Kendrex are traded on the OTC Bulletin Board under the symbol KNDX. B. HLHK is a privately held corporation organized under the laws of the State of Nevada on July 8, 1996. C. The respective Boards of Directors of Kendrex and HLHK have deemed it advisable and in the best interests of Kendrex and HLHK that HLHK be acquired by Kendrex, pursuant to the terms and conditions set forth in this Agreement. D. Kendrex and HLHK propose to enter into this Agreement which provides among other things that all of the outstanding shares of HLHK be acquired by Kendrex, in exchange for shares of Kendrex and such additional items as more fully described in the Agreement. E. The parties desire the transaction to qualify as a tax-free reorganization under Section 368 (a)(1)(B) of the Internal Revenue Code of 1986, as amended. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE 1 THE ACQUISITION 1.01 At the Closing, a total of 1,000 common shares, which represents all of the outstanding shares of HLHK, shall be acquired by Kendrex in exchange for 6,000,000 restricted post-split common shares of Kendrex and an additional 250,000 restricted post-split common shares of Kendrex pursuant to Rule 701 of the Securities Act of 1933 as a finder's fee to the consultants of HLHK. The shares of Kendrex to be issued in this transaction shall be issued as set forth in Exhibit A to this Agreement. 1.02 At the Closing, the HLHK shareholders will deliver certificates for the outstanding shares of HLHK, duly endorsed so as to make Kendrex the sole holder thereof, free and clear of all claims and encumbrances and Kendrex shall deliver a transmittal letter directed to the transfer agent 1 of Kendrex directing the issuance of shares to the shareholders of HLHK as set forth on Exhibit A of this Agreement. 1.03 Following the reorganization, reverse split of shares as set forth in paragraph 5.01(d) and cancellation of shares as set forth in paragraph 5.01(c), there will be a total of 7,020,000 shares, $.001 par value, issued and outstanding in Kendrex. ARTICLE 2 THE CLOSING 2.01 The consummation of the transactions contemplated by this Agreement (the "Closing") shall take place in the offices of HLHK, 3361 Westwind Road, Las Vegas, Nevada 89102 on November 18, 1996, (the "Closing Date") or at such other place or date and time as may be agreed to in writing by the parties hereto. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF KENDREX Kendrex hereby represents and warrants to HLHK as follows: 3.01 Kendrex shall deliver to HLHK, on or before Closing, each of the following: (a) Financial Statements. Audited financial statements of Kendrex including, but not limited to, balance sheets and profit and loss statements from inception to December 31, 1995 and unaudited financial statements from January 1, 1996 to October 31, 1996, prepared in accordance with generally accepted accounting principles and which fairly present the financial condition of Kendrex at the dates thereof. (Schedule A) (b) Property. An accurate list and description of all property, real or personal, owned by Kendrex of a value equal to or greater than $1,000.00. (Schedule B.) (c) Liens and Liabilities. A complete and accurate list of all material liens, encumbrances, easements, security interests or similar interests in or on any of the assets listed on Schedule A. (Schedule C.) A complete and accurate list of all debts, liabilities and obligations of Kendrex incurred or owing as of the date of this Agreement. (Schedule C.1.) (d) Leases and Contracts. A complete and accurate list describing all material terms of each lease (whether of real or personal property) and each contract, promissory note, mortgage, license, franchise, or other written agreement to which Kendrex is a party which involves or can reasonably be expected to involve aggregate future payments or receipts by Kendrex (whether by the terms of such lease, contract, promissory note, license, franchise or other written agreement or as a result of a guarantee of the payment of or indemnity against the failure to pay same) of $1,000.00 or more annually during the twelve-month period ended December 31, 1995, or any consecutive twelve-month period thereafter, except any of said 2 instruments which terminate or are cancelable without penalty during such twelve-month period. (Schedule D.) (e) Loan Agreements. Complete and accurate copies of all loan agreements and other documents with respect to obligations of Kendrex for the repayment of borrowed money. (Schedule E.) (f) Consents Required. A complete list of all agreements wherein consent to the transaction herein contemplated is required to avoid a default thereunder; or where notice of such transaction is required at or subsequent to closing, or where consent to an acquisition, consolidation, or sale of all or substantially all of the assets is required to avoid a default thereunder. (Schedule F.) (g) Articles and Bylaws. Complete and accurate copies of the Certificate and Articles of Incorporation and Bylaws of Kendrex together with all amendments thereto to the date hereof. (Schedule G.) (h) Shareholders. A complete list of all persons or entities holding capital stock of Kendrex or any rights to subscribe for, acquire, or receive shares of the capital stock of Kendrex (whether warrants, calls, options, or conversion rights), including copies of all stock option plans whether qualified or nonqualified, and other similar agreements. (Schedule H.) (i) Officers and Directors. A complete and current list of all Officers and Directors of Kendrex. (Schedule I.) (j) Salary Schedule. A complete and accurate list (in all material respects) of the names and the current salary rate for each present employee of Kendrex who received $1,000.00 or more in aggregate compensation from Kendrex whether in salary, bonus or otherwise, during the year 1995, or who is presently scheduled to receive from Kendrex a salary in excess of $1,000.00 during the year ending December 1996, including in each case the amount of compensation received or scheduled to be received, and a schedule of the hourly rates of all other employees listed according to departments. (Schedule J.) (k) Litigation. A complete and accurate list (in all material respects) of all material civil, criminal, administrative, arbitration or other such proceedings or investigations (including without limitations unfair labor practice matters, labor organization activities, environmental matters and civil rights violations) pending or, to the knowledge of Kendrex threatened, which may materially and adversely affect Kendrex. (Schedule K.) (l) Tax Returns. Accurate copies of all Federal and State tax returns for Kendrex for the last fiscal year. (Schedule L.) (m) Agency Reports. Copies of all material reports or filing (and a list of the 3 categories of reports or filings made on a regular basis) made by Kendrex under ERISA, EEOC, FDA and all other governmental agencies (federal, state or local) during the last fiscal year. (Schedule M.) (n) Banks. A true and complete list (in all material respects), as of the date of this Agreement, showing (1) the name of each bank in which Kendrex has an account or safe deposit box, and (2) the names and addresses of all signatories. (Schedule N.) (o) Jurisdictions Where Qualified. A list of all jurisdictions wherein Kendrex is qualified to do business and is in good standing. (Schedule O.) (p) Subsidiaries. A complete list of all subsidiaries of Kendrex. (Schedule P.) The term "Subsidiary" or "Subsidiaries" shall include corporations, unincorporated associations, partnerships, joint ventures, or similar entities in which Kendrex has an interest, direct or indirect. (q) Union Matters. An accurate list and description (in all material respects) of all union contracts and collective bargaining agreements of Kendrex, if any. (Schedule Q.) (r) Employee and Consultant Contracts. A complete and accurate list of all employee and consultant contracts which Kendrex may have, other than those listed in the schedule on Union Matters. (Schedule R.) (s) Employee Benefit Plans. Complete and accurate copies of all salary, stock options, bonus, incentive compensation, deferred compensation, profit sharing, retirement, pension, group insurance, disability, death benefit or other benefit plans, trust agreements or arrangements of Kendrex in effect on the date hereof or to become effective after the date thereof, together with copies of any determination letters issued by the Internal Revenue Service with respect thereto. (Schedule S.) (t) Insurance Policies. A complete and accurate list (in all material respects) and a description of all material insurance policies naming Kendrex as an insured or beneficiary or as a loss payable payee or for which Kendrex has paid all or part of the premium in force on the date hereof, specifying any notice or other information possessed by Kendrex regarding possible claims thereunder, cancellation thereof or premium increases thereon, including any policies now in effect naming Kendrex as beneficiary covering the business activities of Kendrex. (Schedule T.) (u) Licenses and Permits. A complete list of all licenses, permits and other authorizations of Kendrex. (Schedule U.) 3.02 Organization, Standing and Power. Kendrex is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada with all requisite corporate power to own or lease its properties and carry on its businesses as are now being conducted. 4 due or to become due, incurred in respect of or measured by Kendrex income or business prior to the Closing Date. 3.09 Options, Warrants, etc. Except as otherwise described in Schedule H, there are no outstanding options, warrants, calls, commitments or agreements of any character to which Kendrex or its shareholders are a party or by which Kendrex or its shareholders are bound, or are a party, calling for the issuance of shares of capital stock of Kendrex or any securities representing the right to purchase or otherwise receive any such capital stock of Kendrex. 3.10 Title to Assets. Except for liens set forth in Schedule C, Kendrex is the sole unconditional owner of, with good and marketable title to, all assets listed in the schedules as owned by it and all other property and assets are free and clear of all mortgages, liens, pledges, charges or encumbrances of any nature whatsoever. 3.11 Agreements in Force and Effect. Except as set forth in Schedules D and E, all material contracts, agreements, plans, promissory notes, mortgages, leases, policies, licenses, franchises or similar instruments to which Kendrex is a party are valid and in full force and effect on the date hereof and Kendrex has not breached any material provision of, and is not in default in any material respect under the terms of, any such contract, agreement, plan, promissory note, mortgage, lease, policy, license, franchise or similar instrument which breach or default would have a material adverse effect upon the business, operations or financial condition of Kendrex. 3.12 Legal Proceedings, Etc. Except as set forth in Schedule K, there are no civil, criminal, administrative, arbitration or other such proceedings or investigations pending or, to the knowledge of either Kendrex or the shareholders thereof, threatened, in which, individually or in the aggregate, an adverse determination would materially and adversely affect the assets, properties, business or income of Kendrex. Kendrex has substantially complied with, and is not in default in any material respect under, any laws, ordinances, requirements, regulations or orders applicable to its businesses. 3.13 Governmental Regulation. To the knowledge of Kendrex and except as set forth in Schedule K, Kendrex is not in violation of or in default with respect to any applicable law or any applicable rule, regulation, order, writ or decree of any court or any governmental commission, board, bureau, agency or instrumentality, or delinquent with respect to any report required to be filed with any governmental commission, board, bureau, agency or instrumentality which violation or default could have a material adverse effect upon the business, operations or financial condition of Kendrex. 3.14 Brokers and Finders. Kendrex shall be solely responsible for payment to any broker or finder retained by Kendrex for any brokerage fees, commissions or finders' fees in connection with the transactions contemplated herein. 3.15 Accuracy of Information. No representation or warranty by Kendrex contained in this Agreement and no statement contained in any certificate or other instrument delivered or to be delivered to HLHK pursuant hereto or in connection with the transactions contemplated hereby 6 (including without limitation all Schedules and exhibits hereto) contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary in order to make the statements contained herein or therein not misleading. 3.16 Subsidiaries. Except as listed in Schedule P, Kendrex does not have any other subsidiaries or own capital stock representing ten percent (10%) or more of the issued and outstanding stock of any other corporation. 3.17 Consents. Except as listed in Schedule F, no consent or approval of, or registration, qualification or filing with, any governmental authority or other person is required to be obtained or accomplished by Kendrex or any shareholder thereof in connection with the consummation of the transactions contemplated hereby. 3.18 Improper Payments. Neither Kendrex, nor any person acting on behalf of Kendrex has made any payment or otherwise transmitted anything of value, directly or indirectly, to (a) any official or any government or agency or political subdivision thereof for the purpose of influencing any decision affecting the business of Kendrex (b) any customer, supplier or competitor of Kendrex or employee of such customer, supplier or competitor, for the purpose of obtaining, retaining or directing business for Kendrex or (c) any political party or any candidate for elective political office nor has any fund or other asset of Kendrex been maintained that was not fully and accurately recorded on the books of account of Kendrex. 3.19 Copies of Documents. Kendrex has made available for inspection and copying by HLHK and its duly authorized representatives, and will continue to do so at all times, true and correct copies of all documents which it has filed with the Securities and Exchange Commission and all other governmental agencies which are material to the terms and conditions contained in this Agreement. Furthermore, all filings by Kendrex with the Securities and Exchange Commission, and all other governmental agencies, including but not limited to the Internal Revenue Service, have contained information which is true and correct, to the best knowledge of the Board of Directors of Kendrex, in all material respects and did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements made therein not misleading or which could have any material adverse effect upon the financial condition or operations of Kendrex or adversely effect the objectives of this Agreement with respect to HLHK including, but not limited to, the issuance and subsequent trading of the shares of common stock of Kendrex to be received hereby, subject to compliance by the shareholders of HLHK with applicable law. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF HLHK HLHK hereby represents and warrants to Kendrex as follows: 7 4.01 HLHK shall deliver to Kendrex, on or before Closing, the following: (a) Financial Statements. Audited financial statements of HLHK including, but not limited to, balance sheets and profit and loss statements for the period from inception through November 7, 1996. (Schedule AA) (b) Property. An accurate list and description of all property, real or personal owned by HLHK of a value equal to or greater than $1,000.00. (Schedule BB.) (c) Liens and Liabilities. A complete and accurate list of all material liens, encumbrances, easements, security interests or similar interests in or on any of the assets listed on Schedule AA. (Schedule CC.) A complete and accurate list of all debts, liabilities and obligations of HLHK incurred or owing as of the date of this Agreement. (Schedule CC.1.) (d) Leases and Contracts. A complete and accurate list describing all material terms of material leases (whether of real or personal property) and each contract, promissory note, mortgage, license, franchise, or other written agreement to which HLHK is a party which involves or can reasonably be expected to involve aggregate future payments or receipts by HLHK (whether by the terms of such lease, contract, promissory note, license, franchise or other written agreement or as a result of a guarantee of the payment of or indemnity against the failure to pay same) of $1,000.00 or more annually during the twelve-month period ended December 31, 1995 or any consecutive twelve-month period thereafter, except any of said instruments which terminate or are cancelable without penalty during such twelve-month period. (Schedule DD.) (e) Loan Agreements. Complete and accurate copies of all loan agreements and other documents with respect to obligations of HLHK for the repayment of borrowed money. (Schedule EE.) (f) Consents Required. A complete list of all agreements wherein consent to the transaction herein contemplated is required to avoid a default thereunder; or where notice of such transaction is required at or subsequent to closing, or where consent to an acquisition, consolidation, or sale of all or substantially all of the assets is required to avoid a default thereunder. (Schedule FF.) (g) Articles and Bylaws. Complete and accurate copies of the Articles of Incorporation and Bylaws of HLHK, together with all amendments thereto to the date hereof. (Schedule GG.) (h) Shareholders. A complete list of all persons or entities holding capital stock of HLHK or any rights to subscribe for, acquire, or receive shares of the capital stock of HLHK (whether warrants, calls, options, or conversion rights), including copies of all stock 8 option plans whether qualified or nonqualified, and other similar agreements. (Schedule HH.) (i) Officers and Directors. A complete and current list of all officers and Directors of HLHK. (Schedule II.) (j) Salary Schedule. A complete and accurate list (in all material respects) of the names and the current salary rate or each present employee of HLHK who received $1,000 or more in aggregate compensation from HLHK whether in salary, bonus or otherwise, during the year 1995, or who is presently scheduled to receive from HLHK a salary in excess of $1,000.00 during the year ending December 31, 1996, including in each case the amount of compensation received or scheduled to be received, and a schedule of the hourly rates of all other employees listed according to departments. (Schedule JJ.) (k) Litigation. A complete and accurate list (in all material respects) of all material civil, criminal, administrative, arbitration or other such proceedings or investigations (including without limitations unfair labor practice matters, labor organization activities, environmental matters and civil rights violations) pending or, to the knowledge of HLHK threatened, which may materially and adversely affect HLHK. (Schedule KK.) (l) Tax Returns. Accurate copies of all Federal and State tax returns for HLHK, if any. (Schedule LL.) (m) Agency Reports. Copies of all material reports or filings (and a list of the categories of reports or filings made on a regular basis) made by HLHK under ERISA, EEOC, FDA and all other governmental agencies (federal, state or local). (Schedule MM.) (n) Jurisdictions Where Qualified. A list of all jurisdictions wherein HLHK is qualified to do business and is in good standing. (Schedule NN.) (o) Subsidiaries. A complete list of all subsidiaries of HLHK. (Schedule OO.) The term "Subsidiary" or "Subsidiaries" shall include corporations, unincorporated associations, partnerships, joint ventures, or similar entities in which HLHK has an interest, direct or indirect. (p) Employee and Consultant Contracts. A complete and accurate list of all employee and consultant contracts which HLHK may have, other than those listed in the schedule on Union Matters. (Schedule PP.) (q) Employee Benefit Plans. Complete and accurate copies of all salary, stock option, bonus, incentive compensation, deferred compensation, profit sharing, retirement, pension, group insurance, disability, death benefit or other benefit plans, trust agreements or arrangements of HLHK in effect on the date hereof or to become effective after the date 9 thereof, together with copies of any determination letters issued by the Internal Revenue Service with respect thereto. (Schedule QQ.) (r) Insurance Policies. A complete and accurate list (in all material respects) and description of all material insurance policies naming HLHK as an insured or beneficiary or as a loss payable payee or for which HLHK has paid all or part of the premium in force on the date hereof, specifying any notice or other information possessed by HLHK regarding possible claims thereunder, cancellation thereof or premium increases thereon, including any policies now in effect naming HLHK as beneficiary covering the business activities of HLHK. (Schedule RR.) (s) Customers. A complete and accurate list (in all material respects) of the customers of HLHK, including all presently effective contracts of HLHK to be assigned to HLHK, accounting for the principle revenues of HLHK, indicating the dollar amounts of gross revenues of each such customer for the period ended December 31, 1995. (Schedule SS.) (t) Licenses and Permits. A complete list of all licenses, permits and other authorizations of HLHK. (Schedule TT.) 4.02 Organization, Standing and Power. HLHK is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada with all requisite corporate power to own or lease its properties and carry on its business as is now being conducted. 4.03 Qualification. HLHK is duly qualified and licensed as a foreign corporation authorized to do business in each jurisdiction wherein it conducts business operations. Such jurisdictions, which are the only jurisdictions in which HLHK is duly qualified and licensed as a foreign corporation, is shown in Schedule OO. 4.04 Capitalization of HLHK. The authorized capital stock of HLHK consists of 2,500,000 shares of Common Stock, of which the only shares issued and outstanding are 1,000 shares issued to the shareholders listed on Schedule HH, which shares were duly authorized, validly issued and fully paid and nonassessable. There are no preemptive rights with respect to the HLHK stock. 4.05 Authority. The execution and delivery of this Agreement and consummation of the transactions contemplated herein have been duly authorized by all necessary corporate action, including but not limited to duly and validly authorized action and approval by the Board of Directors, on the part of HLHK. This Agreement constitutes the valid and binding obligation of HLHK, enforceable against it in accordance with its terms, subject to the principles of equity applicable to the availability of the remedy of specific performance. This Agreement has been duly executed by HLHK and the execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement shall not result in any breach of any terms or provisions of HLHK's Articles of Incorporation or Bylaws or of any other agreement, court order or instrument to which HLHK is 10 a party or bound. 4.06 Absence of Undisclosed Liabilities. HLHK has no material liabilities of any nature, whether fixed, absolute, contingent or accrued, which were not reflected on the financial statements set forth in Schedule AA or otherwise disclosed in this Agreement or any of the Schedules or Exhibits attached hereto. 4.07 Absence of Changes. Since November 7, 1996, there has not been any material adverse change in the condition (financial or otherwise), assets, liabilities, earnings or business of HLHK, except for changes resulting from completion of those transactions described in Section 5.02. 4.08 Tax Matters. All taxes and other assessments and levies which HLHK is required by law to withhold or to collect have been duly withheld and collected, and have been paid over to the proper government authorities or are held by HLHK in separate bank accounts for such payment or are represented by depository receipts, and all such withholdings and collections and all other payments due in connection therewith (including, without limitation, employment taxes, both the employee's and employer's share) have been paid over to the government or placed in a separate and segregated bank account for such purpose. There are no known deficiencies in income taxes for any periods and further, the representations and warranties as to absence of undisclosed liabilities contained in Section 4.06 includes any and all tax liabilities of whatsoever kind or nature (including, without limitation, all federal, state, local and foreign income, profit, franchise, sales, use and property taxes) due or to become due, incurred in respect of or measured by HLHK income or business prior to the Closing Date. 4.09 Options, Warrants, etc. Except as otherwise described in Schedule HH, there are no outstanding options, warrants, calls, commitments or agreements of any character to which HLHK or its shareholders are a party or by which HLHK or its shareholders are bound, or are a party, calling for the issuance of shares of capital stock of HLHK or any securities representing the right to purchase or otherwise receive any such capital stock of HLHK. 4.10 Title to Assets. Except for liens set forth in Schedule CC, HLHK is the sole and unconditional owner of, with good and marketable title to, all the assets listed in the schedules as owned by them and all other property and assets are free and clear of all mortgages, liens, pledges, charges or encumbrances of any nature whatsoever. 4.11 Agreements in Force and Effect. Except as set forth in Schedules DD and EE, all material contracts, agreements, plans, promissory notes, mortgages, leases, policies, licenses, franchises or similar instruments to which HLHK is a party are valid and in full force and effect on the date hereof, and HLHK has not breached any material provision of, and is not in default in any material respect under the terms of, any such contract, agreement, plan, promissory note, mortgage, lease, policy, license, franchise or similar instrument which breach or default would have a material adverse effect upon the business, operations or financial condition of HLHK. 11 4.12 Legal Proceedings, Etc. Except as set forth in Schedule KK, there are no civil, criminal, administrative, arbitration or other such proceedings or investigations pending or, to the knowledge of HLHK, threatened, in which, individually or in the aggregate, an adverse determination would materially and adversely affect the assets, properties, business or income of HLHK. HLHK has substantially complied with, and is not in default in any material respect under, any laws, ordinances, requirements, regulations or orders applicable to its businesses. 4.13 Governmental Regulation. To the knowledge of HLHK and except as set forth in Schedule KK, HLHK is not in violation of or in default with respect to any applicable law or any applicable rule, regulation, order, writ or decree of any court or any governmental commission, board, bureau, agency or instrumentality, or delinquent with respect to any report required to be filed with any governmental commission, board, bureau, agency or instrumentality which violation or default could have a material adverse effect upon the business, operations or financial condition of HLHK. 4.14 Broker and Finders. Kendrex shall be solely responsible for payment to any broker or finder retained by HLHK for any brokerage fees, commissions or finders' fees in connection with the transactions contemplated herein. 4.15 Accuracy of Information. No representation or warranty by HLHK contained in this Agreement and no statement contained in any certificate or other instrument delivered or to be delivered to Kendrex pursuant hereto or in connection with the transactions contemplated hereby (including without limitation all Schedules and Exhibits hereto) contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact necessary in order to make the statements contained herein or therein not misleading. 4.16 Subsidiaries. Except as listed in Schedule PP, HLHK does not have any other subsidiaries or own capital stock representing ten percent (10%) or more of the issued and outstanding stock of any other corporation. 4.17 Consents. Except as listed in Schedule FF, no consent or approval of, or registration, qualification or filing with, any other governmental authority or other person is required to be obtained or accomplished by HLHK or any shareholder thereof, in connection with the consummation of the transactions contemplated hereby. 4.18 Improper Payments. No person acting on behalf of HLHK has made any payment or otherwise transmitted anything of value, directly or indirectly, to (a) any official or any government or agency or political subdivision thereof for the purpose of influencing any decision affecting the business of HLHK, or (b) any political party or any candidate for elective political office, nor has any fund or other asset of HLHK been maintained that was not fully and accurately recorded on the books of account of HLHK. 12 4.19 Copies of Documents. HLHK has made available for inspection and copying by Kendrex and its duly authorized representatives, and will continue to do so at all times, true and correct copies of all documents which it has filed with any governmental agencies which are material to the terms and conditions contained in this Agreement. Furthermore, all filings by HLHK with governmental agencies, including but not limited to the Internal Revenue Service, have contained information which is true and correct in all material respects and did not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements made therein not misleading or which could have any material adverse effect upon the financial condition or operations of HLHK or adversely affect the objectives of this Agreement. 4.20 Investment Intent of Shareholders. Each shareholder of HLHK represents and warrants to Kendrex that the shares of Kendrex being acquired pursuant to this Agreement are being acquired for his own account and for investment and not with a view to the public resale or distribution of such shares and further acknowledges that the shares being issued have not been registered under the Securities Act and are "restricted securities" as that term is defined in Rule 144 promulgated under the Securities Act and must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. ARTICLE 5 CONDUCT AND TRANSACTIONS PRIOR TO THE EFFECTIVE TIME OF THE ACQUISITION 5.01 Conduct and Transactions of Kendrex. During the period from the date hereof to the date of Closing, Kendrex shall: (a) Conduct its operations in the ordinary course of business, including but not limited to, paying all obligations as they mature, complying with all applicable tax laws, filing all tax returns required to be filed and paying all taxes due; (b) Maintain its records and books of account in a manner that fairly and correctly reflects its income, expenses, assets and liabilities. (c) Submit Resolution to Shareholders to approve a 1 for 5 reverse split of the outstanding shares of Kendrex. Kendrex shall not during such period, except in the ordinary course of business, without the prior written consent of HLHK: (a) Except as otherwise contemplated or required by this Agreement, sell, dispose of or encumber any of its properties or assets; (b) Except as set forth in paragraph 5.01(c), declare or pay any dividends on shares of its capital stock or make any other distribution of assets to the holders thereof; 13 (c) Issue, reissue or sell, or issue options or rights to subscribe to, or enter into any contract or commitment to issue, reissue or sell, any shares of its capital stock or acquire or agree to acquire any shares of its capital stock; (d) Except as otherwise contemplated and required by this Agreement, amend its Articles of Incorporation or merge or consolidate with or into any other corporation or sell all or substantially all of its assets or change in any manner the rights of its capital stock or other securities; (e) Except as contemplated or required by this Agreement, pay or incur any obligation or liability, direct or contingent, of more than $1,000; (f) Incur any indebtedness for borrowed money, assume, guarantee, endorse or otherwise become responsible for obligations of any other party, or make loans or advances to any other party; (g) Make any material change in its insurance coverage; (h) Increase in any manner the compensation, direct or indirect, of any of its officers or executive employees; except in accordance with existing employment contracts; (i) Enter into any agreement or make any commitment to any labor union or organization; (j) Make any capital expenditures. 5.02 Conduct and Transactions of HLHK. During the period from the date hereof to the date of Closing, HLHK shall: (a) Obtain an investment letter from each shareholder of HLHK in a form substantially like that attached hereto as Exhibit B. (b) Conduct the operations of HLHK in the ordinary course of business. HLHK shall not during such period, except in the ordinary course of business, without the prior written consent of Kendrex: (a) Except as otherwise contemplated or required by this Agreement, sell, dispose of or encumber any of the properties or assets of HLHK; (b) Declare or pay any dividends on shares of its capital stock or make any other distribution of assets to the holders thereof; 14 (c) Issue, reissue or sell, or issue options or rights to subscribe to, or enter into any contract or commitment to issue, reissue or sell, any shares of its capital stock or acquire or agree to acquire any shares of its capital stock; (d) Except as otherwise contemplated and required by this Agreement, amend its Articles of Incorporation or merge or consolidate with or into any other corporation or sell all or substantially all of its assets or change in any manner the rights of its capital stock or other securities; (e) Except as otherwise contemplated and required by this Agreement, pay or incur any obligation or liability, direct or contingent, of more than $1,000; (f) Incur any indebtedness for borrowed money, assume, guarantee, endorse or otherwise become responsible for obligations of any other party, or make loans or advances to any other party; (g) Make any material change in its insurance coverage; (h) Increase in any manner the compensation, direct or indirect, of any of its officers or executive employees; except in accordance with existing employment contracts; (i) Enter into any agreement or make any commitment to any labor union or organization; (j) Make any material capital expenditures. (k) Allow any of the foregoing actions to be taken by any subsidiary of HLHK. ARTICLE 6 RIGHTS OF INSPECTION 6.01 During the period from the date of this Agreement to the date of Closing of the acquisition, Kendrex and HLHK agree to use their best efforts to give the other party, including its representatives and agents, full access to the premises, books and records of each of the entities, and to furnish the other with such financial and operating data and other information including, but not limited to, copies of all legal documents and instruments referred to on any schedule or exhibit hereto, with respect to the business and properties of Kendrex or HLHK, as the case may be, as the other shall from time to time request; provided, however, if there are any such investigations: (1) they shall be conducted in such manner as not to unreasonably interfere with the operation of the business of the other parties and (2) such right of inspection shall not affect in any way whatsoever any of the representations or warranties given by the respective parties hereunder. In the event of termination of this Agreement, Kendrex and HLHK will each return to 15 the other all documents, work papers and other materials obtained from the other party in connection with the transactions contemplated hereby, and will take such other steps necessary to protect the confidentiality of such material. ARTICLE 7 CONDITIONS TO CLOSING 7.01 Conditions to Obligations of HLHK. The obligation of HLHK to perform this Agreement is subject to the satisfaction of the following conditions on or before the Closing unless waived in writing by HLHK. (a) Representations and Warranties. There shall be no information disclosed in the schedules delivered by Kendrex which in the opinion of HLHK would materially adversely affect the proposed transaction and intent of the parties as set forth in this Agreement. The representations and warranties of Kendrex set forth in Article 3 hereof shall be true and correct in all material respects as of the date of this Agreement and as of the Closing as though made on and as of the Closing except as otherwise permitted by this Agreement. (b) Performance of Obligations. Kendrex shall have in all material respects performed all agreements required to be performed by it under this Agreement and shall have performed in all material respects any actions contemplated by this Agreement prior to or on the Closing and Kendrex shall have complied in all material respects with the course of conduct required by this Agreement. (c) Corporate Action. Kendrex shall have furnished minutes, certified copies of corporate resolutions and/or other documentary evidence satisfactory to counsel for HLHK that Kendrex has submitted with this Agreement and any other documents required hereby to such parties for approval as provided by applicable law. (d) Consents. Execution of this Agreement by the shareholders of HLHK and any consents necessary for or approval of any party listed on any Schedule delivered by Kendrex whose consent or approval is required pursuant thereto shall have been obtained. (e) Financial Statements. HLHK shall have been furnished with audited financial statements of Kendrex including, but not limited to, balance sheets and profit and loss statements from inception through December 31, 1995 and unaudited financial statements from January 1, 1996 to October 31, 1996. Such financial statements shall have been prepared in conformity with generally accepted accounting principles on a basis consistent with those of prior periods and fairly present the financial position of Kendrex as of October 31, 1996. (f) Statutory Requirements. All statutory requirements for the valid consummation by Kendrex of the transactions contemplated by this Agreement shall have been fulfilled. 16 (g) Governmental Approval. All authorizations, consents, approvals, permits and orders of all federal and state governmental agencies required to be obtained by Kendrex for consummation of the transactions contemplated by this Agreement shall have been obtained. (h) Changes in Financial Condition of Kendrex. There shall not have occurred any material adverse change in the financial condition or in the operations of the business of Kendrex, except expenditures in furtherance of this Agreement. (i) Absence of Pending Litigation. Kendrex is not engaged in or threatened with any suit, action, or legal, administrative or other proceedings or governmental investigations pertaining to this Agreement or the consummation of the transactions contemplated hereunder. (j) Authorization for Issuance of Stock. HLHK shall have received in form and substance satisfactory to counsel for HLHK a letter instructing and authorizing the Registrar and Transfer Agent for the shares of common stock of Kendrex to issue stock certificates representing ownership of Kendrex common stock to HLHK shareholders in accordance with the terms of this Agreement and a letter from said Registrar and Transfer Agent acknowledging receipt of the letter of instruction and stating to the effect that the Registrar and Transfer Agent holds adequate supplies of stock certificates necessary to comply with the letter of instruction and the terms and conditions of this Agreement. (k) Shareholder Approval. Kendrex shareholders shall have (i) approved a one for five reverse split of its outstanding shares, prior to issuance of shares to HLHK under Section 1.01; (ii) approved a change of the name of Kendrex to HLHK World Group, Inc.; (iii) elected the following persons to the Board of Directors of Kendrex: Harry Kay, Francis M. Fillerup, John E. Dempsey, E. Gregory George, and Velma Tronolone; and (iv) approved the Agreement and Plan of Reorganization. 7.02 Conditions to Obligations of Kendrex. The obligation of Kendrex to perform this Agreement is subject to the satisfaction of the following conditions on or before the Closing unless waived in writing by Kendrex. (a) Representations and Warranties. There shall be no information disclosed in the schedules delivered by HLHK, which in the opinion of Kendrex, would materially adversely affect the proposed transaction and intent of the parties as set forth in this Agreement. The representations and warranties of HLHK set forth in Article 4 hereof shall be true and correct in all material respects as of the date of this Agreement and as of the Closing as though made on and is of the Closing, except as otherwise permitted by this Agreement. 17 (b) Performance of Obligations. HLHK shall have in all material respects performed all agreements required to be performed by it under this Agreement and shall have performed in all material respects any actions contemplated by this Agreement prior to or on the Closing and HLHK shall have complied in all respects with the course of conduct required by this Agreement. (c) Corporate Action. HLHK shall have furnished minutes, certified copies of corporate resolutions and/or other documentary evidence satisfactory to Counsel for Kendrex that HLHK has submitted with this Agreement and any other documents required hereby to such parties for approval as provided by applicable law. (d) Consents. Any consents necessary for or approval of any party listed on any Schedule delivered by HLHK, whose consent or approval is required pursuant thereto, shall have been obtained. (e) Financial Statements. Kendrex shall have been furnished with audited financial statements of HLHK including, but not limited to, balance sheets and profit and loss statements from inception through November 7, 1996. (f) Statutory Requirements. All statutory requirements for the valid consummation by HLHK of the transactions contemplated by this Agreement shall have been fulfilled. (g) Governmental Approval. All authorizations, consents, approvals, permits and orders of all federal and state governmental agencies required to be obtained by HLHK for consummation of the transactions contemplated by this Agreement shall have been obtained. (h) Employment Agreements. Existing HLHK employment agreements will have been delivered to counsel for Kendrex. (i) Changes in Financial Condition of HLHK. There shall not have occurred any material adverse change in the financial condition or in the operations of the business of HLHK except expenditures in furtherance of this Agreement. (j) Absence of Pending Litigation. HLHK is not engaged in or threatened with any suit, action, or legal, administrative or other proceedings or governmental investigations pertaining to this Agreement or the consummation of the transactions contemplated hereunder. (k) Shareholder Approval. The Kendrex shareholders shall have (i) approved a one for five reverse split of its outstanding shares, prior to issuance of shares to HLHK under Section 1.01; (ii) approved a change of the name of Kendrex to HLHK World Group, Inc.; (iii) elected the following persons to the Board of Directors of Kendrex: Harry Kay. 18 Francis M. Fillerup, John E. Dempsey, E. Gregory George and Velma Tronolone; (iv) approved the Agreement and Plan of Reorganization. ARTICLE 8 MATTERS SUBSEQUENT TO CLOSING 8.01 Covenant of Further Assurance. The parties covenant and agree that they shall, from time to time, execute and deliver or cause to be executed and delivered all such further instruments of conveyance, transfer, assignments, receipts and other instruments, and shall take or cause to be taken such further or other actions as the other party or parties to this Agreement may reasonably deem necessary in order to carry out the purposes and intent of this Agreement. ARTICLE 9 NATURE AND SURVIVAL OF REPRESENTATIONS 9.01 All statements contained in any written certificate, schedule, exhibit or other written instrument delivered by Kendrex or HLHK pursuant hereto, or otherwise adopted by Kendrex, by its written approval, or by HLHK by its written approval, or in connection with the transactions contemplated hereby, shall be deemed representations and warranties by Kendrex or HLHK as the case may be. All representations warranties and agreements made by either party shall survive for the period of the applicable statute of limitations and until the discovery of any claim, loss, liability or other matter based on fraud, if longer. ARTICLE 10 TERMINATION OF AGREEMENT AND ABANDONMENT OF REORGANIZATION 10.01 Termination. Anything herein to the contrary notwithstanding, this Agreement and any agreement executed as required hereunder and the acquisition contemplated hereby may be terminated at any time before the Closing as follows: (a) By mutual written consent of the Boards of Directors of Kendrex and HLHK (b) By the Board of Directors of Kendrex if any of the conditions set forth in Section 7.02 shall not have been satisfied by the Closing Date. (c) By the Board of Directors of HLHK if any of the conditions set forth in Section 7.01 shall not have been satisfied by the Closing Date. 10.02 Termination of Obligations and Waiver of Conditions; Payment of Expenses. In the event this Agreement and the acquisition are terminated and abandoned pursuant to this Article 10 hereof, this Agreement shall become void and of no force and effect and there shall be no liability on the part of any of the parties hereto, or their respective directors, officers, shareholders or 19 controlling persons to each other. Each party hereto will pay all costs and expenses incident to its negotiation and preparation of this Agreement and any of the documents evidencing the transactions contemplated hereby, including fees, expenses and disbursements of counsel. ARTICLE 11 EXCHANGE OF SHARES; FRACTIONAL SHARES 11.01 Exchange of Shares. At the Closing, Kendrex shall issue a letter to the transfer agent of Kendrex with a copy of the resolution of the Board of Directors of Kendrex authorizing and directing the issuance of Kendrex shares as set forth on Exhibit A to this Agreement. 11.02 Restrictions on Shares Issued to HLHK. Due to the fact that HLHK will receive shares of Kendrex common stock in connection with the acquisition which have not been registered under the 1933 Act by virtue of the exemption provided in Section 4(2) of such Act, those shares of Kemdrex will contain the following legend: The shares represented by this certificate have not been registered under the Securities Act of 1933. The shares have been acquired for investment and may not be sold or offered for sale in the absence of an effective Registration Statement for the shares under the Securities Act of 1933 or an opinion of counsel to the Corporation that such registration is required. ARTICLE 12 MISCELLANEOUS 12.01 Construction. This Agreement shall be construed and enforced in accordance with the laws of the State of California excluding the conficts of laws. 12.02 Notices. All notices necessary or appropriate under this Agreement shall be effective when personally delivered or deposited in the United States mail, postage prepaid, certified or registered, return receipt requested, and addressed to the parties last known address which addresses are currently as follows: If to "Kendrex" If to "HLHK" Kendrex Systems, Inc. HLHK World Group, Inc. 12722 Craigwood Lane 3361 Westwind Road Cypress, Texas 77429 Las Vegas, Nevada 89102 20 With copies to: Ronald L. Poulton, Esq. 4 Triad Center, Suite 500-A Salt Lake City, Utah 84180 12.03 Amendment and Waiver. The parties hereby may, by mutual agreement in writing signed by each party, amend this Agreement in any respect. Any term or provision of this Agreement may be waived in writing at any time by the party which is entitled to the benefits thereof, such waiver right shall include, but not be limited to, the right of either party to: (a) Extend the time for the performance of any of the obligations of the other; (b) Waive any inaccuracies in representations by the other contained in this Agreement, or in any document delivered pursuant hereto; (c) Waive compliance by the other with any of the covenants contained in this Agreement, and performance of any obligations by the other; and (d) Waive the fulfillment of any condition that is precedent to the performance by the party so waiving of any of its obligations under this Agreement. Any writing on the part of a party relating to such amendment, extension or waiver as provided in this Section 12.03 shall be valid if authorized or ratified by the Board of Directors of such party. 12.04 Remedies not Exclusive. No remedy conferred by any of the specific provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. The election of any one or more remedies by Kendrex or HLHK shall not constitute a waiver of the right to pursue other available remedies. 12.05 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 12.06 Benefit. This Agreement shall be binding upon, and inure to the benefit of, the respective successors and assigns of Kendrex and HLHK and its shareholders. 12.07 Entire Agreement. This Agreement and the Schedules and Exhibits attached hereto, represent the entire agreement of the undersigned regarding the subject matter hereof, and supersedes all prior written or oral understandings or agreements between the parties. 12.08 Each Party to Bear its Own Expense. Kendrex and HLHK shall each bear their own respective expenses incurred in connection with the negotiation, execution, closing, and 21 performance of this Agreement, including counsel fees and accountant fees. 12.09 Captions and Section Headings. Captions and section headings used herein are for convenience only and shall not control or affect the meaning or construction of any provision of this Agreement. Executed as of the date first written above. "Kendrex" "HLHK" Kendrex Systems, Inc., HLHK World Group, Inc. a Nevada corporation a Nevada corporation By: /s/ Harry Kay By: /s/ Harry Kay -------------------------- ------------------------------ Harry Kay, President Harry Kay, President 22 EX-2.2 3 TRIMFAST, INC. ACQUISITION STOCK EXCHANGE AGREEMENT This Stock Exchange Agreement (the "AGREEMENT") dated as of the 12th day of August, 1998, is by and amongst HLHK World GROUP, INC., a Nevada corporation (hereinafter referred to as "Buyer"), MICHAEL MUZIO and those shareholders identified on the attached Exhibit A (hereinafter referred to as the "Shareholders") and TrimFast Inc. a Florida corporation, (hereinafter referred to as the "Company"). The Shareholders and the Company may jointly be referred to as "Seller". WHEREAS, the respective Board of Directors of Buyer and the Company deem the acquisition by Buyer of all of the issued and outstanding capital stock of the Company on the terms set forth in this Agreement to be desirable, generally to the welfare and advantage of each, and in the best interests of the shareholders of each; NOW, THEREFORE, in consideration of the premises and the mutual agreements and covenants herein contained, and for the purpose of prescribing the terms and conditions of such acquisition, the mode of carrying it into effect, and such other details and provisions as are necessary or desirable, the parties hereto hereby represent, warrant, covenant and agree as follows: ARTICLE I PLAN OF AGREEMENT 1.01 Number of Shares. Subject to the further conditions of this Agreement and the truth of the representations and warranties provided herein, the Shareholders agrees to transfer to Buyer at the Closing a total of _______________ shares of common stock (the "Shares"), said Shares representing all of the issued and outstanding shares of common stock of the Company owned by the Shareholders duly endorsed for transfer in exchange for a total of 13,466,248 shares of the $.001 par value common stock of the Buyer. (Each of the shareholders will receive ___ shares of the Buyer for each and every share of common stock owned by them in the Company. The shares of the Buyer to be issued to the Shareholders will be restricted securities as that term is defined under the Securities Act of 1933, as amended. Notwithstanding the foregoing, any shares to be issued to Muzio will be subject to the following terms and conditions. At Closing, Muzio will receive a total of 9,750,000 million shares free and clear of all liens or encumbrances except for 1 the restriction on transfer under Rule 144. The remaining shares will be held in Escrow, by Jeffrey Klein P.A. subject to the following terms and conditions: On or before December 31, 1999, TrimFast must provide the Buyer with audited financial statements indicating a net worth (assets less liabilities) of at least $2 million. Upon presentation to the Escrow Agent of financial statements indicating a net worth of $2 million, Escrow Agent shall release the remaining shares of common stock to Muzio. If Muzio does not provide the required audited financial statements to the Escrow Agent by March 15, 2000, on Notice to the Escrow Agent, Escrow Agent shall deliver the escrowed shares to the Company and the Company shall then deliver the escrowed shares to the transfer agent for cancellation. During such time as the escrowed shares are held by the Escrow Agent, all rights, title and interest to the Shares shall be vested with Muzio except that Muzio shall be prohibited from assigning, encumbering or hypothecating any of the escrowed shares. ARTICLE II REPRESENTATIONS AND WARRANTIES OF Company AND THE SHAREHOLDER The Company and Michael Muzio, the principal shareholder of TRIMFAST, Inc., represent and warrant to Buyer that: 2.01 Incorporation, Common Stock, Etc. Company is a corporation duly organized and existing in good standing under the laws of the State of Florida. Attached hereto as Exhibit 2.01 is the Company's good standing certificate. Company has full corporate power and authority to carry on its business as it is now being conducted and to own and operate its assets, businesses and properties. Company has authorized capital stock consisting of _____________ shares of Common Stock, par value ____________ per share, of which ___________ shares are issued and outstanding. There are and at the Closing will be no outstanding subscriptions, options, warrants, convertible securities, calls, commitments or agreements calling for or requiring issuance or transfer, sale or other disposition of any shares of capital stock of the Company or calling for or requiring the issuance of any securities or rights convertible into or exchangeable (including on a contingent basis) for shares of capital stock. All of the outstanding shares of the Company are duly authorized, validly issued, fully paid and non-assessable. There 2 are no dividends due, to be paid or are in arrears with respect to any of the capital stock of Company. 2.02 Company Financial Statements. Attached hereto as Schedule 2.02 are the most recent financial statements for the Company dated June 30, 1998. The Company Balance Sheet and Income Statement present fairly the financial position of the Company as of the dates set forth in the financial statements. The Balance Sheet has been prepared in conformity with generally accepted accounting principles. There has been no material change in the financial condition of the Company since the date of the financial statements. All liabilities of the Company are set forth in the financial statements and there are no undisclosed liabilities of any kind or nature. The Company further agrees to provide the Buyer within 60 days of closing with certified financial statements in conformity with Securities and Exchange Commission reporting requirements. If the Company is unable to provide the required certified financial statements or, the certified financial statements reflect a material change in the financial condition of the Company (defined as a change of more than 30% of the assets or Net Worth from that which was represented in the June 30, 1998 financial statements, then in that event the Buyer may, in its sole and absolute discretion and in addition to any remedies available at law, rescind this Agreement. 2.03 Litigation. There are no actions, suits, proceedings, or investigations pending or, to the best of its knowledge, threatened or contemplated against Company at law or in equity, before any federal, state, municipal or other governmental department, commission, board, agency or instrumentality, domestic or foreign. The Company is not subject to any outstanding judgments or operating under or subject to or in default with respect to any order, writ, injunction or decree of any court or federal, state, municipal or other governmental department, commission, board, agency or instrumentality, domestic or foreign. 2.04 Compliance with Laws. The Company has complied in all material respects with all laws, regulations, orders, domestic and foreign, and neither the present uses by Company of its properties nor the conduct of its business violate any such laws, regulations, orders or requirements, and except as set forth in Schedule 2.04 (if applicable) the Company has not received any notice of any claim or assertion that it is not so in compliance. In addition, the sale by the 3 Company of its vitamins and food supplements are in compliance with all applicable state and federal guidelines and that the Company has obtained any required Federal Drug Administration approvals. 2.05 Indebtedness. Except as set forth in the Company Balance Sheet, Company has not executed any instruments, entered into any agreements or arrangements pursuant to which the Company has borrowed any money, incurred or guaranteed any indebtedness or established any line of credit which represents a liability of the Company as of the date thereof. 2.06 No Material Adverse Change. Since the Company Balance Sheet Date, there has not been any material adverse change in the condition, financial or otherwise, of the Company or in its business taken as a whole; nor has there been any material transaction entered into by the Company. The Company has not incurred any material obligations, contingent or otherwise except for legal and accounting fees and expenses in connection with the transactions contemplated by this Agreement. There has not been any damage, destruction or loss, whether or not covered by insurance adversely affecting the Company's business, property or assets; nor has the Company (a) created or incurred any indebtedness; (b) issued, sold, purchased, redeemed or granted any shares of Company Common Stock or any other securities of Company or any options, warrants or other rights to purchase any shares of Company Common Stock except as between and amongst its current shareholders; (c) amended its Certificate of Incorporation or bylaws, (d) paid any obligation or liability other than obligations or liabilities reflected in its Balance Sheet dated as of the Company Balance Sheet Date or incurred any liabilities except for legal and accounting fees and disbursements incurred in the ordinary course of business or in connection with this Agreement and the transactions contemplated hereby. 2.07 No Defaults. Neither the execution nor delivery of this Agreement nor the consummation of the contemplated transaction are events which, of themselves or with the giving of notice or passage of time or both, could constitute a violation of or conflict with or result in any breach of or default under the terms, conditions or provisions of any judgment, law or regulation or of the Company's Certificate of Incorporation or Bylaws, or of any agreement or instrument to which Company is a party or by which it is bound; or could result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever on the 4 property or assets of Company; and no consent of any third party except as expressly contemplated herein is required for the consummation of this Agreement by Company. 2.08 Corporate Action of Company. The Board of Directors of the Company has duly authorized the execution and delivery of this Agreement. Subject to the approval of the stockholders of the Company as provided herein, this Agreement constitutes a valid, legal and binding agreement of Company and is enforceable in accordance with its terms. 2.09 Liabilities. As of the Company Balance Sheet Date, the Company has incurred no other liabilities except in the ordinary course of business. 2.10 Taxes. Except as set forth on Schedule 2.10, all federal, state, and local tax returns, reports and declarations of estimated tax or estimated tax deposit forms required to be filed by Company have been duly filed; the Company has paid all taxes which have become due pursuant to such returns or pursuant to any assessment received by it, and has paid all installments of estimated taxes due; and all taxes, levies and other assessments which Company is required by law to withhold or to collect have been duly withheld and collected and have been paid over to the proper governmental authorities. Company has no knowledge of any tax deficiency which has been or might be asserted against Company which would materially and adversely affect the business or operations of Company. At Closing, the Company shall provide Buyer with copies of all tax returns, of any kind or nature, filed by Company, together with all accounting information. 2.11 Title to Property; Leases. Company has good and defensible title in fee simple to, or valid and enforceable leasehold estates in, all properties and assets, which are material to its continued operations, free and clear of all liens, encumbrances, charges or restrictions or are not materially significant or important in relation to its operations and business. All of such leases and subleases under which Company is the lessor or sublessor, lessee or sublessee of properties or assets or under which Company holds properties or assets as lessee or sublessee are in full force and effect. Company is not in default in respect of any of the terms or provisions of any of such leases or subleases, and no claim has been asserted by anyone adverse to their respective rights as lessor, sublessor, lessee or sublessee under any of the leases or subleases mentioned above, or 5 affecting or questioning their respective rights to continued possession of the leased or subleased premises or assets under any such lease or sublease; and Company either owns or leases all such properties as are necessary to its operations as now conducted. Attached hereto and marked Exhibit 2.11 are copies of all leasehold obligations for which Company is bound. In addition to the matters set forth above, the Company and Muzio warrant and represent that all assets previously titled, owned or controlled by TRIMFAST Holdings Inc. have been validly transferred to TRIMFAST Inc. and there are no claims of any kind or nature, which could arise from the transfer of any assets from TRIMFAST Holdings, Inc. to TRIMFAST Inc. 2.12 Licenses. The Company has obtained all required licenses, permits or other governmental authorization for the conduct of its business as now being conducted. 2.13 Bank Accounts. Attached hereto as schedule 2.13 is a listing of all bank accounts and account numbers which are currently held by Company. 2.14 Contracts and Commitments. Except as set forth in Exhibit 2.14, there are no contracts nor commitments of Company requiring any future payment to an officer, director, employee, agent or shareholder of Company. Also attached and marked as Exhibit 2.14 is a list of all current Company employees and the salary of each. 2.15 Representations True and Correct. This Agreement and the Schedules and Exhibits attached hereto do not contain any untrue statement of a material fact concerning Company or omits any material fact concerning Company which is necessary in order to make the statements therein not misleading. All of the representations and warranties contained herein (including all statements contained in any certificate or other instrument delivered by or on behalf of the Shareholders pursuant hereto or in connection with the transactions contemplated hereby) shall survive the Closing. 2.16 Retirement Plans. Company has no pension plan, profit sharing or similar employee benefit plan. 2.17 Intellectual Property Rights. Attached hereto as Exhibit 2.17 is a list of all trademarks and trade names which are owned by the Company together with copies of any official notice from any issuing governing organization. 6 2.18 Matters related to Phillip Cook, Momentum Capital Funding Corp. and TRIMFAST Holdings The Company and Muzio agree and acknowledge that a predecessor entity, TRIMFAST Holdings, Inc. previously offered securities to the shareholders identified in this Agreement and that Momentum Funding was identified as a principal shareholder of TRIMFAST Holdings, Inc. The Company and Muzio, as president, secretary and treasurer warrant and represent that TRIMFAST Holdings, Inc. has not issued any shares of common stock to either Cook, Momentum Funding or any entity under common control and that neither Cook nor any affiliate of Cook has any right, title or claim to the assets or common stock of Trim Fast Inc. 2.19 Indemnification. The Company and Muzio jointly and individually shall indemnify and hold Buyer, its officers and directors, harmless of and in respect of: (1) Any damage or loss resulting from any loss, any liability of any kind or nature which is not set forth in the financial statements, damage, misrepresentation, breach of warranty or non-fulfillment on the part of Company under this Agreement or from any misrepresentation or omission from any certificates or other instruments furnished to Company pursuant to this Agreement. (2) All actions, suits, proceedings, demands assessments, judgments, costs and expenses incident to any of the foregoing including reasonable attorney's fees and all costs incurred by Buyer to enforce this agreement against Company. ARTICLE III REPRESENTATIONS AND WARRANTIES OF Buyer Buyer represents and warrants to the Shareholder and Company that: 3.01 Incorporation, Common Stock, Etc. Buyer is a corporation duly organized and existing in good standing under the laws of the State of Nevada. A copy of the Buyer's good standing certificate is attached hereto. The Buyer has full corporate power and authority to carry on its business as it is now being conducted and to own and operate its assets, businesses and properties. The Buyer has authorized capital stock consisting of 100,000,000 shares of Common Stock, par value $.001 per share, of which 8,177,499 were outstanding as of July 27, 1998 shares are issued and outstanding. (Does not include 800,000 shares of common stock issued subsequent to the date of the most recent shareholder list. 7 All of the outstanding shares of the Company are duly authorized, validly issued, fully paid and non-assessable. There are no dividends due, to be paid or are in arrears with respect to any of the capital stock of Company. 3.02 Buyer Financial Statements. Attached hereto as Schedule 3.02 are the most recent financial statements for the Buyer dated _____________________. The Buyer Balance Sheet and Income Statement present fairly the financial position of Buyer as of the dates set forth in the financial statements. The Balance Sheet has been prepared in conformity with generally accepted accounting principles. There has been no material change in the financial condition of the Buyer since the date of the financial statements. All liabilities of the Buyer are set forth in the financial statements and there are no undisclosed liabilities of any kind or nature. 3.03 Litigation. Except as set forth on Exhibit 3.03 there are no actions, suits, proceedings, or investigations pending or, to the best of its knowledge, threatened or contemplated against Buyer at law or in equity, before any federal, state, municipal or other governmental department, commission, board, agency or instrumentality, domestic or foreign. The Buyer is not subject to any outstanding judgments or operating under or subject to or in default with respect to any order, writ, injunction or decree of any court or federal, state, municipal or other governmental department, commission, board, agency or instrumentality, domestic or foreign. 3.04 Compliance with Laws. The Buyer has complied in all material respects with all laws, regulations, orders, domestic and foreign, and neither the present uses by Buyer of its properties nor the conduct of its business violate any such laws, regulations, orders or requirements, and except as set forth in Schedule 3.04 (if applicable) the Buyer has not received any notice of any claim or assertion that it is not so in compliance. 3.05 Indebtedness. Except as set forth in the Buyer Balance Sheet, Buyer has not executed any instruments, entered into any agreements or arrangements pursuant to which Buyer has borrowed any money, incurred or guaranteed any indebtedness or established any line of credit which represents a 8 liability of Buyer as of the date thereof. 3.06 No Material Adverse Change. Since the Buyer Balance Sheet Date, there has not been any material adverse change in the condition, financial or otherwise, of Buyer or in its business taken as a whole; nor has there been any material transaction entered into by Buyer. Buyer has not incurred any material obligations, contingent or otherwise except for legal and accounting fees and expenses in connection with the transactions contemplated by this Agreement. There has not been any damage, destruction or loss, whether or not covered by insurance adversely affecting Buyer's business, property or assets; nor has Buyer (a) created or incurred any indebtedness; (b) amended its Certificate of Incorporation or bylaws, [ILLEGIBLE] paid any obligation or liability other than obligations or liabilities reflected in its Balance Sheet dated as of the Buyer Balance Sheet Date or incurred any liabilities except for legal and accounting fees and disbursements incurred in the ordinary course of business or in connection with this Agreement and the transactions contemplated hereby. 3.07 No Defaults. Neither the execution nor delivery of this Agreement nor the consummation of the contemplated transaction are events which, of themselves or with the giving of notice or passage of time or both, could constitute a violation of or conflict with or result in any breach of or default under the terms, conditions or provisions of any judgment, law or regulation or of Buyer's Certificate of Incorporation or Bylaws, or of any agreement or instrument to which Buyer is a party or by which it is bound; or could result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever on the property or assets of Buyer; and no consent of any third party except as expressly contemplated herein is required for the consummation of this Agreement by Buyer. 3.08 Corporate Action of Buyer. The Board of Directors of the Buyer has duly authorized the execution and delivery of this Agreement. This Agreement constitutes a valid, legal and binding agreement of Buyer and is enforceable in accordance with its terms. 3.09 Taxes. Except as set forth on Schedule 3.09, all federal, state, and local tax returns, reports and declarations of estimated tax or estimated tax deposit forms required to be filed by Buyer have been duly filed; Buyer has paid all taxes which have become due pursuant to such returns or pursuant to any assessment received by it, and has paid all installments of estimated taxes due; 9 and all taxes, levies and other assessments which Buyer is required by law to withhold or to collect have been duly withheld and collected and have been paid over to the proper governmental authorities. Buyer has no knowledge of any tax deficiency which has been or might be asserted against Buyer which would materially and adversely affect the business or operations of Buyer. 3.10 Title to Property; Leases. Buyer has good and defensible title in fee simple to, or valid and enforceable leasehold estates in, all properties and assets, which are material to its continued operations, free and clear of all liens, encumbrances, charges or restrictions except as set forth in the attached Schedule 3.11. or are not materially significant or important in relation to its operations and business. All of such leases and subleases under which Buyer is the lessor or sublessor, lessee or sublessee of properties or assets or under which Buyer holds properties or assets as lessee or sublessee are in full force and effect. Buyer is not in default in respect of any of the terms or provisions of any of such leases or subleases, and no claim has been asserted by anyone adverse to their respective rights as lessor, sublessor, lessee or sublessee under any of the leases or subleases mentioned above, or affecting or questioning their respective rights to continued possession of the leased or subleased premises or assets under any such lease or sublease; and Buyer either owns or leases all such properties as are necessary to its operations as now conducted. 3.11 Representations True and Correct. This Agreement and the Schedules and Exhibits attached hereto do not contain any untrue statement of a material fact concerning Buyer or omits any material fact concerning Buyer which is necessary in order to make the statements therein not misleading. All of the representations and warranties contained herein (including all statements contained in any certificate or other instrument delivered by or on behalf of the Buyer) shall survive the closing. 3.12 Indemnification. Buyer shall indemnify and hold Company, its officers and directors, harmless of and in respect of: (1) Any damage or loss resulting from any loss, liability, damage, misrepresentation, breach of warranty or non-fulfillment on the part of Buyer under this agreement or from any misrepresentation or omission from any certificates or other instrument furnished to Company pursuant to this agreement. (2) All actions, suits, proceedings, demands assessments, judgments, 10 costs and expenses incident to any of the foregoing including reasonable attorney's fees and all costs incurred by Company to enforce this agreement against Buyer. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER The Shareholders owns 100% of the issued and outstanding shares of stock of Company. The Shares are owned free and clear of any liens or encumbrances and that the Shareholder is free to transfer the Shares without the consent of any third party. Muzio warrants and represents that he has authority to execute this agreement on behalf of the other shareholders and to transfer the shares on behalf of the other named shareholders to the Buyer. ARTICLE V CONDITIONS TO THE OBLIGATIONS of Buyer TO CLOSE The obligations of Buyer under this Agreement are, at the option of Buyer, subject to the fulfillment of the following conditions at, or prior to, the closing date: 5.01 Representations, Warranties and Covenants. All representations and warranties of Company contained in this Agreement and in any statement, certificate, schedule or other document delivered by Company pursuant hereto or in connection herewith shall have been true and accurate in all respects as of the date when made and as of the Closing Date. 5.02 Covenants, Etc. Company shall have substantially performed and complied with each and every covenant, agreement and condition required by this Agreement to be performed or complied with by them prior to, or at, the Closing Date. 5.03 Certificate. Company shall have delivered to Buyer a certificate of the President and Secretary of Company, dated the Closing Date, certifying to the fulfillment of the conditions set forth in 5.01 and 5.02. 5.04 Proceedings. No action or proceedings shall have been instituted or threatened against the Company which could materially adversely affect the business of the Company. No action or proceedings shall have been instituted or threatened against any of the parties to this Agreement or their directors or officers before any court or governmental agency to restrain, prohibit or obtain substantial damages in respect of this Agreement or the consummation of the transactions contemplated hereby. 11 5.05 Corporate Documents. Prior to Closing the Company shall furnish to Buyer copies of the Certificate of Incorporation of Company and each amendment thereto, if any, which shall be certified by a proper state official; one copy of the By-Laws and minutes of Company by its secretary or an assistant secretary as being currently in effect, and a certificate of good standing issued by the proper state officials of each state in which Company transacts business and is required to qualify. 5.06 Document & Production. This Agreement is expressly conditioned on Company providing all identified schedules and exhibits at the time of closing. ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE SHAREHOLDERS The obligations of the Shareholders is subject to the fulfillment of the following conditions at or prior to the Closing Date: 6.01 Representations, Warranties and Covenants. All representations and warranties of Buyer contained in this Agreement and in any statement, certificate, schedule or other document delivered pursuant hereto, or in connection herewith, shall have been true and accurate in all respects as of the date when made and as of the Closing Date. 6.02 Covenants, Etc. Buyer shall have substantially performed and complied with each and every covenant, agreement and condition required by this Agreement to be performed or complied with by it prior to, or at, the Closing Date. 6.03 Proceedings. No action or proceedings shall have been instituted or threatened against Buyer which could materially and adversely affect the business of Buyer. No actions or proceedings shall have been instituted or threatened against any of the parties to this Agreement, or their directors or officers before any court or governmental agency to restrain, prohibit or obtain substantial damages in respect to this Agreement or the consummation of the transactions contemplated hereby. ARTICLE VII MISCELLANEOUS PROVISIONS 7.01 Abandonment of Agreement. This Agreement may be terminated and the transactions hereby contemplated abandoned at any time prior to the Closing Date, whether before or after the approval and adoption hereof by 12 the shareholders of each Company by (a) the mutual consent of the Board of Directors of Company and Buyer or (b) the Board of Directors of the Company if any condition to its obligations provided in this Agreement has not been met at the time such condition is to be met and has not been waived by it, or [ILLEGIBLE] by the Board of Directors of Buyer, if any condition to its obligations provided in this Agreement has not been met at the time such condition is to be met and has not been waived by it. 7.02 Liabilities. In the event this Agreement is terminated pursuant to Section 7.01, no party hereto shall have any liability to the other and each party shall bear their own costs incurred. 7.03 Assignments. This Agreement may not be assigned except with the written consent of the nonassigning party. Notwithstanding the foregoing, the rights of the Shareholders to receive the Shares shall be freely assignable. 7.04 Survival of Representations and Warranties. Company and Buyer agree all representations and warranties contained herein or made hereunder shall survive the Closing, except that any breach disclosed in writing to either party prior to Closing is waived by such party if it elects to close notwithstanding such breach. 7.05 Notices. All notices, demands and other communications which may or are required to be given pursuant to this Agreement shall be given or made when personally delivered or when deposited in the United States Mail, first class, postage pre-paid, addressed as follows: If to Company to: Michael Muzio TRIMFAST Inc. 777 South Harbour Island Blvd. Suite 260 Tampa, Florida 33602 or to such other address as Company may, from time to time, designate by Notice to Buyer If to Buyer to: Harry Kay HLHK World Group, Inc. 3361 Westwind Drive Las Vegas, Nevada 89102 With a copy to: Jeffrey Klein 23123 State Road Seven #350B Boca Raton, Florida 33428 or to such other addresses as Buyer may, from time to time, designate by notice to Company. 13 7.06 Closing. The closing date for the contemplated transaction shall be on or before August 15, 1998 7.07 Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes and cancels any and all prior agreements between the parties relating to its subject matter. The representations, warranties, covenants and conditions of the obligations of the parties hereto may not be orally amended, modified or altered, but may be amended, modified or altered in a writing signed by each of the parties, whether before or after the meeting of shareholders of Company contemplated herein. 7.08 Captions. The captions of Articles and Sections of Articles hereof are for convenience only and shall not control or affect the meaning or construction of any of the provisions of this Agreement. 7.09 Governing Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Nevada and jurisdiction for any dispute shall be in Nevada. 7.10 Waivers. Any failure of either party hereto to comply with any of its obligations or agreements, or to fulfill conditions herein contained may be waived in writing by the other party. No waiver by any party of any condition or the breach of any provision, term, covenant, representation or warranty contained in this Agreement, whether by conduct or otherwise, shall be deemed to be or construed as a further or continuing waiver of any such condition or of the breach of any other provision, term, covenant, representation, or warranty of this Agreement. 7.11 Counterparts. This Agreement may be executed in several counterparts and all so executed shall constitute one agreement, binding upon all of the parties hereto, notwithstanding that not all of the parties are signatory to the original or the same counterpart. Fax copies shall be binding upon the parties provided that original copies are received within seven days of execution. 7.12 Successors. The terms covenants and conditions of the Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, legal representatives, successors and assigns. 7.13 Binding Agreement. This Agreement represents the entire agreement among the parties hereto with respect to the matters described herein and is binding upon and shall inure to the benefit of the parties hereto and their legal representatives. This Agreement may not be assigned and, except as stated 14 herein, may not be altered or amended except in writing executed by the party to be charged. 7.14 Tax Free Exchange. This Agreement is to be construed as a tax free exchange under Section 368(a)(1)(b) of the Internal Revenue Code and the parties agree to take such action as may be necessary to effect this intent. This Agreement entered into the date first entered above. HLHK World Group, Inc. WITNESS: /s/ Harry Kay Chairman [ILLEGIBLE] - ------------------------- ------------------------- BY: TRIMFAST INC. /s/ Michael Muzio [ILLEGIBLE] - ------------------------- ------------------------- BY: THE SHAREHOLDERS - ---------------------- ----------------------- ---------------------- - ---------------------- ----------------------- ---------------------- - ---------------------- ----------------------- ---------------------- - ---------------------- ----------------------- ---------------------- 15 EX-2.3 4 RESCISSION OF IMMMU AND IMMCEL ACQUISITION EXHIBIT 2.3 RESCISSION OF IMMMU AND IMMCEL ACQUISITION RESCISSION AGREEMENT This Agreement is entered into this 23rd day of October 1999 is by and between TrimFast Group, Inc., ("TrimFast") and Leo Ehrlich, Helenka Bodner and Joseph Levi (the "Shareholders") Whereas, the Shareholders previously owned all of the issued and outstanding shares of common stock of IMMCEL Pharmaceuticals, Inc. and IMMMU, Inc. (the "Companies); and Whereas, TrimFast purchased all of the issued and outstanding shares of the common stock of the Companies from the Shareholders pursuant to an agreement dated March 17, 1999 (the "Agreement"); and WHEREAS, the parties wish to rescind the Agreement; NOW THEREFORE, in consideration of the mutual coventants contained herein it is agreed: 1. On or before October 31, 1999, TrimFast shall deliver to the Shareholders 200 shares of common stock in each entity previously purchased by TrimFast. Said shares representing all of the issued and outstanding shares of common stock in both Immmu and Immcel. 2. Upon delivery of the Immmu and Immcel shares, the Shardholders shall be obligated to deliver to TrimFast a total of 225,000 shares of restricted common stock of TrimFast previously issued to the Shareholders as follows: Helenka Bodner 150,750 shares, Leo Ehrlich 60,750 shares and Joseph Levi 13,500 shares. Said shares to be duly endorsed for transfer and medallion signature guaranteed. B. Sellers will arrange for the delivery to TrimFast of 10,OOO shares of free trading shares which were previously issued to Moishe Bodner. C. Sellers shall also deliver to TrimFast the sum of $50,000. 3. TrimFast shall be permitted to market the Immcel and Immmu product lines until October 31, 1999 after which time all rights, title and interest in the product shall forever be vested with Immcel and Immmu. 4. Beginning November 1, 1999, TrimFast shall have no right to market or promote the Immmu and Immcel products and agrees to refrain from using any marketing material containing the Immcel and Immu product line. In the event that any orders are received for Immmu or Immcel products after October 31, 1999, TrimFast agrees to refer these orders to Immcel or Immmu for fulfillment. 5. On or before November 1, 1999 TrimFast shall provide the shareholders with a complete accounting of all revenues and expenses associated with the operation Immcel and Immmu. If the accounting indicates that TrimFast generated any profits from the sale of the Immcel or Immmu products, then in that event, TrimFast shall forward said profits to Immmu/Immcel. If the accounting indicates a net loss from operations, then in that event Immmu/Immcel shall reimburse TrimFast the amount of the net loss. 6. TrimFast warrants and represents that: (A) The shares to be conveyed hereunder are owned free and clear of all liens and encumbrances. (B) Except for the shares to be conveyed hereunder, there are no other outstanding shares, options, warrants or other rights which upon their exercise may be converted into shares of common stock of either Immmu or Immcel. (C) Since the execution of the Agreement, TrimFast has not incurred any expenses on behalf of either entity except in the ordinary course of business. (D) TrimFast has not filed for any type of trademark protection for any of the Immmu or Immcel products. 7. Upon execution of this Agreement, each party releases and forever discharges the other from liability of whatever kind or nature which may have or could have arisen as a result of any misstatement in the original transfer Agreement. 8. The parties agree and acknowledge that the purpose of this agreement is to restore the respective parties to as close a position as possible as each party was prior to execution of the original transfer agreement. To the extent that either party may require the execution of additional documentation to effectuate these ends, the parties agree to execute such additional documentation without payment of additional consideration. 9. This Agreement shall be construed pursuant to the laws of the state of Florida with jurisdiction for any dispute in Tampa, Florida. In the event of any litigation, the prevailing party shall be entitled to recover all costs including reasonable attorneys fee. This Agreement executed the date set forth above. TrimFast Group, Inc. /s/ Michael Muzio /s/ Leo Ehrlich - ---------------------- --------------- BY: Michael Muzio, pres Leo Ehrlich /s/ Helenka Bodner /s/ Joseph Levi - ---------------------- --------------- Helenka Bodner Joseph Levi EX-3.1 5 ARTICLES OF INCORPORATION OF KENDREX SYSTEMS, INC. EXHIBIT 3.1 ARTICLES OF INCORPORATION OF KENDREX SYSTEMS, INC. 5 EX-3.2 6 BYLAWS OF KENDREX SYSTEMS EXHIBIT 3.2 BYLAWS OF KENDREX SYSTEMS 6 EX-4.1 7 SPECIMEN SHARE CERTIFICATE NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA [GRAPHIC OMITTED] --------------------- CUSIP NO. 89626R 20 6 --------------------- NUMBER TRIMFAST SHARES [GRAPHIC OMITTED] GROUP, INC. [GRAPHIC OMITTED] AUTHORIZED COMMON STOCK: 100,000,000 SHARES PAR VALUE: $.001 SPECIMEN THIS CERTIFIES THAT IS THE RECORD HOLDER OF Shares of TRIMFAST GROUP, INC. Common Stock transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: /s/ [ILLEGIBLE] /s/ [ILLEGIBLE] - -------------------------- -------------------------- SECRETARY PRESIDENT [SEAL] TRIMFAST GROUP, INC. CORPORATE Seal NEVADA ***** [LOGO] INTERWEST TRANSFER CO. INC. P.O. BOX 17136/SALT LAKE CITY, UTAH 84117 COUNTERSIGNED AND REGISTERED [ILLEGIBLE] EX-4.2 8 DEBENTURE AGREEMENT EXHIBIT 4.2 DEBENTURE AGREEMENT 8 EX-4.3 9 WARRANT AGREEMENT WARRANT THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE 1933 ACT, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM, REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. ANY SUCH OFFER, SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH THE APPLICABLE STATE SECURITIES LAWS. TRIMFAST GROUP, INC. WARRANT TO PURCHASE COMMON STOCK Warrant No.: 1999WT-1 Number of Shares: 74,627 Date of Issuance: July 16, 1999 TrimFast Group, Inc., a Nevada corporation (the "Company"), hereby certifies that, for Ten United States Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Cranshire Capital, L.P., the registered holder hereof or its permitted assigns, is entitled, subject to the terms set forth below, to purchase from the Company upon surrender of this Warrant, at any time or times on or after the date hereof, but not after 11:59 P.M. Central Time on the Expiration Date (as defined herein) Seventy-Four Thousand Six Hundred Twenty Seven (74,627) fully paid nonassessable shares of Common Stock (as defined herein) of the Company (the "Warrant Shares") at the purchase price per share provided in Section 1(b) below. Section 1 Securities Purchase Agreement. This Warrant is one of the Warrants issued pursuant to the terms of that certain Securities Purchase Agreement dated as of July 16, 1999, among the Company and the Buyers referred to therein (the "Securities Purchase Agreement"). Definitions. The following words and terms as used in this Warrant shall have the following meanings: "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. "Common Stock" means (i) the Company's common stock, no par value per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification of such Common Stock. 10 "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 8(b)(i) and 8(b)(ii) hereof regardless of whether the Options (as defined below) or Convertible Securities (as defined below) are actually exercisable or convertible at such time, but excluding any shares of Common Stock owned or held by or for the account of the Company or issuable upon exercise of the Warrants. "Convertible Securities" means any stock or securities (other than Options) directly or indirectly convertible into or exchangeable for Common Stock. "Expiration Date" means the date three (3) years from the date of this Warrant or, if such date falls on a Saturday, Sunday or other day on which banks are required or authorized to be closed in the City of Chicago or the State of Illinois or on which trading does not take place on the principal exchange or automated quotation system on which the Common Stock is traded (a "Holiday"), the next date that is not a Holiday. "Options" means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. "Other Securities" means (i) those warrants of the Company issued prior to, and outstanding on, the date of issuance of this Warrant, (ii) the Preferred Shares and (iii) the shares of Common Stock issued upon conversion of the Preferred Shares. "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. "Preferred Shares" means the shares of the Company's Series A Preferred Stock issued pursuant to the Securities Purchase Agreement. "Principal Market" means the Nasdaq National Market or Nasdaq Small-Cap Market. "Securities Act" means the Securities Act of 1933, as amended. "Warrant" means this Warrant and all Warrants issued in exchange, transfer or replacement of any thereof. "Warrant Exercise Price" shall be $10.31 per common share, subject to adjustment as hereinafter provided. Section 2 Exercise of Warrant. Subject to the terms and conditions hereof, this Warrant may be exercised by the holder hereof then registered on the books of the Company, in whole or in part, at any time on any business day on or after the opening of business on the date hereof and prior to 11:59 P.M. Central Time on the Expiration Date by (i) delivery of a written notice, in the form of the subscription notice attached as Exhibit A hereto (the "Exercise Notice"), of such holder's election to exercise this Warrant, which notice shall specify the number of Warrant Shares to be purchased, (ii) payment to the Company of an amount equal to the Warrant Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (plus any applicable issue or transfer taxes) (the "Aggregate Exercise Price") in cash or by check or wire transfer, and (iii) the surrender to a common carrier for delivery to the Company as soon as practicable following such date, this Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction); provided, that if such Warrant Shares are to be issued in any name other than that of the registered holder of this Warrant, such issuance shall be deemed a transfer and the provisions of Section 7 shall be applicable. In the event of any exercise of the rights represented by this Warrant in compliance with this Section 2(a), a certificate or certificates for the Warrant Shares so purchased, in such denominations as may be requested by the holder hereof and registered in the name of, or as directed by, the holder, shall be delivered at the Company's expense to, or as directed by, such holder as soon as practicable, and in no event later than two business days, after the Company's receipt of the Exercise Notice, the Aggregate Exercise Price and this Warrant (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction). Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in clause (ii) above, the holder of this Warrant shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of this Warrant as required by clause (iii) above or the certificates evidencing such Warrant Shares. Unless the rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, as soon as practicable and in no event later than five (5) business days after any exercise and at its own expense, issue a new Warrant identical in all respects to this Warrant exercised except it shall represent rights to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant exercised, less the number of Warrant Shares with respect to which such Warrant is exercised. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock issued upon exercise of this Warrant shall be rounded up or down to the nearest whole number. If the Company shall fail for any reason or for no reason to issue to the holder on a timely basis as described in this Section 2, 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 Section 2(b) hereof, the Company shall, in addition to any other remedies under this Warrant or the Securities Purchase Agreement or otherwise available to such holder, including any indemnification under the Securities Purchase Agreement, pay as additional damages in cash to such holder on each day the issuance of such Common Stock certificate or new Warrant, as the case may be, is not timely effected an amount equal to .25% of the product of (A) the sum of 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 the Common Stock for the three consecutive trading days immediately preceding the last possible date which the Company could have issued such Common Stock or Warrant, as the case may be, to the holder without violating this Section 2. Section 3 Covenants as to Common Stock. The Company hereby covenants and agrees as follows: This Warrant is, and any Warrant issued in substitution for or replacement of this Warrant will upon issuance be, duly authorized and validly issued. All Warrant Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof. During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved at least 100% of the number of shares of Common Stock needed to provide for the exercise of the rights then represented by this Warrant and the par value of said shares will at all times be less than or equal to the applicable Warrant Exercise Price. The Company shall promptly secure the listing of the shares of Common Stock issuable upon exercise of this Warrant upon each national securities exchange or automated quotation system or bulletin board system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance upon exercise of this Warrant) and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all shares of Common Stock from time to time issuable upon the exercise of this Warrant; and the Company shall so list on each national securities exchange or automated quotation system, as the case may be, and shall maintain such listing of, any other shares of capital stock of the Company issuable upon the exercise of this Warrant if and so long as any shares of the same class shall be listed on such national securities exchange or automated quotation system. The Company will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by it hereunder, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may reasonably be requested by the holder of this Warrant in order to protect the exercise privilege of the holder of this Warrant against dilution or other impairment, consistent with the tenor and purpose of this Warrant will take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant. his Warrant will be binding upon any entity succeeding to the Company by merger, consolidation or acquisition of all or substantially all of the Company's assets. Section 4 Taxes. The Company shall pay any and all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant. Section 5 Warrant Holder Not Deemed a Stockholder. Except as otherwise specifically provided herein, no holder, as such, of this Warrant shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the holder of this Warrant of the Warrant Shares which he or she is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on such holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 5, the Company will provide the holder of this Warrant with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders. Section 6 Representations of Holder. The holder of this Warrant, by the acceptance hereof, represents that it is acquiring this Warrant for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant, except pursuant to sales registered or exempted under the Securities Act; provided, however, that by making the representations herein, the holder does not agree to hold this Warrant for any minimum or other specific term and reserves the right to dispose of this Warrant at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act. The holder of this Warrant further represents, by acceptance hereof, that, as of this date, such holder is an "accredited investor" as such term is defined in Rule 501(a)(l) of Regulation D promulgated by the Securities and Exchange Commission under the Securities Act (an "Accredited Investor"). Section 7 Ownership and Transfer. The Company shall maintain at its principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), a register for this Warrant, in which the Company shall record the name and address of the person in whose name this Warrant has been issued, as well as the name and address of each transferee. The Company may treat the person in whose name any Warrant is registered on the register as the owner and holder thereof for all purposes, notwithstanding any notice to the contrary, but in all events recognizing any transfers made in accordance with the terms of this Warrant. This Warrant and the rights granted to the holder hereof are transferable, in whole or in part, upon surrender of this Warrant, together with a properly executed warrant power in the form of Exhibit B attached hereto; provided, however, that any transfer or assignment shall be subject to the conditions set forth in Section 7(c) below. The holder of this Warrant understands that this Warrant has not been and is not expected to be, registered under the Securities Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (a) subsequently registered thereunder, or (b) such holder shall have delivered to the Company an opinion of counsel, in generally acceptable form, to the effect that the securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration; provided that (i) any sale of such securities made in reliance on Rule 144 promulgated under the Securities Act may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any resale of such securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the Securities and Exchange Commission thereunder; and (ii) neither the Company nor any other person is under any obligation to register the Warrants under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder. The Company is obligated to register the Warrant Shares for resale under the Securities Act pursuant to the Registration Rights Agreement dated July 16, 1999 by and between the Company and the Buyers listed on the signature page thereto (the "Registration Rights Agreement") and the initial holder of this Warrant (and certain assignees thereof) is entitled to the registration rights in respect of the Warrant Shares as set forth in the Registration Rights Agreement. Section 8 Adjustment of Warrant Exercise Price and Number of Shares. The Warrant Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows: Adjustment of Warrant Exercise Price and Number of Shares upon Issuance of Common Stock. If and whenever on or after the date of issuance of this Warrant, the Company issues or sells, or in accordance with Section 8(b) 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 or upon exercise or conversion of the Other Securities) for a consideration per share less than the Warrant Exercise Price in effect immediately prior to such time (the "Applicable Price"), then immediately after such issue or sale the Warrant Exercise Price then in effect shall be reduced to an amount equal to the product of (x) the Warrant Exercise Price in effect immediately prior to such issue or sale and (y) the quotient determined by dividing (1) the sum of (I) the product derived by multiplying the Applicable Price by the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale, plus (II) the consideration, if any, received by the Company upon such issue or sale, by (2) the product derived by multiplying the (I) Applicable Price by (II) the number of shares of Common Stock Deemed Outstanding immediately after such issue or sale. Upon each such adjustment of the Warrant Exercise Price hereunder, the number of shares of Common Stock acquirable upon exercise of this Warrant shall be adjusted to the number of shares determined by multiplying the Warrant Exercise Price in effect immediately prior to such adjustment by the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Warrant Exercise Price resulting from such adjustment. Effect on Warrant Exercise Price of Certain Events. For purposes of determining the adjusted Warrant Exercise Price under Section 8(a) above, the following shall be applicable: Issuance of Options. If the Company in any manner grants 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 any 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 8(b)(i), the "lowest price per share for which one share of Common Stock is issuable upon exercise of such Options or upon conversion or exchange of such Convertible Securities" 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 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 Warrant Exercise 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 8(b)(i) 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. 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 or sale of such Convertible Securities for such price per share. For the purposes of this Section 8(b)(ii), the "lowest 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 one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion or exchange of such Convertible Security. No further adjustment of the Warrant Exercise 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 Warrant Exercise Price had been or are to be made pursuant to other provisions of this Section 8(b), no further adjustment of the Warrant Exercise Price shall be made by reason of such issue or sale. Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 8(b)(ii) 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. 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 Warrant Exercise Price in effect at the time of such change shall be adjusted to the Warrant Exercise 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 and the number of shares of Common Stock acquirable hereunder shall be correspondingly readjusted. For purposes of this Section 8(b)(iii), if the terms of any Option or Convertible Security that was outstanding as of the date of issuance of this Warrant 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 Warrant Exercise Price then in effect. 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 such Option or to exercise, convert or exchange such Convertible Securities shall have expired or terminated, the Warrant Exercise Price then in effect will be readjusted to the Warrant Exercise 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. Effect on Warrant Exercise Price of Certain Events. For purposes of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b), the following shall be applicable: 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 such consideration 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 market price of such securities for the twenty (20) consecutive trading days immediately preceding 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 Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants then outstanding. If such parties are unable to reach agreement within ten (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 Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants then outstanding. The determination of such appraiser shall be final and binding upon all parties and the fees and expenses of such appraiser shall be borne by the Company. 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. Adjustment of Warrant Exercise Price upon Subdivision or Combination of Common Stock. If the Company at any time after the date of issuance of this Warrant 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 Warrant Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately increased. If the Company at any time after the date of issuance of this Warrant 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 Warrant Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of shares of Common Stock obtainable upon exercise of this Warrant will be proportionately decreased. Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other transaction) (a "Distribution"), at any time after the issuance of this Warrant, then, in each such case: (i) the Warrant Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Warrant Exercise Price by a fraction of which (A) the numerator shall be the Closing bid price on the trading day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company's Board of Directors) applicable to one share of Common Stock, and (B) the denominator shall be the Closing bid price on the trading day immediately preceding such record date; and (ii) either (A) the number of Warrant Shares obtainable upon exercise of this Warrant shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i), or (B) in the event that the Distribution is of common stock of a company whose common stock is traded on a national securities exchange or a national automated quotation system, then the holder of this Warrant shall receive an additional warrant to purchase Common Stock, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the amount of the assets that would have been payable to the holder of this Warrant pursuant to the Distribution had the holder exercised this Warrant immediately prior to such record date and with an exercise price equal to the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i). Certain Events. If any event occurs of the type contemplated by the provisions of this Section 8 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 Warrant Exercise Price and the number of shares of Common Stock obtainable upon exercise of this Warrant so as to protect the rights of the holders of the Warrants; provided that no such adjustment will increase the Warrant Exercise Price or decrease the number of shares of Common Stock obtainable as otherwise determined pursuant to this Section 8. Notices. Immediately upon any adjustment of the Warrant Exercise Price, the Company will give written notice thereof to the holder of this Warrant, setting forth in reasonable detail, and certifying, the calculation of such adjustment. The Company will give written notice to the holder of this Warrant at least twenty (20) days prior to the date on which the Company closes its books or takes 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 (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. The Company will also give written notice to the holder of this Warrant 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. Section 9 Purchase Rights: Reorganization, Reclassification, Consolidation, Merger or Sale. (a) In addition to any adjustments pursuant to Section 8 above, 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 holder of this Warrant 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 exercise of this Warrant 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. (b) 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") written agreement (in form and substance satisfactory to the holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants then outstanding) to deliver to each holder of Warrants in exchange for such Warrants, a security of the Acquiring Entity evidenced by a written instrument substantially similar in form and substance to this Warrant and satisfactory to the holders of the Warrants (including, an adjusted warrant exercise price equal to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and exercisable for a corresponding number of shares of Common Stock acquirable and receivable upon exercise of the Warrants, if the value so reflected is less than the Warrant Exercise Price in effect immediately prior to such consolidation, merger or sale). Prior to the consummation of any other Organic Change, the Company shall make appropriate provision (in form and substance satisfactory to the holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants then outstanding) to insure that each of the holders of the Warrants 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 exercise of such holder's Warrants, 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 exercise of such holder's Warrant as of the date of such Organic Change (without taking into account any limitations or restrictions on the exerciseability of this Warrant). Section 10 Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company shall, on receipt of an indemnification undertaking, issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed. Section II Notice. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: TrimFast Group, Inc. 777 South Harbour Island Blvd. Suite 260 Tampa, Florida 33602 Telephone: (813) 275-0040 Facsimile: (813) 275-0051 Attention: Michael Muzio With copy to: Jeffrey G. Klein, P.A. 23123 State Road 7, Suite 350B Boca Raton, Florida 33428 Telephone: (561) 470-9010 Facsimile: (561) 470-9078 If to a holder of this Warrant, to it at the address and facsimile number set forth on the Schedule of Buyers to the Securities Purchase Agreement, with copies to such holder's representatives as set forth on such Schedule of Buyers, or at such other address and facsimile as shall be delivered to the Company upon the issuance or transfer of this Warrant. Each party shall provide five days' prior written notice to the other party of any change in address or facsimile number. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively. Section 12 Amendments. This Warrant and any term hereof may be changed, waived, discharged, or terminated only by an instrument in writing signed by the party or holder hereof against which enforcement of such change, waiver, discharge or termination is sought. Section 13 Date. The date of this Warrant is July 16, 1999. This Warrant, in all events, shall be wholly void and of no effect after the close of business on the Expiration Date, except that notwithstanding any other provisions hereof, the provisions of Section 7 shall continue in full force and effect after such date as to any Warrant Shares or other securities issued upon the exercise of this Warrant. Section 14 Amendment and Waiver. Except as otherwise provided herein, the provisions of the Warrants may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the holders of Warrants representing a majority of the shares of Common Stock obtainable upon exercise of the Warrants then outstanding; 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 upon exercise of any Warrants without the written consent of the holder of such Warrant. Section 15 Descriptive Headings: Governing Law. The descriptive headings of the several Sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be governed by the internal laws of the State of Illinois, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. [Signature Page Follows] This Warrant has been duly executed by the Company as of the date first set forth above. TRIMFAST GROUP, INC. By:__________ Name:________ Title:_______ 21 EXHIBIT A TO WARRANT SUBSCRIPTION FORM TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT TRIMFAST GROUP, INC. The undersigned holder hereby exercises the right to purchase __________________ of the shares of Common Stock ("Warrant Shares") of TrimFast Group, Inc., a _________ corporation (the "Company"), evidenced by the attached Warrant (the "Warrant"). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant. Payment of Warrant Exercise Price. The holder shall pay the sum of $___________ to the Company in accordance with the terms of the Warrant. Delivery of Warrant Shares. The Company shall deliver to the holder ________ Warrant Shares in accordance with the terms of the Warrant. Date:______________________________ Name of Registered Holder By:________________________________ Name:______________________________ Title:_____________________________ 22 EXHIBIT B TO WARRANT FORM OF WARRANT POWER FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to __________________ Federal Identification No. ___________,a warrant to purchase _____________ shares of the capital stock of TrimFast Group, Inc., a ____________ corporation, represented by warrant certificate no. ______, standing in the name of the undersigned on the books of said corporation. The undersigned does hereby irrevocably constitute and appoint ________________, attorney to transfer the warrants of said corporation, with full power of substitution in the premises. Dated: _________, 1999 By:__________ Name:________ Title:_______ 23 EX-4.4 10 PREFERRED STOCK AGREEMENT SECURITIES PURCHASE AGREEMENT This SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of July 16, 1999, is entered into by and among TrimFast Group, Inc., a Nevada corporation, with headquarters located at 777 South Harbour Island Blvd., Suite 260, Tampa, Florida 33602 (the "Company"), and the investors listed on Schedule 1 attached hereto (individually, a "Buyer" and collectively, the "Buyers"). WHEREAS: A. The Company and the Buyers are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933 Act"); B. The Company has authorized the following new series of its preferred stock, par value $.01 per share: the Company's Series A Preferred Stock (the "Preferred Stock"), which shall be convertible into shares of the Company's Common Stock, par value $.001 per share (the "Common Stock") (as converted, the "Conversion Shares"), in accordance with the terms of the Company's Certificate of Designations, Preferences and Rights of the Preferred Stock, substantially in the form attached hereto as Exhibit E (the "Certificate of Designations"); C. The Buyers wish to purchase, upon the terms and conditions stated in this Agreement, an aggregate of 15,000 shares of the Preferred Stock (the "Preferred Shares"), $.01 par value per share, in the respective amounts set forth opposite each Buyer's name on Schedule 1 and warrants, in substantially the same form attached hereto as Exhibit D (the "Warrants") to acquire 223,881 shares of Company Common Stock (as exercised, collectively, the "Warrant Shares"); and D. Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement substantially in the form attached hereto as Exhibit A (the "Registration Rights Agreement") pursuant to which the Company has agreed to provide certain registration rights under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws. NOW THEREFORE, the Company and the Buyers hereby agree as follows: 1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS. a. Purchase of Preferred Shares and Warrants. In connection with the offering (the "Offering") by the Company of the Preferred Shares and Warrants to the Buyers, and subject to the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below, the Company shall issue and sell to each Buyer and each Buyer severally agrees to purchase from the Company the respective number of Preferred Shares set forth opposite such Buyer's name on Schedule 1, along with Warrants to acquire the respective number of Warrant Shares set forth opposite such Buyer's name on Schedule 1 (the "Closing"). The purchase price (the "Purchase Price") of the Preferred Shares and the related Warrants at the Closing shall be $1,500,040. b. Closing Date. The date and time of the Closing (the "Closing Date") shall be 10:00 a.m. Central Time, within three (3) business days following the date hereof, subject to notification of satisfaction (or waiver) of the conditions to the Closing set forth in Sections 6 and 7 below (or such later date as is mutually agreed to by the Company and the Buyers). The Closing shall occur on the Closing 24 Date at the offices of Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693. c. Form of Payment. On the Closing Date, (i) subject to the satisfaction (or waiver) of the conditions set forth in Section 7 below, each Buyer shall pay the Purchase Price to the Company, for the Preferred Shares and Warrants to be issued and sold to such Buyer at the Closing, by wire transfer of immediately available funds in accordance with the Company's written wire instructions, and (ii) subject to the satisfaction (or waiver) of the conditions set forth in Section 6 below, the Company shall deliver to Katten Muchin & Zavis, c/o Anthony J. Ribaudo, located at 525 West Monroe St., Suite 1600, Chicago, Illinois 60661-3693, as the escrow agent (the "Escrow Agent"), on behalf of each Buyer, stock certificates (in the denominations as such Buyer shall request) (the "Preferred Stock Certificates") representing such number of the Preferred Shares which such Buyer is then purchasing (as indicated opposite such Buyer's name on Schedule 1) along with the Warrants such Buyer is purchasing (as indicated opposite such Buyer's name on Schedule 1) hereunder, duly executed on behalf of the Company and registered in the name of such Buyer or its designee. Upon the completion of the conditions contained in Sections 6 and 7 of this Agreement, the Escrow Agent shall deliver the certificates representing the Preferred Shares and the Warrants to the Buyers via overnight courier after the Buyers have wired the Purchase Price to the Company. 2. BUYER'S REPRESENTATIONS AND WARRANTIES. Each Buyer represents and warrants with respect to only itself that: a. Investment Purpose. Such Buyer is acquiring the Preferred Shares and Warrants (the Preferred Shares and Warrants may also be referred to herein as the "Securities"), for its own account for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act; provided, however, that by making the representations herein, such Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act. b. Accredited Investor Status. Such Buyer is an "accredited investor" as that term is defined in Rule 501(a)(3) of Regulation D. c. Reliance on Exemptions. Such Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Buyer's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of such Buyer to acquire such Securities. d. Information. Such Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by such Buyer. Such Buyer and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect such Buyer's right to rely on the Company's representations and warranties contained in Section 3 below. Such Buyer understands that its investment in the Securities involves a high degree of risk. Such Buyer has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities. e. No Governmental Review. Such Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities. 25 f. Transfer or Resale. Such Buyer understands that except as provided in the Registration Rights Agreement: (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) such Buyer shall have delivered to the Company an opinion of counsel, in a generally acceptable form, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) such Buyer provides the Company with reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933 Act, as amended, (or a successor rule thereto) ("Rule 144"); and (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, and if Seller intends to utilize Rule 144 but Rule 144 is not applicable to such resale, any resale of the Securities under circumstances in which the Seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder. g. Legends. Such Buyer understands that the Preferred Stock Certificates and certificates or other instruments representing the Warrants and, until such time as the sale of the Conversion Shares and the Warrant Shares have been registered under the 1933 Act as contemplated by the Registration Rights Agreement, the stock certificates representing the Conversion Shares and the Warrant Shares except as set forth below, shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates): THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (1) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE 1933 ACT OR APPLICABLE STATE SECURITIES LAWS, OR (2) IN THE ABSENCE OF AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT OR (3) UNLESS SOLD, TRANSFERRED OR ASSIGNED PURSUANT TO RULE 144 UNDER SAID ACT. The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Securities upon which it is stamped, if, unless otherwise required by state securities laws, (i) such Securities are registered for sale under the 1933 Act, (ii) in connection with a sale transaction, such holder provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that a public sale, assignment or transfer of the Securities may be made without registration under the 1933 Act, or (iii) such holder provides the Company with reasonable assurances that the Securities can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold. h. Validity; Enforcement. This Agreement has been duly and validly authorized, executed and delivered on behalf of such Buyer and is a valid and binding agreement of such Buyer enforceable against such Buyer in accordance with its terms, subject as to enforceability to general principles of equity and to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. i. Residency. Such Buyer is a resident of that country and state, if applicable, specified in its address on Schedule 1. 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to each of the Buyers that: 26 a. Organization and Qualification. The Company and its "Subsidiaries" (which for purposes of this Agreement means any entity in which the Company, directly or indirectly, owns a controlling position of capital stock or holds a controlling position of an equity or similar interest) are corporations duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power and authorization to own their properties and to carry on their business as now being conducted. Each of the Company and its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agreement, "Material Adverse Effect" means any material adverse effect on the business, properties, assets, operations, results or operations, financial condition or prospects of the Company and its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements and instruments to be entered into in connection herewith, or on the authority or ability of the Company to perform its obligations under the Transaction Documents (as defined below in Section 3(b)). b. Authorization; Enforcement; Validity. (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Registration Rights Agreement, the Transfer Agent Instructions (as defined in Section 5), the Warrants and the Certificate of Designations and each of the other agreements entered into by the parties hereto in connection with the transactions contemplated by this Agreement (collectively, the "Transaction Documents"), and to issue the Securities in accordance with the terms hereof and thereof, (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including without limitation the issuance of the Preferred Shares and the Warrants and the reservation for issuance and the issuance of the Conversion Shares and Warrant Shares issuable upon conversion or exercise thereof, respectively, have been duly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders, (iii) the Transaction Documents have been duly executed and delivered by the Company, and (iv) the Transaction Documents constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies, and (v) prior to the Closing Date, the Certificate of Designations has been filed with the Secretary of State of the State of Nevada and will be in full force and effect, enforceable against the Company in accordance with its terms. c. Issuance of Securities. The Securities are duly authorized and, upon issuance in accordance with the terms hereof, shall be (i) validly issued, fully paid and non-assessable and (ii) free from all taxes, liens and charges with respect to the issue thereof. The Preferred Shares shall be entitled to the rights and preferences set forth in the Certificate of Designations. 750,000 shares of Company common stock (subject to adjustment pursuant to the Company's covenant set forth in Section 4(g) below) have been duly authorized and reserved for issuance upon conversion of the Preferred Shares and exercise of the Warrants. Upon conversion in accordance with the Certificate of Designations or exercise in accordance with the Warrants, the Conversion Shares and Warrant Shares, respectively, will be validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Company common stock. The issuance by the Company of the Securities is exempt from registration under the 1933 Act. d. No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the Company's issuance of the Securities and the reservation for issuance and issuance of the Conversion Shares and the Warrant Shares) will not (i) result in a violation of the Company's Articles of Incorporation, as amended and as in effect on the date hereof (the "Articles of Incorporation") or the Company's By-laws, as amended and as in effect on the date hereof (the "By-laws") or any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or (ii) conflict with, or constitute a default (or an event which with notice 27 or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of the Principal Market (as defined in Section 4(f) below)) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected. Neither the Company nor its Subsidiaries is in violation of any term of or in default under its Articles of Incorporation, any Certificate of Designations, Preferences and Rights of any outstanding series of preferred stock of the Company or By-laws or their organizational charter or by-laws, respectively. Neither the Company or any of its Subsidiaries is in violation or any term of or in default under any contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its Subsidiaries, except for possible conflicts, defaults, terminations, amendments which would not have a Material Adverse Effect. The business of the Company and its Subsidiaries is not being conducted, and shall not be conducted, in violation of any law, ordinance, regulation of any governmental entity, except for possible violations the sanctions for which either individually or in the aggregate would not have a Material Adverse Effect. Except as specifically contemplated by the Transaction Documents and as required under the 1933 Act, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self-regulatory agency in order for it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain prior to Closing pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company is not in violation of the listing requirements of the Principal Market (as defined in Section 4(f) below). e. SEC Documents; Financial Statements. As of the Closing, if required, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the "SEC Documents"). As of their respective dates, the SEC Documents, if any, complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, if any, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents, if any, complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements, if any, have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided by or on behalf of the Company to the Buyers which is not included in the SEC Documents, including, without limitation contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading. Neither the Company nor any of its Subsidiaries or any of their officers, directors, employees or agents have provided the Buyers with any material, nonpublic information. f. Absence of Certain Changes. Since the most recent filing by the Company with the SEC, there has been no material adverse change and no material adverse development in the business, properties, operations, financial condition, results of operations or prospects of the Company or its Subsidiaries. The Company has not taken any steps, and does not currently expect to take any steps, to 28 seek protection pursuant to any bankruptcy law nor does the Company or any of its Subsidiaries have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings. g. Absence of Litigation. Except as set forth in the SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company, the Company's common stock, the Common Shares or any of the Company's Subsidiaries or any of the Company's or the Company's Subsidiaries' officers or directors in their capacities as such which would have a Material Adverse Effect. h. [Reserved]. i. No Undisclosed Events; Liabilities; Developments or Circumstances. No event, liability, development or circumstance has occurred or exists, or is contemplated to occur, with respect to the Company or its Subsidiaries or their respective business, properties, prospects, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws on a registration statement filed with the SEC relating to an issuance and sale by the Company of its common stock and which has not been publicly announced. j. No General Solicitation. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Securities. k. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of any of the Securities under the 1933 Act or cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated, nor will the Company or any of its Subsidiaries take any action or steps that would require registration of any of the Securities under the 1933 Act or cause the offering of the Securities to be integrated with other offerings. l. Employee Relations. Neither the Company nor any of its Subsidiaries is involved in any union labor dispute nor, to the knowledge of the Company or any of its Subsidiaries, is any such dispute threatened. m. Intellectual Property Rights. The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted. None of the Company's trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets or other intellectual property rights have expired or terminated, or are expected to expire or terminate within two years from the date of this Agreement. The Company and its Subsidiaries do not have any knowledge of any infringement by the Company or its Subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secret or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others and the Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties. n. Environmental Laws. The Company and its Subsidiaries (i) are in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of 29 human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval. o. Title. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in the SEC Documents or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries. Any real property and facilities held under lease by the Company and any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries. p. Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged and the Company does not have any reason to believe it will not be able to renew its existing insurance coverage under substantially similar terms for the next two (2) years. q. Regulatory Permits. The Company and its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any such Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit. r. Tax Status. The Company and each of its Subsidiaries has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. s. Transactions With Affiliates. Except as set forth in the SEC Documents filed at least ten days prior to the date hereof, none of the officers, control parties, control entities, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. t. Eligibility. The Company is currently eligible to register the resale of the Conversion Shares and Warrant Shares on a registration statement on Form S-3 under the 1933 Act. 4. COVENANTS. a. Best Efforts. Each party shall use its best efforts timely to satisfy each of the conditions to be satisfied by it as provided in Sections 6 and 7 of this Agreement. 30 b. Form D and Blue Sky. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to each Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Securities for sale to the Buyers at the Closing pursuant to this Agreement under applicable securities or "Blue Sky" laws of the states of the United States, and shall provide evidence of any such action so taken to the Buyers on or prior to the Closing Date. The Company shall make all filings and reports relating the offer and sale of the Securities required under applicable securities or "Blue Sky" laws of the states of the United States following the Closing Date. c. Reporting Status. Until the earlier of (i) the date which is one year after the date as of which the Investors (as that term is defined in the Registration Rights Agreement) may sell all of the Conversion Shares and Warrant Shares without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto), or (ii) the date on which (A) the Investors shall have sold all the Conversion Shares and Warrant Shares (the "Registration Period") and (B) none of the Preferred Shares or Warrants are outstanding, the Company shall file all reports required to be filed with the SEC pursuant to the 1934 Act, and the Company shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would otherwise permit such termination. d. [Reserved]. e. Right of First Refusal. Subject to the exceptions described below, after the Closing the Company and its Subsidiaries shall not negotiate or contract with any party for any equity financing (including any debt financing with an equity component) or issue any equity securities of the Company or any Subsidiary or securities convertible or exchangeable into or for equity securities of the Company or any Subsidiary (including debt securities with an equity component) in any form ("Future Offerings") during the period beginning on the date hereof and ending on, and including, the date which is 180 days after the Closing Date, unless it shall have first delivered to each Buyer or a designee appointed by such Buyer written notice (the "Future Offering Notice") describing the proposed Future Offering, including the terms and conditions thereof, and providing each Buyer an option to purchase up to its Aggregate Percentage (as defined below) of the securities to be issued in such Future Offering, as of the date of delivery of the Future Offering Notice, in the Future Offering (the limitations referred to in this sentence is referred to as the "Capital Raising Limitations"). For purposes of this Section 4(e), "Aggregate Percentage" at any time with respect to any Buyer shall mean the percentage obtained by dividing (i) the aggregate number of the Preferred Shares initially issued and the Closing to such Buyer by (ii) the aggregate number of the Preferred Shares sold to the Buyers by the Company at the Closing in connection with the Offering. A Buyer can exercise its option to participate in a Future Offering by delivering written notice thereof to participate to the Company within five (5) business days after receipt of a Future Offering Notice, which notice shall state the quantity of securities being offered in the Future Offering that such Buyer will purchase, up to its Aggregate Percentage, and that number of securities it is willing to purchase in excess of its Aggregate Percentage. In the event that one or more Buyers fail to elect to purchase up to each such Buyer's Aggregate Percentage, then each Buyer which has indicated that it is willing to purchase a number of securities in such Future Offering in excess of its Aggregate Percentage shall be entitled to purchase its pro rata portion (determined in the same manner as described in the preceding sentence) of the securities in the Future Offering which one or more of the Buyers have not elected to purchase. In the event the Buyers fail to elect to fully participate in the Future Offering within the periods described in this Section 4(e), the Company shall have 90 days thereafter to sell the securities of the Future Offering that the Buyers did not elect to purchase, upon terms and conditions, no more favorable to the purchasers thereof than specified in the Future Offering Notice. In the event the Company has not sold such securities of the Future Offering within such 90 day period, the Company shall not thereafter issue or sell such securities without first offering such securities to the Buyers in the manner provided in this Section 4(e). The Capital Raising Limitations shall not apply to (i) a loan from a commercial bank which does not have any equity feature, (ii) any transaction involving the Company's issuances of securities (A) as consideration in a merger or consolidation, or (B) as consideration for the acquisition of a business, product, license or other assets by the Company, (iii) the issuance of common stock in a firm commitment. 31 underwritten public offering, (iv) the issuance of securities upon exercise or conversion of the Company's options, warrants or other convertible securities outstanding as of the date hereof, (v) the grant of additional options or warrants, or the issuance of additional securities, under any Company stock option plan, restricted stock plan or stock purchase plan for the benefit of the Company's employees or directors ((i) through (v) collectively, the "Exempt Issuances"). The Buyers shall not be required to participate or exercise their right of first refusal with respect to a particular Future Offering in order to exercise their right of first refusal with respect to later Future Offerings. f. Listing. The Company shall promptly secure the listing of all of the Registrable Securities (as that term is defined in the Registration Rights Agreement) upon each national securities exchange, automated quotation system or bulletin board system, if any, upon which shares of the Company's common stock are then listed (subject to official notice of issuance) and shall maintain, so long as any other shares of common stock shall be so listed, such listing of all Registrable Securities from time to time issuable under the terms of the Transaction Documents. The Company shall maintain the Common Stock's authorization for quotation on the Nasdaq National Market, Nasdaq Small-Cap Market, Nasdaq Bulletin Board System, The New York Stock Exchange, Inc. or The American Stock Exchange, Inc., as applicable (the "Principal Market"). Neither the Company nor any of its Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of Company common stock on the Principal Market. The Company shall promptly, and in no event later than the following business day, provide to each Buyer copies of any notices it receives from the Principal Market regarding the continued eligibility of Company common stock for listing on such automated quotation system or securities exchange. The Company shall pay all fees and expenses in connection with satisfying its obligations under this Section 4(f). g. Reservation of Shares. The Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than 200% of the number of shares of Company common stock needed to provide for the issuance of the shares of Company common stock upon conversion of all outstanding Preferred Shares and exercise of all outstanding Warrants. h. Issuance of Conversion Shares and Warrant Shares. The issuance of the Conversion Shares and Warrant Shares shall be duly authorized, and when issued in accordance with the Certificate of Designations or Warrants, as applicable, the Conversion Shares and Warrant Shares will be validly issued, fully paid and non-assessable and free of all taxes, liens, charges and preemptive rights with respect to the issue thereof. i. Limitation on Filing Registration Statements. The Company shall not file a registration statement (other than the Registration Statement (as defined in the Registration Rights Agreement) or a registration statement on Form S-8) covering the sale or resale of shares of Company common stock with the SEC during the period beginning on the date hereof and ending on the date which is 90 days after the Registration Statement has been declared effective by the SEC. j. Independent Auditors. The Company shall, until at least three (3) years after the Closing Date, maintain as its independent auditors an accounting firm authorized to practice before the SEC. k. Corporate Existence and Taxes. The Company shall, until at least the later of (i) the date that is three (3) years after the Closing Date or (ii) the conversion or redemption of all Preferred Stock and exercise of all Warrants purchased pursuant to this Agreement, maintain its corporate existence in good standing (provided, however, that the foregoing covenant shall not prevent the Company from entering into any merger or corporate reorganization as long as the surviving entity in such transaction, if not the Company, has common stock listed for trading on the Principal Market and shall pay all its taxes when due except for taxes which the Company disputes). 32 5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable instructions to its transfer agent (the "Transfer Agent"), and any subsequent transfer agent, substantially in the form of Exhibit B hereto (the "Transfer Agent Instructions") to issue certificates, registered in the name of each Buyer or its respective nominee(s), for the Conversion Shares or Warrant Shares, as applicable in such amounts as specified from time to time by each Buyer to the Company upon conversion of the Preferred Shares or exercise of the Warrants, as applicable. Prior to registration of the Conversion Shares and Warrant Shares under the 1933 Act, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that no instruction other than the Transfer Agent Instructions referred to in this Section 5, and stop transfer instructions to give effect to Section 2(f) hereof will be given by the Company to its Transfer Agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Registration Rights Agreement. Nothing in this Section 5 shall affect in any way each Buyer's obligations and agreements set forth in Section 2(g) to comply with all applicable prospectus delivery requirements, if any, upon resale of the Securities. If a Buyer provides the Company with an opinion of counsel, in a generally acceptable form, to the effect that a public sale, assignment or transfer of the Securities may be made without registration under the 1933 Act or the Buyer provides the Company with reasonable assurances that the Securities can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold, the Company shall permit the transfer, and, in the case of the Conversion Shares and Warrant Shares, promptly instruct its Transfer Agent to issue one or more certificates in such name and in such denominations as specified by such Buyer and without any restrictive legend. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyers by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 5, that the Buyers shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the Company hereunder to issue and sell the Preferred Shares and Warrants to each Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion by providing each Buyer with prior written notice thereof: a. Such Buyer shall have executed each of the Transaction Documents, where appropriate, to which it is a party and delivered the same to the Escrow Agent for the transactions contemplated by this Agreement; b. The representations and warranties of such Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and such Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to the Closing Date; and c. Such Buyer shall have delivered to the Escrow Agent such other documents relating to the transactions contemplated by this Agreement as the Escrow Agent may reasonable request. 33 7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of each Buyer hereunder to purchase the Preferred Shares and Warrants at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for each Buyer's sole benefit and may be waived by such Buyer at any time in its sole discretion by providing the Company with prior written notice thereof: a. The Company shall have executed each of the Transaction Documents and delivered the same to the Escrow Agent; b. The Company's common stock shall be authorized for quotation on the Principal Market and trading in Company common stock shall not have been suspended by the SEC or the Principal Market; c. The Certificate of Designations, shall have been filed with the Secretary of State of the State of Nevada, and a copy thereof certified by such Secretary of State shall have been delivered to such Buyer; d. The representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the Closing Date; e. The Company shall have delivered to the Escrow Agent the opinion of the Company's counsel dated as of the Closing Date, in form, scope and substance reasonably satisfactory to such Buyer and in substantially the form of Exhibit C attached hereto; f. The Company shall have executed and delivered to the Escrow Agent the Preferred Stock Certificates and Warrants (in such denominations as such Buyer shall request) for the Preferred Shares and Warrants being purchased by such Buyer at the Closing; g. The Transfer Agent Instructions, in the form of Exhibit B attached hereto, shall have been delivered to and acknowledged in writing by the Company's transfer agent and a copy of the executed Transfer Agent Instructions shall have been delivered to the Escrow Agent; h. The Company shall have made all filings under all applicable federal and state securities laws necessary to consummate the issuance of the Securities pursuant to this Agreement in compliance with such laws; i. As of the Closing Date, the Company shall have reserved out of its authorized and unissued common stock, solely for the purpose of effecting the conversion of the Preferred Shares and exercise of the Warrants, no less than 200% of the number of shares of Company common stock needed to provide for the issuance of the shares of Company common stock upon conversion of all outstanding Preferred Stock and exercise of all outstanding Warrants; j. The Company shall have delivered to the Escrow Agent such other documents relating to the transactions contemplated by this Agreement as the Escrow Agent may reasonably request; and k. Subject to Section 11(1) below, at Closing, the Company shall reimburse the Buyers for the Buyers' attorneys' fees and expenses (in an amount not to exceed $15,000.00) incurred by the Buyers concerning the due diligence review of the contemplated transactions and the Company, and the negotiation and preparation of the Transaction Documents and the consummation of the transactions contemplated thereby. 8. INDEMNIFICATION. 34 In consideration of each Buyer's execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of the Company's other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless each Buyer and each other holder of the Securities and all of their stockholders, officers, directors, employees and direct or indirect investors and any of the foregoing person's agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Indemnitees") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (c) any cause of action, suit or claim brought or made against such Indemnitee and arising out of or resulting from the execution, delivery, performance or enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (d) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities or (e) the status of such Buyer or holder of the Securities as an investor in the Company. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. 9. [RESERVED] 10. LIQUIDATED DAMAGES. The Company agrees that Buyers will suffer damages if the Company violates any provision of or fails to fulfill any of its obligations or duties pursuant to the Transaction Documents, other than the Registration Rights Agreement (a "Company Violation"), and that it would not be possible to ascertain the extent of such damages. Accordingly, in the event of such Company Violation, the Company hereby agrees to pay liquidated damages ("Liquidated Damages") to each Buyer following the occurrence of such Company Violation in an amount determined by multiplying (i) $2.00 per Preferred Share then held by such Buyer by (ii) the percentage derived by dividing (A) the actual number of days elapsed from the last day of the date of the Company Violation or the prior 30-day period, as applicable, to the day such Company Violation has been completely cured by (B) 30, in cash, or at the Buyer's option, in the number of shares of Company common stock equal to the quotient of (v) the dollar amount of the Liquidated Damages on the Payment Date (as defined below) divided by (w) the closing bid price of the Company's common stock as of the date of the Company Violation (as quoted in the Principal Market or the market or exchange where the Company's common stock is then traded). The Liquidated Damages payable pursuant hereto shall be payable within five (5) business days from the end of the calendar month commencing on the first calendar month in which the Company Violation occurs (each, a "Payment Date"). In the event the Buyer elects to receive the Liquidated Damages amount in shares of Company common stock, such shares shall also be considered Conversion Shares and shall have the registration rights set forth in the Registration Rights Agreement. 11. GOVERNING LAW: MISCELLANEOUS. a. Governing Law; Jurisdiction; Jury Trial. This Agreement shall be governed by and construed in all respects by the internal laws of the State of Illinois (except for the proper application of the United States federal securities laws), without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Illinois or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Illinois. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in the City of Chicago. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO 35 REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. b. Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. c. Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. d. Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. e. Entire Agreement; Amendments. This Agreement supersedes all other prior oral or written agreements between the Buyers, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and holders of at least two-thirds (2/3) of the Preferred Shares then outstanding, and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. f. Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: If to the Company: TrimFast Group, Inc. 777 South Harbour Island Blvd. Suite 260 Tampa, Florida 33602 Telephone: (813) 275-0040 Facsimile: (813) 275-0051 Attention: Michael Muzio With a copy to: Jeffery G. Klein, P.A. 23123 State Road 7 Suite 350B Boca Raton, Florida 33428 Telephone: (561) 470-9010 Facsimile: (561-470-9078 36 If to the Transfer Agent: Interwest Transfer Company, Inc. 1981 East Murray Holladay Road Suite 100 P.O. Box 17136 Salt Lake City, Utah 84117 Telephone: (801) 277-9294 Facsimile: (801) 277-3147 If to a Buyer, to it at the address and facsimile number set forth on Schedule 1 with copies to such Buyer's representatives as set forth on Schedule 1, or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party five days prior to the effectiveness of such change. g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Preferred Shares. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of holders of at least two-thirds (2/3) of the Preferred Shares then outstanding. A Buyer may assign some or all of its rights hereunder without the consent of the Company, provided, however, that any such assignment shall not release such Buyer from its obligations hereunder unless such obligations are assumed by such assignee and the Company has consented to such assignment and assumption. h. No Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. i. Survival. Unless this Agreement is terminated under Section 11(1), the agreements and covenants set forth in Sections 4, 5 and 11, the indemnification provisions set forth in Section 8 and the liquidated damages provisions set forth in Section 10 shall survive the Closing. Each Buyer shall be responsible only for its own representations, warranties, agreements and covenants hereunder. j. [Reserved]. k. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. l. Termination. In the event that the Closing shall not have occurred with respect to a Buyer on or before three (3) business days from the date hereof due to the Company's or such Buyer's failure to satisfy the conditions set forth in Sections 6 and 7 above (and the nonbreaching party's failure to waive such unsatisfied condition(s)), the nonbreaching party shall have the option to terminate this Agreement with respect to such breaching party at the close of business on such date without liability of any party to any other party; provided, however, that if this Agreement is terminated pursuant to this Section 11(l), the Company shall remain obligated to reimburse the nonbreaching Buyers for the expenses described in Section 7(i) above. m. Placement Agent. The Company acknowledges that it has not engaged any placement agent in connection with the sale of the Preferred Shares and Warrants. The Company shall be responsible for the payment of any placement agent's fees or broker's commissions relating to or arising out of the transactions contemplated hereby. The Company shall pay, and hold each Buyer harmless against, 37 any liability, loss or expense (including, without limitation, attorneys' fees and out of pocket expenses) arising in connection with any such claim. n. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. o. Remedies. Each Buyer and each holder of the Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. p. Payment Set Aside. To the extent that the Company makes a payment or payments to the Buyers hereunder or pursuant to the Transaction Documents or the Buyers enforce or exercise their rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. [Signature Page Follows] 38 IN WITNESS WHEREOF, the Buyers and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first written above. COMPANY: BUYERS: TRIMFAST GROUP, INC. CRANSHIRE CAPITAL, L.P. By: Downsview Capital, Incorporated, the General Partner By:_________________________ Name:_______________________ By:__________ Title:______________________ Name: Mitchell Kopin Title: President S. ROBERT PRODUCTIONS, LLC By:______ Name:____ Title:___ KEYWAY INVESTMENTS, LTD. By:______ Name:____ Title:___ THE DOTCOM FUND, LLC By:______ Name:____ Title:___ 39 SCHEDULE 1: LIST OF INVESTORS 40
Investor's Name Investor Address Purchase Number of Number of Investor's Legal and Facsimile Number Price Preferred Shares Warrant Representatives Shares Address and Facsimile Number - ----------------------- -------------------------- ----------- ---------------- --------- ---------------------- Cranshire Capital, L.P. 666 Dundee Rd., Ste. 1801 $500,010.00 5,000 74,627 Katten Muchin & Zavis Northbrook, IL 60062 525 W. Monroe Street Attn: Mitchell Kopin Chicago, Illinois 6066 (p) 847/562-9030 Attention: Anthony J. (f) 847/562-9031 Ribaudo, Esq. (p) 312/ 902-5521 (f) 312/ 577-8763 S. Robert Productions, 666 Dundee Road, Ste. 1801 $200,010.00 2,000 29,851 LLC Northbrook, IL 60062 Attn: Mitchell Kopin (p) 847/562-9030 (f) 847/562-9031 Keyway Investments Ltd. 19 Mount Havelock $500,010.00 5,000 74,627 Douglas, Isle of Man United Kingdom 1M1 2QG (p) 011-44-171-323-2131 (f) 011-44-171-323-0773 Attention: Martin Peters The dotCom Fund, LLC 666 Dundee Rd. $300,010.00 3,000 44,776 Northbrook, IL 60062 Attention: Mark Rice (p) 847/509-2290 (f) 847/509-2295
41 EXHIBITS Exhibit A Form of Registration Rights Agreement Exhibit B Form of Transfer Agent Instructions Exhibit C Form of Company Counsel Opinion Exhibit D Form of Warrant Exhibit E Form of Certificate of Designations, Preferences and Rights of the Series [A] Preferred Stock 42
EX-10.1 11 LEASE OPTION AGREEMENT EXHIBIT 10.1 LEASE OPTION AGREEMENT 11 EX-10.2 12 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): 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 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 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 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 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 (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. (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-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-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-10.3 13 INSERTION ORDER Online Media Planning & Buying Venture Direct Worldwide, Inc. INSERTION ORDER Salesperson: JW Date: 07/09/1999 Customer#: NUTTRI COMPANY: Nutritioncafe/Trim fast Contact: Address: FL Phone: (727) 723-3041/(813) 275-0050 Fax: (727) 724-8780 Space Reservation:
Schedule: Contracted IO# Media Vehicle Flight Quantity Rate Cost - --- ------------- ------ -------- ---- ---------- JW-907015 Microsoft Network 07/22/1999-07/21/2000 1 Flat $14,000.00 ---------- $14,000.00
Advertiser will receive the following keywords. These keywords are exclusive for the term of the contract: Vitamin Vitamins Supplement Supplements sports nutrition Advertiser should email all creatives (468x60. 10K) to [ILLEGIBLE].com no later than 7/9/99. Advertiser will pay net30= date of Venture Direct Invoice pending credit approval, otherwise, advertiser will prepay order. Advertiser will receive weekly reports via email. Publisher shall deliver all impressions evenly throughout the entire campaign. Publisher shall provide [ILLEGIBLE].com login and password to access reports online. If there is no online reporting, publisher will provide weekly reports and that rate should be specified beforehand by publisher. If publisher does not supply us with weekly reports on the established day, Venture Direct will deduct 5% of total net buy every day. Advertiser Salesperson JW Company Nutritioncafe/Trim fast Customer # - THE TERMS AND CONDITIONS STATED HEREIN SHALL TAKE PRECEDENCE OVER ANY OTHER CONDITIONS, AND NO CONTRARY, ADDITIONAL OR DIFFERENT PROVISIONS OR CONDITIONS SHALL BE ACCEPTED. TERMS AND CONDITIONS 1. Agency. Venture Communications International, Inc. t/a VentureDirect Worldwide acts solely as agent for the represented media sites and assumes no responsibility for any problems arising from the media placement. 2. WARRANTIES. VDW MAKES NO WARRANTIES (INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT).. GUARANTEES, REPRESENTATIONS, PROMISES, STATEMENTS, ESTIMATES, CONDITIONS OR OTHER INDUCEMENTS, EXPRESS, IMPLIED, ORAL, WRITTEN OR OTHERWISE EXCEPT AS EXPRESSLY SET FORTH HEREIN. VDW DOES NOT WARRANT OR GUARANTY CONVERSION RATES, PAY-UP RATES, RESPONSE RATES OR ABILITY TO CONVERT THE RESPONSES INTO SALES. VDW DOES NOT WARRANT OR GUARANTY THE PROFILE OR DEMOGRAPHICS OF A RESPONDENT. VDW DOES NOT GUARANTEE TO MATCH COLORS, TEXT, PHOTO IMAGE OR SCREEN DESIGN.. ALL ORDERS ARE CONTINGENT UPON VDW'S ABILITY TO PROCURE NECESSARY ON-LINE ACCESS AND UPON DELAYS CAUSED BY ACCIDENTS, WAR, ACT OF GOD, EMBARGOES, OR ANY OTHER CIRCUMSTANCES BEYOND ITS CONTROL. VDW WILL MAKE EVERY EFFORT TO MEET SCHEDULED DELIVERY AND ONLINE DATES, BUT MAKES NO GUARANTEE AND ACCEPT NO LIABILITY FOR ITS FAILURE TO MEET SAID DATES. 3. Cancellations. No cancellations can be accepted after the 15th day of the month prior to the month of publication. 4. Confirmations. All telephone orders and/or orders placed on Advertiser/Agency correspondence must be confirmed by VDW in writing by this Insertion Order. Acceptance of all such orders is expressly conditioned upon acceptance by Advertiser/Agency of the terms and conditions contained herein. The Advertiser and Agency agree that VDW may refuse at any time to print or mail any copy, photographs or illustrations of any kind that in its sole judgment it believes is an invasion of privacy, is degrading, libelous, unlawful, profane, obscene, pornographic, tends to ridicule or embarrass or is in bad taste, or which in its sole judgment is an infringement on a trade mark, trade name or copyright belonging to others. 5. Liability. There shall be no liability or responsibility on VDW for any damages, direct, indirect or consequential as a result of its failure to perform the services under this Agreement. In no event shall VDW be responsible for any loss of profits, damages or other expenses alleged to have arisen out of this Agreement. Any and all claims in this respect are expressly waived. VDW liability, if any, in all other cases shall be limited to $500.00. Advertiser/Agency agree and do waive trial by jury in any action, proceeding or counterclaim brought against VDW for any matters whatsoever arising out of or in any way connected with this Agreement. No action, suit or proceeding shall be brought against VDW more than one year after the date of service performed. 6. Terms of Payment. All charges hereunder shall be invoiced and payment is due upon receipt. Agency and Advertiser shall be joint and severally liable for all invoices. Any and all sales, use or other taxes shall be the responsibility of Advertiser/Agency. Advertiser and Agency agree to pay the cost of extra composition and labor when changes are made after proofs are submitted. Payment due on closing date for First Time Advertisers. 7. Late Charges. In the event Advertiser/Agency fail to pay any charges or invoices provided for herein within 30 days when due, all such outstanding charges and invoices shall be subject to a service charge of 1-1/2% per month until paid in full. Advertiser/Agency agree to pay all costs of collection, including reasonable attorney's fees of 25%, incurred by VDW in connection with this order or in any action or proceeding against Advertiser/Agency for a breach of this Agreement. 8. Indemnification. Advertiser/Agency shall at all times indemnify and hold VDW harmless, our successors and assign and any of our officers, directors, employees, representatives and/or agents or each of them from and against any and all liabilities, obligations, claims, damages, fines, penalties, interest, taxes, causes of action, costs and expenses, including, without limitation, reasonable fees and disbursements of counsel imposed upon or asserted against or incurred by us in any suit, action or proceeding (including 10. Miscellaneous. Any provision of this instrument prohibited by law in any state shall, as to such state, be ineffective to the extent of such prohibition, without invalidating the remaining provisions of this instrument. This Agreement shall be deemed to have been executed in the State of New York and shall be governed and construed in accordance with the laws thereof. Advertiser/Agency hereby acknowledge, consent and submit solely to the jurisdiction of the Federal Court, Southern District of New York or New York Supreme or Civil Court, County of New York for resolution of any and all claims or controversies arising hereunder and appoints the Secretary of State of New York State as its agent for service of process herein. 11. Approvals: All offers are subject to Media Site Owner approval. All requests for credit must be personally guaranteed by signing the guaranty below. PERSONAL GUARANTY In consideration of the extension of Credit heretofore or hereafter made to or for the Advertiser and/or Agency named herein, the undersigned (Guarantor) hereby unconditionally, irrevocably and indivisibly guaranties to VDW the due and punctual payment and peformance of all monies or other claims of every nature and description of VDW against Advertiser and/or Agency, and all extensions, renewals or refinancing thereof, whenever due and payable or to be performed, all expenses of the enforcement of same or the Guaranty, including reasonable attorneys' fees. The Supervisor hereby expressly waives all notices to which the Guarantor might otherwise be entitled in connection with the Guaranty, and trial by jury and the right thereto in any action or proceeding of any kind or nature, arising on, under or by reason of, relating in any way to, the Guaranty. The terms and conditions stated above shall be binding on Guarantor. ---------------------------------------- GUARANTOR DATE ---------------------------------------- PLEASE PRINT NAME CONFIRMATION OF ORDER The Undersigned (Advertiser and Agency) hereby purchases advertising from Venture Communications International, Inc. t/a VentureDirect Worldwide ("VDW") pursuant to the Terms and Conditions contained above and on the reverse side hereof. All requests for information from the media placement must be responded to within 48 hours. Payment must be received 20 days before media schedule date to ensure timely placement. Mail your check (payable to VentureDirect), insertion order and camera-ready art to: VentureDirect Worldwide, Inc. 60 Madison Avenue New York, New York 10010 Peter Lloyd President ---------------------------------------- PRINT NAME TITLE /s/ Peter Lloyd 6/29/99 ---------------------------------------- SIGNATURE DATE
EX-10.4 14 DISTRIBUTION AGREEMENT EXCLUSIVE DISTRIBUTOR AGREEMENT 1. PARTIES The parties to this Distributer Agreement are: TrimFast Group, Inc. (Hereinafter "Distributor") [ILLEGIBLE] South Harbour Island Blvd. Suite 260 Tampa, FL 33602 And IMMMU Inc. (Hereinafter "Manufacturer") [ILLEGIBLE] E. l8th Street Brooklyn N.Y. 11230 II. COMMENCEMENT This Distributor Agreement shall commence on the 1st day of November 1999. III. TERM This Distributor Agreement shall commence on the 1st day of November 1999 and expire on the 31st day of December 2001. This contract will automatically renew if the following new minimums monthly sales are met. See Section V E. IV. PURPOSE Manufacturer desires to appoint TrimFast Group Inc. as the Distributor on an exclusive basis for the country of Canada and the Distributor desires to accept such appointment. Distributor Agreement Page Two V. AGREEMENT In consideration for the mutual agreements and promises Manufacturer and Distributor agree as follows: A Manufacturer agrees to allow Distributor to market Manufacturer's products directly to distributors, wholesalers and retailers under the pricing structure designated by Manufacturer during the term of this agreement. B Distributor shall keep Manufacturer informed as to the general conditions, which pertain to or affect the sale of its products. C Distributor shall have the responsibility for the sale and distribution of all products, whether through a line extension or acquisition. D Distributor will serve as an independent contractor responsible for paying all applicable social insurance, withholding, and other employment taxes. The Distributor bears all expenses incurred in its sales endeavors. Excluding certain expenses that Manufacturer agrees to pay prior to any commitment being made. Said Manufacturer expense to be approved in writing. E Manufacturer shall furnish Distributor with all necessary sales supplies such as catalogs, price lists, and other sales aids in sufficient quantity to fulfill the requirements of the territory, at no charge, Distributor Agreement Page Three unless mutually agreed upon in writing. In addition, Manufacturer shall furnish adequate samples to Distributor. Such samples shall remain the property of Manufacturer. Except in the case of unsolicited samples or samples which are expendable or of insufficient value. Distributor shall exercise reasonable care in accounting for all samples furnished and will return such samples to Manufacturer or dispose of them at prices set by Manufacturer remitting any proceeds to Manufacturer, at its direction F Distributor will receive a 2% volume discount (in product) on all purchase orders, to be used for samples and demos. G Distributor will make no representations, warranties, or commitments binding Manufacturer without Manufacturer's prior consent, other than standard terms of the sale. H. Manufacturer agrees to indemnify and hold harmless Distributor from any loss, damages, claim or settlement that may arise out of any defect, known or unknown, in the product at the time of manufacture. That is, provided that no material alteration of the product by Manufacturer's Representative, its officers, agents, or employees contributed to or caused the loss, damage, claim or settlement in question. I. Distributor agrees to aggressively and vigorously market and promote the product to all existing and potential customers. J. Distributor will make no representations, warranties, or commitments binding Manufacturer without Manufacturer's prior consent, other than standard terms of the sale. K. Distributor agrees to indemnify and hold Manufacturer harmless from any loss, damages, claim or settlement arising from the misrepresentation of Distributor, its officers, agents or employees in the marketing and promotional activities of Distributor. L Manufacturer retains the right to approve any marketing materials containing its product logos, designs, trade names etc. The Manufacturer's trade names, product and designs remain the sole property of Manufacturer. Distributor Agreement Page Four VI. TERMINATION Either party hereto may terminate this Distributor Agreement on thirty-day's written notice to the other party. If said termination is occasioned by a breach of or default in performance of any obligation contained herein, the defaulting party shall be afforded 30 days from default notice to cure such default. Cure includes payment to the other party of all reasonable expenses incurred as approximate result of such default. VII. ENTIRE AGREEMENT This Agreement constitutes the entire agreement between the parties concerning the subject matters hereof and supersedes any prior agreements or understandings respecting such subject matter. Any modification of this Agreement must be in writing and executed by both parties to this Agreement. The parties agree that the terms and conditions of this Agreement shall remain confidential during its term and for a period of ninety (90) days thereafter. All notices or other communications which are required or which may be given pursuant to the terms of this Agreement shall be in writing and shall be delivered personally (and receipted for) or by registered or certified mail, postage prepaid, return receipt requested. Any such notice shall be deemed effective when personally delivered of five (5) days following its deposit in the United States mail as specified. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and permitted assigns. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida. In case of any dispute under this Agreement, the parties agree to the jurisdiction of the Florida court with venue in Hillsborough County, Florida. In the event of any dispute arising under this Agreement, the prevailing party shall be entitled to recover all costs including reasonable attorney's fees. Distributor Agreement Page Five If any provision of this Agreement is for any reason determined to be invalid or unenforceable, such determination shall not affect the validity or the enforceability of any other provision hereof. SIGNED and AGREED TO this 1 day of November 1999 --- ---------- Distributor TrimFast Group Inc. By: Michael J. Muzio President /s/ Michael J. Muzio -------------------- Signature Manufacturer Immmu Inc.. By: Leo Ehrlich CEO/President -------------------- Signature EX-21 15 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT Body Life Sciences, Inc., a Florida corporation Nutrition Cafe, Inc., a Florida corporation Trimfast, Inc., a Florida corporation HLHK World Group, Inc., a Nevada corporation 15 EX-27 16 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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